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The Hera Research Newsletter (HRN) is proud
to present a vitally important interview with Hugo Salinas-Price, Founder,
Director and Honorary President of Grupo Elektra, S.A.B. de C.V.,
which is now run by his son, Ricardo Salinas-Pliego.
Grupo Elektra is a part of Grupo Salinas,
which owns businesses in the television industry, the telecommunications
sector, banking and financial services, and other industries. Grupo Salinas companies include TV
Azteca, Azteca América, Grupo
Elektra, Banco Azteca, Afore Azteca, Seguros Azteca, Iusacell,
Azteca Internet, GS Motors and Italika y la Asociación del Empresario
Azteca. Each of the Grupo Salinas companies
operates independently, with its own management and board of directors.
Born in 1932, Mr. Salinas-Price became a
follower of Austrian economics at a young age and is the author of three
books and of numerous articles, both in Spanish and in English, on the use of
silver as legal tender in parallel with paper money.
Mr. Salinas-Price serves as President of
the Asociación Cívica
Mexicana Pro Plata A.C. (Mexican Civic Association for
Silver), which promotes the use of silver as legal tender in México.
Mr. Salinas-Price is an outspoken proponent of sound financial and monetary
policies in the country of México.
Hera
Research Newsletter (HRN): Thank you for joining us today.
Would you tell our readers about your efforts to make silver coins legal
tender in México?
Hugo
Salinas-Price: México is the first and only country where we
have a Congress that is conscious of an alternative to paper money and that
is favorable to it. México is the only country where this type of
reform is being contemplated at the national level. The rest of the world is
stagnating completely in the morass of un-backed paper money without
considering any alternative.
HRN:
Why do you think that’s the case?
Hugo
Salinas-Price: We had, not too long ago, the experience of severe
inflation in México. I used to graph the inflation but to keep that
graph on the same scale I’d have to have a roll of paper hundreds of
yards high. That’s what’s facing the United States right now. The
U.S. is doing the same thing that México did, even worse.
HRN:
Can you comment on the Utah Legal Tender Act?
Hugo
Salinas-Price: The Utah Legal Tender Act was heralded with optimism
and any effort to recognize gold and silver as money is praiseworthy, but it
falls short because simply making gold and silver coins legal tender gives
them no stable value that will be recognized by everybody.
HRN:
Do you mean the value of the coins fluctuates, like a commodity, with
metals prices?
Hugo
Salinas-Price: Yes. In order for something to work on a large
scale, it has to be very simple. In 1979 the President of México,
José López Portillo y Pacheco, had a
one ounce silver coin declared legal tender and asked the central bank to
assign it a monetary value. The trouble was that the value was not stable.
One day the value was X then, the
next day, it was X minus a few
pesos and the day after that it was X
plus a couple of pesos. This created a great deal of confusion and the law
was allowed to lapse. The mistake was that the monetary value wasn’t
stable.
HRN:
And that’s an issue for the Utah Legal Tender Act?
Hugo
Salinas-Price: Yes. It’s almost as if gold and silver were
not monetized.
HRN: So,
people who buy gold or silver coins are merely speculating on metals prices?
Hugo
Salinas-Price: In México the majority of
people are poor and cannot afford to speculate. If they buy a coin for
500 pesos and it goes down to 480 pesos and they’ve lost 20 pesos,
that’s a lot to them. That is why there is relatively little silver in
the savings of the Mexican people. People are afraid of speculating. They
can’t afford to speculate.
The
Asociación Cívica
Mexicana Pro Plata, based in México City, is actively lobbying
the Mexican Congress to institute a new, one ounce silver
“Libertad” coin with no
engraved monetary value as legal tender in México. Making silver
legal tender will provide a stable store of value for Mexican citizens to
save money so that savings cannot be destroyed by inflation.
To prevent
savers from becoming speculators on metals prices, the monetary value, in
Mexican pesos, of the new silver Libertad coin will be set by the Banco de México slightly higher than the commodity
price of silver. The monetary value of the new silver Libertad coin can be
raised by the Banco de México if the price
of silver rises, but must remain fixed
if the price of silver falls.
HRN: Precious
metals prices seem to be extremely volatile.
Hugo
Salinas-Price: Of course, volatility is constantly reported. They
never talk about the fact that silver has gone up seven times in the last
twelve years because of inflation. Volatility in gold and silver is
artificially induced precisely to scare off savers. It’s really very
cruel, but that’s central banking for you.
HRN: Are
you saying that central banks actively discourage people from exiting fiat
currencies?
Hugo
Salinas-Price: Of course.
HRN: Can monetizing silver work?
Hugo
Salinas-Price: Unless the value of a legal tender coin is stable it
cannot be used as money. It has to be given a firm value. What we are
proposing is that the quote from the central bank be a stable quote. The
value of the new one ounce silver Libertad coin will remain fixed unless the
price of silver rises to a point where the value should be increased. The
Utah Legal Tender Act does not address this. It has to be done at the federal
level, not at the state level.
