Monday, January 24, 2011

Utah Could Use Gold, Silver Under Sound Money Act

By Alex Newman
The New American
Thursday, January 20, 2011

In light of the U.S. dollar’s continual loss of purchasing power and the historical stability of precious metals as a store of value, a new bill set to be considered in the Utah legislature would require the state government to accept taxes and pay its obligations in gold or silver upon demand.

Under the proposed legislation, introduced late last year for the upcoming legislative session, the state government would be authorized to collect and return taxes and fees in precious metals. Additionally, Utah’s government could use gold and silver in connection with any intrastate transaction. But of course, it would be entirely up to citizens whether they preferred to use precious-metals coins or U.S. dollars backed by nothing.

The legislation, referred to as "The Utah Specie Tender Act of 2011" or “The Sound Money Act,” recognizes that the U.S. Constitution says no state shall make anything but gold and silver coin a tender in payment of debts. It also notes that Congress granted an “exclusive franchise to the privately owned Federal Reserve Bank, acting as the central bank of the nation, to issue Federal Reserve Notes as legal tender of the United States.”

Since the central bank came into existence in 1913, the bill points out that Federal Reserve Notes (what Americans today call dollars) have lost more than 90 percent of their purchasing power. Meanwhile, during that period “as well as throughout the entire course of recorded human history, gold and silver coin have reliably retained their purchasing power,” the legislation notes.

Since sound, constitutional money which retains its value is important to the people of Utah, the economy and the state government, the circulation of gold and silver coin in the state “vitally affects the public interest,” the bill states. And so, if passed, the government could deal in American Eagles, U.S. coins minted before the silver was removed, coins privately minted in Utah, or certain gold and silver coins produced by a small list of foreign governments.

Under the proposed law, the Utah Treasurer would be required to regularly calculate and publish the state’s exchange rate between precious metals and Federal Reserve Notes. “Specie Exchange rates should be set so as to achieve the wide use and circulation of gold and silver coin in the course and scope of Utah Intrastate Commerce, especially with respect to the collection of taxes and fees by Utah Governmental Entities.” Of course, the state’s exchange rates would not affect private transactions except for purposes of calculating tax liability.

The bill also explicitly ensures the protection of privacy, making clear that gold and silver holdings are not subject to disclosure requirements without a lawful warrant. It exempts gold and silver from capital gains, sales, and property taxes as well. The state’s metals would be protected by a reconstituted Utah Self Defense Force.

Sound money advocates immediately pounced on the proposal. Digital Gold Currency magazine, for example, recently published the bill in its entirety.

Rep. Ron Paul (R-Texas), the new chairman of the domestic monetary policy subcommittee in Congress, also praised the Utah proposal and its author. He said the bill and similar efforts in states around the country “highlight the importance of returning to sound money. Even if such efforts fail to achieve legislative success on their first try, their importance lies in bringing to the public's attention the problem of the ever-weakening dollar and the necessity of returning to a sound monetary system."

States’ rights advocates also applauded the plan. In a piece entitled An Idea Whose Time Has Come, Utah Tenth Amendment Center coordinator Connor Boyack wrote that the bill would “increase the liberty of each individual to determine how they would like to engage in commerce, and with what currency. On what rational grounds can an idea like this be opposed?”

Acknowledging that the bill may not be perfect yet, he said that it was important to back it anyway. “Considering the state of the dollar, the liberty-suppressing imposition of legal tender laws, and the stranglehold over commerce (interstate or otherwise), this idea is one whose time is come … For the sake of our liberty — even if you have no desire to use gold or silver — this bill should be supported by all Utahns who have the remotest of concerns about preserving our wealth and staving off financial ruin.”

But despite widespread praise for the proposal, Utah’s establishment media blasted the idea in a recent editorial. “The 2011 session of the Utah Legislature is looking like uncommonly fertile ground for crackpot ideas,” wrote the Salt Lake Tribune in an editorial, calling the sound-money bill the “most outrageous scheme to surface yet.”

Claiming that the steady dollar devaluation is no big deal because “that’s how markets work” when money can be easily transferred and “governments employ fiscal and monetary policy to manage their economies,” the piece proceeds to claim that the proposal is unconstitutional because states can’t coin money. Perhaps the editorial board did not read the legislation, because nowhere does it order or even suggest that the state government coin anything.

“Utah can’t secede from the Union, and it shouldn’t try to secede from the federal currency, either,” the editorial board wrote, again forcing readers to wonder if they had actually read the bill. In fact, the legislation specifically states that Federal Reserve Notes would still be legal tender in Utah, and that nobody can be compelled to accept or pay in gold or silver.

However, the paper did publish a response — well, most of it anyway — from the bill’s author, Citizens for Sound Money founder Larry Hilton, a Utah attorney and businessman who is also working on developing the “Utah Golden Parachute.” In his response to the paper’s attack, entitled Tribune got it wrong on gold for goods, Hilton wrote that “pointing to the rise in the price of gold without acknowledging the unprecedented expansion in the U.S. money supply, which more than doubled over the time period cited, came off as either disingenuous or embarrassingly ill-informed.”

He also noted that the bill’s passage “could actually become the best thing to happen to the U.S. dollar since 1965. If embraced by even a small, critical mass of the citizenry, it might well begin the process of putting the brakes on our national leaders’ very bad, very dysfunctional habit of creating gobs of money out of thin air whenever they feel the need to further fund the pitiful welfare/warfare state they envision for America. I wonder if The Tribune’s luminaries have ever considered that perhaps the sanity that sound money brings might arrest today’s global flight from the U.S. dollar as the world’s reserve currency?”

In a telephone interview with The New American, Hilton said that “generally speaking, we’ve had a very, very good reception at all of our discussions” about the bill with state legislators. The public reaction has also been “very positive,” he said.

“To me, the best road back to a really well-functioning monetary system is through the states, and through the states exercising their monetary power as articulated in Article I, Section 10 of the [U.S.] Constitution to make nothing but gold and silver coin a payment in tender of debts,” Hilton added. “If each of the states — or even just a small handful — do what we’re contemplating here in Utah, I think it would have a very positive impact on the dollar itself,” not to mention the countless other benefits ushered in by competition.

When contacted by The New American, Sound Money Act sponsor Rep. John Dougall suggested contacting Hilton for information on the bill.

While Utah legislators prepare to consider the currency legislation during the next session beginning in less than a week, a bill introduced in the Virginia legislature would create a subcommittee to study sound money options in anticipation of a total collapse of the U.S. dollar and the Federal Reserve System which (mis)manages it.

And as state legislatures slowly start to take notice of the dollar‘s flaws — at least 10 have recently considered or introduced gold-as-currency bills, so far — the rest of the world is already preparing for the dollar’s impending doom. The old fiat monetary order, if international institutions and leaders get their way, will be replaced with a new world fiat currency managed by a global central bank in the not-too-distant future. Americans, meanwhile, will face the consequences.

Reprinted with permission.

For further reading:
"Sound Money Rings True" (video), Utah Sound Money, January 22, 2011

Sunday, January 23, 2011

Bitcoin - a Step Toward Censorship-Resistant Digital Currency

By Rainey Reitman
Electronic Frontier Foundation
Thursday, January 20, 2011

A few weeks ago, we mentioned a rather unusual technological endeavor to create an online currency. We received a few queries about this subject, so decided to provide a more thorough description of what digital currency is, how this system works, why it's appealing and how it might fall short of user expectations.

To understand digital currency, one must first note that money in the digital age has moved from a largely anonymous system to one increasingly laden with tracking, control and regulatory overhead. Our cold hard cash is now shepherded through a series of regulated financial institutions like banks, credit unions and lenders. Bitcoin, created in 2009 by Satoshi Nakamoto, is a peer-to-peer digital currency system that endeavors to re-establish both privacy and autonomy by avoiding the banking and government middlemen. The goal is to allow individuals and merchants to generate and exchange modern money directly. Once the Bitcoin software has been downloaded, a user can store Bitcoins and exchange them directly with other users or merchants — without the currency being verified by a third party such as a bank or government. It uses a unique system to prevent multiple-spending of each coin, which makes it an interesting development in the movement toward digital cash systems.

The model proposed by Bitcoin is in many ways a response to some of the privacy and autonomy concerns surrounding our current financial system. Current money systems now increasingly come with monitoring of financial transactions and blocking of financial anonymity. A peer-to-peer currency could theoretically offer an alternative to the bank practices that increasingly include sharing information on their customers who don't actively opt-out, and who may even then be able to share data with affiliates and joint marketers. Bitcoin is particularly interesting in the wake of recent events that demonstrated how financial institutions can make political decisions in whom they service, showcased by the decisions of PayPal, Visa, Mastercard and Bank of America to cut off services to Wikileaks. Bitcoin, if it were to live up to the dreams of its creators, might offer the kind of anonymity and freedom in the digital environment we associate with cash used in the offline world.