HRN: But what
will happen if the price of silver falls?
Hugo
Salinas-Price: Nothing will happen. If the silver coin is valued at
500 pesos and the price of silver falls, it’s still worth 500 pesos.
HRN: Won’t
that encourage speculation?
Hugo
Salinas-Price: A speculator might sell his silver coins if the
price of silver falls and perhaps invest in silver bullion, but speculators
are a small number of people. The majority of people would keep the coins
because they are better than a 500 peso paper note.
HRN: So,
people would hoard silver coins?
Hugo
Salinas-Price: That’s right. They would have savings.
That’s the important thing. We need people to get off the drug habit of
constant spending. People have to save again.
HRN: You
want to encourage saving?
Hugo
Salinas-Price: Absolutely. What we want is to create a refuge where
those who can save—the middle class—can do so in a medium that
will retain its purchasing power. There is no safe harbor for the middle
class today. The middle class is being financially raped and decimated.
HRN: Do
you believe the same thing is happening in the U.S.?
Hugo
Salinas-Price: Yes. The U.S. needs a law like this too.
HRN: Is
saving the foundation of small businesses, jobs and of the middle class?
Hugo
Salinas-Price: Of course. The withering away of the middle class is
a terrible situation for the economy.
HRN: What
is the current status of the Mexican legal tender legislation?
Hugo
Salinas-Price: In México we have a Congress that is quite
well aware of the importance of this legislation and it has broad support
both in the Senate and in the Chamber of Deputies, which is like the House of
Representatives in the U.S. The idea is well understood and approved, but
there is a problem.
HRN:
What is the obstacle?
Hugo
Salinas-Price: Under our party system, members of Congress rely on
the guidance of the party leaders. If they fall into disfavor with their
party leader, they will be denied the benefits that the party leader is
authorized by law to distribute. The three most important party leaders are
under great pressure from the central bank, Banco
de México, to prevent party members from voting in favor of this
measure.
Excerpt from
the bill awaiting a vote in the Mexican Congress:
“In order to palliate the financial crisis and the economic
recession, central banks and governments have reacted by injecting more
liquidity and credit; these actions have intensified the causes that provoked
the instability, further weakened the whole system, caused a world crisis of
deficits and sovereign debt and further increased penury and scarcity in the
majority of the population.
These “rescues” and emergency repairs have succeeded in
prolonging for some additional months the life of the financial system, but
they will cause its collapse to be much more dramatic and painful. The
International Monetary Fund has itself warned that “the risk of a
double recession has increased” (IMF Report, June 1, 2010).
For families, the inflationary rise in prices, the evaporation of
savings and the loss of purchasing power are causing a distressing situation
of tightness and anxiety which are depressing and negative for interpersonal
relations, as well as setting up a vicious circle of want and scarcity.
The ultimate origin of the financial and economic problems of today
dates to August 1971 when real money – backed by precious metal –
was substituted by fictitious money, which can be issued exorbitantly because
it consists of nothing other than paper and computer digits.”
HRN: Banco de
México is blocking the legislation?
Hugo
Salinas-Price: If it wasn’t for the central bank, this
measure would have passed a long time ago. The party leaders are afraid to
jeopardize their careers by becoming enemies of the central bank.
HRN:
What do you think might change the situation?
Hugo
Salinas-Price: The Congressional Finance Committee will hold a
hearing this month, before the Congress goes into recess, to hear the
objections of the central bank. It is possible they may decide that the
objections are not materially important and they may approve the bill. In
that case, the bill will be sent to the house for a vote. The party leaders
will be able to vote for the bill if the Committee approves the law.
HRN: Do
you think it will pass if the Finance Committee approves it?
Hugo
Salinas-Price: We would be hesitant to submit the bill to a vote
without assurances from the party leaders that they will give it a green
light.
HRN: If
México passes this law, do you think other countries in Latin America
will follow México’s example?
Hugo
Salinas-Price: Yes. I think they would and they would do it soon
after.
HRN:
Thank you for being so generous with your time.
Hugo
Salinas-Price: I hope what I’ve said will be of some use.
After Words
With the encouragement of Hugo Salinas-Price, the
country of México may become the first country to provide its citizens
with a guaranteed store of value. Enabling citizens to save hard money
offsets the inflationary power of the central bank and protects the savings
of ordinary people from financial system turmoil and profligate government
policies. Savings represents capital formation and capital, in the hands of
ordinary citizens, is the foundation of small businesses, jobs and of the
middle class. Without savings, there can be no middle class. A strong middle
class is a fundamental requirement for higher living standards and for a
strong and vibrant economy. Without a middle class, the overall wealth of
society is reduced, upward mobility evaporates and the economy becomes less
resilient. While the United States seems to be heading in the direction of a
3rd world country, México may soon lead the way to a brighter future
for the Mexican people and for Latin America.
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