But Bitcoin's current implementation won't resolve all of the issues surrounding autonomy and privacy. Notably, the anonymity on Bitcoin is not entirely secure at this time, which makes its merits as a more private form of currency tenuous at best. There are also other weaknesses to the system, some significant, which should be understood before using Bitcoin. And as of this writing, Bitcoin can't be used to donate to Wikileaks. But even more important than these concerns is the fact that governments around the world may raise legal issues with any digital cash scheme — ranging from money laundering to tax evasion to a range of other regulatory concerns. Nonetheless, Bitcoin is an intriguing project and worth watching to see how it develops in the coming years.

While Bitcoin is relatively young, digital currencies have been around a long time. Digicash, released in 1994, is considered a pioneer of electronic cash using cryptography to maintain anonymity. The Ripple currency project relies on interpersonal relationships to allow communities to create their own money systems (which is similar to the Local Exchange Trading System). There is also the anonymous digital cash system eCache, which can only be accessed via the anonymous onion routing network Tor. There are also numerous other digital money projects that have been proposed over the years; Bitcoin is just the newest chapter in the ongoing effort to create wholly digital currency.

Bitcoin is not challenging to use. Anyone can go online and start generating Bitcoins. The computer creates a coin by dedicating CPU power to solving a mathematical problem; every time the problem is solved, a Bitcoin is generated and another problem is offered up. The total number of Bitcoins will approach 21,000,000 over time. Learn more.

Perhaps the most interesting dimension of the Bitcoin project is its unorthodox approach to fraud prevention. Traditional currency systems have relied on trusted third parties to verify that the same unit of currency is not exchanged multiple times. For example, when you make a purchase with your credit card, the credit card company adjusts your available balance. Bitcoin addresses this problem without a third party by making all transactions public. As Bitcoin developer Gavin Andresen explained, every coin has a digital signature attached to it for every transaction that takes place; each time the coin is exchanged, another signature is added. If two coins appear identical, the one that was accepted by the Bitcoin network first is considered valid. Even though the transactions are public, the individuals tied to the transactions are anonymous. This is similar to how the stock exchange makes stock values public without disclosing individual owners. See the technical paper: Bitcoin: a Peer-to-Peer Electronic Cash System.

It's too early to say whether Bitcoin will be a success. Any new currency system faces an uphill battle, both technically and legally. The worth of Bitcoins, if the system ever gets wide adoption, will be based on an ever-fluctuating market value. Merchants will need to accept Bitcoins as a placeholder for goods and services, just like any other form of currency. This has been a barrier to other digital cash options historically, so it's difficult to know whether Bitcoin will be better prepared to face these challenges. But many believe that there's a need for decentralized currency system, and Bitcoin certainly is a step toward censorship-resistant digital currency. Bitcoins can already be used to make purchases and can even be donated to a few of your favorite charities — including EFF.

Saturday, January 22, 2011

Virginia Considers Dollar Collapse, Gold Currency

By Alex Newman
The New American
Tuesday, January 18, 2011

In a stark illustration of the economic fears still plaguing America, a resolution was introduced in the Virginia legislature on January 12 that would create a subcommittee to officially consider the adoption of an alternative currency in case of a total breakdown of the U.S. dollar and the Federal Reserve System.

If the dollar loses its status as the world reserve currency, which appears increasingly likely, the U.S. economy will suffer devastating consequences caused by the resulting hyperinflation — especially since America imports most of its oil. And with the world’s most prominent international institutions and leaders predicting and even calling for an end to dollar hegemony, as well as the creation of a world currency controlled by a global central bank, the time for states to take notice and prepare may be now or never.

The Virginia resolution, introduced by Republican Delegate Robert Marshall, begins with the premise that the state government has a responsibility to protect the lives and property of its citizens. To fulfill that mission requires proper state finances and a “robust private economy,” both of which necessitate a “sound currency.”

And according to the bill, the current monetary and banking systems — revolving around the Federal Reserve — might not be able to provide the stability necessary for a prosperous economy and well-functioning state government. Not for long, at least. The present systems “have come under ever-increasing strain during the last several years, and will be exposed to ever-increasing and predictably debilitating strain in the years to come.”

On top of that, the legislation points out, many prominent authorities are predicting the “inevitable destruction of the Federal Reserve System's currency through hyperinflation in the foreseeable future.” So if and when the widely anticipated monetary calamity arrives, without prior preparations, the state’s finances and the private sector would be “thrown into chaos.”

Of course, such a scenario would have “gravely detrimental effects upon the lives, health, and property of Virginia's citizens, and with consequences fatal to the preservation of good order,” the resolution warns. And those effects can only be avoided or minimized with the rapid adoption of an alternative sound currency, according to the proposal.

The bill also notes, citing experts, that the dollar’s lack of precious-metals backing is one of the major reasons — if not the primary one — for the central banking system’s ever-worsening instability. It also explains that the U.S. Constitution forces all states to make gold and silver a tender in payment of debts, even citing a Supreme Court ruling which recognizes that states may use whatever currency they choose in performing their sovereign functions — despite the fact that Congress decreed Federal Reserve Notes to be “legal tender.”

The alternative currency, if adopted, would not lead to a ban on the use of Federal Reserve Notes — it would merely provide another option, sparking desirable competition without further destabilizing the current fiat-money regime. But as the bill points out, “the United States Congress, the U.S. Department of the Treasury, and the Federal Reserve System have taken and are preparing to take no action to provide the United States with an alternative to the Federal Reserve System's currency, in the likely event that the latter would be destroyed through hyperinflation.”

Since Virginia legislators know or should know all of this already, and because the state has the ability and the duty to do something about the situation — even without approval from Congress — “the citizens of the Commonwealth will properly conclude that the members of the General Assembly will be primarily responsible if the Commonwealth is found to be without an alternative currency when the Federal Reserve System's currency collapses in hyperinflation, or some other related economic calamity supervenes,” the bill warns.

Of course, legislators in Virginia are not alone in their concerns about the dollar. “Proposals for states and their citizens to adopt an alternative currency consisting of gold or silver, or both, are receiving increasing attention throughout the United States, as evidenced by bills that have been or are being introduced in the legislatures of the States of Georgia, Indiana, Montana, New Hampshire, and South Carolina,” the proposal explains, highlighting the fact that precious metals have already proven themselves in the free market.

The resolution would not in itself create an alternative currency. It would merely create a bipartisan committee to examine the issue and make recommendations for legislation to deal with it. The group’s findings and suggestions would be due by next year. The bill is summarized on the Commonwealth’s website as a resolution “Establishing a joint subcommittee to study whether the Commonwealth should adopt a currency to serve as an alternative to the currency distributed by the Federal Reserve System in the event of a major breakdown of the Federal Reserve System.”

Numerous constitutional and monetary experts have recommended state policies to deal with the issue — especially since the federal government has so far refused to address the looming crisis. Attorney Edwin Vieira, for example, a prominent constitutional scholar, told The New American last year that it would be very wise for state governments to start preparing for major problems in the dollar. One suggestion he offered would see states start accepting part of their tax revenues in precious metals — a proposal which could be ramped up if times required it.

Of course, the inherent problems with the current monetary system have not gone unnoticed in Congress, either. Rep. Ron Paul has been sounding the alarm for decades, culminating in a recent book entitled End the Fed and a bill to audit the Federal Reserve that — despite being watered down — succeeded in exposing certain central-bank dealings. He also has a bill that would repeal legal tender rules and allow the free market to decide what should be used as money. And recently, his proposals and the ideas he espouses have been getting a lot more attention — as evidenced by the resolution introduced in Virginia.

But despite Virginia Gov. Bob McDonnell announcing that he won’t support the measure, analysts are hailing just the bill’s introduction as a significant step. Gold Stock Bull founder Jason Hamlin, for example, said the proposal “could be the financial shot heard around the world” in a piece for The Market Oracle.

Financial website suggested the resolution “may one day be heralded as the formal proposal that proverbially started it all.” Urging all legislators to carefully read the legislation, the site commented: “Whether this resolution will ever get off the ground, and actually find that the world is at great risk should gold not be instituted as a backstop currency, is irrelevant. The mere fact that it is out there, should provide sufficient impetus to other states to consider the ultimate Plan B.”

Similarly,, citing recent news of foreign governments considering transactions in gold, suggested “Virginia’s move could be the start of a growing trend around the world of various levels of government seeking to transact in a currency that is no individual’s debt and cannot be printed at the whim of central bankers.”

For now, the resolution has been referred to the Committee on Rules. How far it will go remains to be seen. But with other states considering similar measures and the dollar’s problems becoming increasingly obvious, prudent preparations for a potential catastrophe will only continue building steam.

Reprinted with permission.

Friday, January 21, 2011

Interview with Doug Casey: The Death of America

Doug Casey was interviewed by Stefan Molyneux for Freedomain Radio on January 18, 2010. With powerful ideas for all lovers of personal and political freedom, Freedomain Radio is the largest and most popular philosophy show on the web, and was a Top 10 Finalist in the 2007, 2008 and 2009 Podcast Awards. Topics range from politics to philosophy to science to economics to relationships to atheism - and how to achieve real freedom in your life today. Passionate, articulate, funny and irreverent, Freedomain Radio shines a bold light on old topics, and invents a few new ones to boot!

Douglas "Doug" Casey is an American-born free market economist, best-selling financial author, and international investor and entrepreneur. He is the founder and chairman of Casey Research, a provider of subscription financial analysis about specific market verticals that he has focused his investing career around, including natural resources/metals/mining, energy, commodities, and technology. Since 1979, he has written, and later co-written, the monthly metals and mining focused investment newsletter, The International Speculator. He also contributes to other newsletters, including The Casey Report, a geopolitically oriented publication. Casey graduated from Georgetown in 1968, as a classmate of Bill Clinton. His 1979 book Crisis Investing (1979) became the largest selling financial book in history, listing at #1 on the New York Times Best Seller list for a total of 12 non-consecutive weeks. Casey is a frequent contributor to various financial websites, as well as to free-market online magazines, such as WorldNetDaily and, and the libertarian print publication Liberty, where he espouses his anarcho-capitalist leaning views. He supported Ron Paul's run for president in 2008. In 2009, he gave a speech titled My Misadventures in the Third World, in which he outlined plans to privatize a small country and take it public on the New York Stock Exchange. Casey has lived in twelve countries, and visited 175. His offices are located in the town of Stowe, Vermont.

Tuesday, January 18, 2011

The Best Financial Privacy Is Here…Probably

By Bill Rounds, J.D.
Monday, January 17, 2011

Financial privacy is a fundamental right which the law does little to protect. In fact, the laws of any country with a central bank and strong bank regulations make financial privacy a very difficult right to exercise.

Central Banks Are Anathema To A Free People

Dissatisfaction with central banks has grown in recent years, as evidenced by the large number of co-sponsors to Dr. Paul’s bill to audit the Fed. Even if the Fed is subjected to an audit, it is only the first of many steps needed to secure more economic freedom and the best financial privacy. That road to financial freedom and financial privacy is a long one. Since the law cannot adequately protect financial privacy, we must find alternative peaceful methods to protect our rights. No matter how dissatisfied we are with central banks, there are few viable legal alternatives.

Financial Privacy Alternative To Central Banks: Gold and Silver

The most popular alternative has been to buy gold or to buy silver. The reality of using gold or silver has really only been to move savings and investments to gold and silver. Every-day transactions are still conducted in national currencies. I suspect this is due, in part, to the fact that very few merchants or service providers will accept direct payment of gold or silver coins. The premium for coining gold and silver money may also prevent widespread adoption of using gold or silver as common currency.

Another Financial Privacy Alternative To Central Banks: Digital Currencies

Another alternative has been the use of digital currency. Since the 1990′s, many digital currencies have been created, separate from the national currencies of the world. Some of them were responding to the market need for easier online payment systems, many of them hoped to achieve what regulation and statutory law has not been able to achieve: true financial privacy. Most of those currencies have either vanished like e-gold, subjected themselves to regulation like GoldMoney, or have become a huge part of the system itself like PayPal. Even those digital currencies that continue to exist without regulation or prosecution, such as Pecunix or WebMoney, are at risk of the fates of their brothers because they all share a common attribute which prevents them from becoming a viable alternative to national currencies for transactions large and small. But many claim that digital currencies will eventually provide a viable alternative to national currencies.

Centralization Has Prevented Digital Currencies From Replacing Central-Bank-Issued Currencies

The fundamental flaw that all prior digital currencies have suffered is centralization. Either all transactions must be verified by a central authority, like WebMoney, or when they are backed by a tangible asset such as GoldMoney, there is a physical location where the assets must be stored. Centralization creates an identifiable target for bureaucrats to attempt to prosecute, subpoena, regulate, impose political pressure, or bring a host of other attacks. Physical storage exposes those stored assets to many of these same risks, plus a risk of regime change, war, natural disaster, or some other threat to the physical location which can lead to reporting, regulation, or confiscation.

E-gold and Liberty Dollar faced prosecution and GoldMoney submitted to regulation. The fate of UBS bank account holders demonstrates the risk of relying on friendly governments for financial privacy and financial freedom. UBS defied hundreds of years of established constitutional law and revealed the names of account holders because of political pressure. Thus, systems like WebMoney and Pecunix, established entirely outside of the US, are not immune to the problems of centralization. Centralization is not only a risk for digital currencies. Napster was shut down because it relied on a centralized database. Wikileaks was temporarily shut down because its website was hosted on a single server.

A digital currency backed 100% by gold, like GoldMoney, may ultimately be the best model. But no digital currency has yet become widely accepted enough for the average person to use it to buy groceries, gas, a movie ticket, or a cup of coffee. It will take another kind of model to bridge the gap between the current worldwide monetary dictatorship to a world of financial freedom and privacy.

Bitcoin Is The First Decentralized Digital Currency

One of the latest developments in digital currencies, Bitcoin, has solved the centralization problem. It is a very new development, but it has been gaining ground and may be sufficient to make central banks irrelevant to every day life and thus free mankind from the economic bondage that most of the world has been under for at least the last century.

How Bitcoin Works As The New Best Financial Privacy Alternative

Bitcoin offers a verifiable store of value while maintaining a decentralized structure. It operates peer to peer, meaning there is no centralized authority to issue or verify Bitcoins. Free, open source software allows users to anonymously and securely generate their own Bitcoins and transfer any amount of Bitcoins anonymously and securely. The software specifically limits inflation and, because it is open source, anyone can audit it.

Rather than discuss the details of how Bitcoin works, I would rather focus on something that hasn’t been fully developed elsewhere. There are several economic and legal benefits and risks to any person who decides to use Bitcoin. I think, ultimately, the benefits far outweigh the risks. If Bitcoin is not the answer, hopefully a similar successor will eventually succeed in securing our financial privacy and thus our financial freedom.

The Biggest Risk To Bitcoin

The biggest risk is the point at which Bitcoin users enter or exit the central bank economy from the Bitcoin economy. This is a risk because this is the point at which regulation by government is most likely to be created, most likely to be enforced, and most likely to have some effect. This would probably have the largest effect because many people are deterred from an activity if they would be breaking a law. If enough people were deterred, Bitcoin would be spread to fewer users. Without a sufficient user base, the success of Bitcoin is limited.

Another reason why regulation at the point of entry or exit from the national currency economy might be effective is due to the enhanced visibility of transactions at that point. Once transactions are conducted within the Bitcoin economy, they are very difficult to detect, audit, subpoena, and control.

So far there have been no real efforts to regulate Bitcoin. People can already exchange Dollars, and other national currencies for Bitcoins. The risk is currently very low that anyone who engages in the business of exchanging national currencies for Bitcoins within jurisdiction of US federal law will be subject to regulation as a Money Service Business. There are many other alternate currencies that circulate regularly throughout the US with no such regulation.

Disney is not listed as a registered Money Service Business for selling Disney Dollars. Washington D.C. area businesses trade in a local currency called Potomacs to support local businesses, but nobody is registered as an MSB to exchange those. Even virtual currencies like those used in World of Warcraft or Second Life, which regularly are exchanged for national currencies, have never given rise to registration requirements. But, none of those currencies ever posed a threat to the power of the money printing press that central banks now enjoy.

Even if at some future time, government decides to force Bitcoin exchangers to register, there will likely be many legal ways to avoid having to register as a Money Service Business when exchanging Bitcoins for a national currency.

Read the rest of the article.

Bill Rounds, J.D. is a California attorney. He holds a degree in Accounting from the University of Utah and a law degree from California Western School of Law. He practices civil litigation, domestic and foreign business entity formation and transactions, criminal defense and privacy law. He is a strong advocate of personal and financial freedom and civil liberties. This is merely one article of 75 by Bill Rounds J.D.

Thursday, January 13, 2011

Book Review: When Money Dies

The Wall Street Journal and Andrew Stuttaford have just published an excellent book review of Adam Fergusson's When Money Dies: The Nightmare of Deficit Spending, Devaluation and Hyperinflation in Weimar Germany (2010, first published 1975).

From Product Description:

When Money Dies
is the classic history of what happens when a nation’s currency depreciates beyond recovery. In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the German republic was all but reduced to a barter economy. Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany’s finances descended into chaos, with severe social unrest in its wake.
Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, “quantitative easing,” that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country’s deficit—necessity or profligacy, unwillingness to tax or blindness to expenditure—it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? Germany in 1923 provides a vivid, compelling, sobering moral tale.
From The Wall Street Journal review, Stuttaford writes:
"The death of the German mark (it took 20 of them to buy a British pound in 1914 but 310 billion in late 1923) plays a key part in the dark iconography of the 20th century: Images of kindling currency and economic chaos are an essential element in our understanding of the rise of Hitler. Mr. Fergusson adds valuable nuance to a familiar story. His tale begins not, as would be popularly assumed, in the aftermath of Germany's political and military collapse in 1918 (by which point the mark had halved against the pound) but in the original decision to fund the war effort largely through debt—a decision with uncomfortable contemporary parallels (one of many in this book) tailor-made for today's end-timers."
For further reading:
"When Money Dies", Jonas Clark, March 17, 2009

Monday, January 10, 2011

The Utah Sound Money Act

By Connor Boyack
Utah Tenth Amendment Center
Tuesday, January 4, 2011

In 1980, Zimbabwe became a sovereign African nation, gaining its independence from the United Kingdom. At that time, their dollar was valued at a higher rate than the U.S. dollar, at a rate of 1 to 1.25. Earlier this decade, President Mugabe—in power since 1987—began to fulfill a long-standing campaign promise to equalize land ownership, through a campaign called Fast Track Land Reform. While white Zimbabweans constituted less than 1% of the population, they owned around 70% of the land. In 2000, Mugabe began to seize and redistribute land owned by whites to black Zimbabweans.

The economy quickly tanked in response to these moves, as well as the resulting sanctions imposed by several Western nations. That year it declined by five percent, then by eight percent in 2001, then twelve percent in 2002. Inflation quickly surpassed normal percentages and increased into the tens, then hundreds, then thousands, and then like an asymptote, skyrocketed towards infinity. At its highest rate, Zimbabwe’s inflation reached a monthly high of nearly 80 billion percent.

I carry in my wallet one of the most potent objects that can be used in teaching others the nature and importance of sound money: a 100 Trillion Zimbabwe Dollar note—the highest amount ever printed. (Get your own!)

In the months prior to the collapse of their currency, Zimbabweans began using foreign currencies as a more stable medium of exchange. The government was quickly forced to legalize such alternative currencies, first licensing hundreds of businesses to sell their wares in foreign currency, and later suspending their currency altogether, legalizing the foreign currencies themselves for use in the country. Gold has become a coveted commodity as individuals look for a more reliable currency with which to engage in commerce.

Zimbabwe is just the latest of a long string of failed fiat currencies. A currency need not undergo hyperinflation, however, to be rendered worthless. Since its inception in 1913, the Federal Reserve Note (“U.S. Dollar”) has lost 96% of its value through a steady (and sinisterly mis-reported) inflation.

As with Zimbabwe, countries with central banks seek to enforce their monopoly on creation (counterfeiting) of the official currency through legal tender laws. In other words, alternative currencies are outlawed as a medium of payment; the legalization of competing currencies would, through the open market, result in the government losing its monopoly and ending up with a “continental”-like pile of paper with little to no value. (So concerned were the early leaders of the United States with this issue [they had learned from personal experience] that the U.S. Coinage Act of 1792 instituted the death penalty for anybody found counterfeiting the currency.)

Whether hyperinflation is in the future for the Federal Reserve Note or not, its eventual demise is near certain. Positioning ourselves through preparation and wise financial management to proactively respond to such events on the horizon is wise counsel—should not the same apply to our government?

Last year, Rep. Ron Paul (R-TX) introduced the Free Competition in Currency Act which would, in his words, “allow[] for competing currencies [which would] allow market participants to choose a currency that suits their needs, rather than the needs of the government.” Gold, silver, or any other form of currency would be acceptable, under this proposal, for engaging in commerce.

While we wait for the federal government to do nothing to stem the tide of Federal Reserve Notes that will likely soon capsize our ship of state, states can, like individuals, position themselves to proactively prepare for any problem with the dollar, rather than later be forced to react under troublesome circumstances. Article I Section 10 of the U.S. Constitution says that “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts…” Additionally, no power was delegated in the Constitution to allow for the federal government to make anything but gold and silver coin a legal tender for commerce. That this limitation has long been ignored is no excuse for its ongoing abuse.

In the 2011 general legislative session, Utahns will have an opportunity to position themselves and their state on better financial footing by infusing the system with sound money—to the degree that willing participants choose to use either gold or silver as alternative currencies. The Utah Sound Money Act will soon be introduced to initiate this opportunity.

This bill is designed to reinstate gold and silver coin as an optional medium of exchange for use in commerce within the state of Utah. It nullifies legal tender laws for intrastate commerce, recognizing the inherent, inalienable right of individuals to engage in specie-based exchanges with each other on mutually agreeable terms. You can read the bill here (PDF).

The bill goes further. Among other things, it:

  • exempts gold and silver from sales and capital gains tax when used in intrastate commerce;
  • provides standing for Utah court declaratory relief from intrusive federal regulation;
  • outlaws searches and seizures, as well as disclosure, of gold and silver coin without a lawful warrant from the county sheriff;
  • makes use of the long-defunct Utah State Defense Force to store, safeguard, protect, and transport Utah’s specie holdings;
  • allows any Utah taxpayer to discharge his/her financial obligations to the state government in gold or silver coin, should they so choose;
  • establishes cooperatives (LLCs) to facilitate and promote intrastate commerce using gold and silver coin; and
  • allows for this increase in liberty at no direct nor initial cost to the state of Utah.

This bill does nothing to the federal government’s use of Federal Reserve Notes and monopoly over creating that fiat currency. This bill does not impose a gold standard, nor remove the dollar as a legal tender to be used in commerce. This bill does not do anything, really, other than increase the liberty of each individual to determine how they would like to engage in commerce, and with what currency.

On what rational grounds can an idea like this be opposed?

This is not to say that the language or implementation of the bill is perfect. I’ve had the opportunity to review the draft for several weeks and offer input to the author, and I have to say, the bill is fairly solid. Nonetheless, improvements may yet be suggested and incorporated—and that would be a good thing. But considering the state of the dollar, the liberty-suppressing imposition of legal tender laws, and the stranglehold over commerce (interstate or otherwise), this idea is one whose time is come.

Ayn Rand’s quote on gold speaks many truths about our current situation:

Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims.

This bill seeks to impose a protecting shield around those who wish to voluntarily engage in commerce under its provisions by defending against the destroyers whose counterfeiting operations oppose any competition. For the sake of our liberty—even if you have no desire to use gold or silver—this bill should be supported by all Utahns who have the remotest of concerns about preserving our wealth and staving off financial ruin.

Connor Boyack is the state chapter coordinator for the Utah Tenth Amendment Center. He is a web developer, political economist, and budding philanthropist trying to change the world one byte at a time. He lives in Utah with his wife and son. Reprinted with permission.

For further reading:
"Tribune got it wrong on gold for good", Larry Hilton, The Salt Lake Tribune, January 8, 2011

Sunday, January 9, 2011

Sending Money Overseas for the Holidays? The Government Wants to Know

By Mark Rumold
Electronic Frontier Foundation
Thursday, December 23, 2010

What do an online donation to the International Red Cross, a bank transfer to family members living in Vietnam, and a payment sent through PayPal for an expensive rug in Turkey have in common? The government wants to know about them. And, if new rules proposed by the Financial Crimes Enforcement Network, or FinCEN, go into effect, the government will — along with your name, address, bank account number, and other sensitive financial information.

In September, FinCEN, an agency component of the Department of the Treasury, proposed a set of rules (pdf) that would require banks and money transmitters to report to the government any cross-border electronic funds transfer. Yesterday, we submitted a comment (pdf) opposing the agency’s proposal.

Essentially, under the proposed rules, anytime you electronically transfer money into or out of the country, the government wants to know. The proposed rules require banks and money transmitters, like PayPal or Western Union, to submit reports documenting the amount of money sent or received, where that money came from, and where it is going. Depending on the type of transfer, a variety of information would be included in the reports, including the name, address, bank account number, and taxpayer ID number of the sender; the amount and currency of the funds transfer; and the name and address of the recipient. Passport numbers or alien ID numbers could also be required for some transfers.

The government wants reports on all electronic bank-to-bank transfers, regardless of whether the transfer is $1 or $1,000,000. For money transmitters, reports would be filed for transfers at or above $1,000. FinCEN estimates it will receive 750 million reports every year, and the agency wants to keep the data for ten years. Once the reports are filed with FinCEN, other federal law enforcement agencies — the FBI, IRS, ICE, and the DEA — would all have access to the data.

Shortly after FinCEN announced the rules in September, EFF filed a FOIA request seeking documentation that would justify the agency’s law enforcement need for the regulations. We also sought information demonstrating that FinCEN had taken adequate data-security precautions for handling such a massive amount of sensitive information. The agency produced some records, but the documents provided no evidence that the proposed rules are necessary to deter money laundering and terrorism financing, or that the agency had adequately assessed the privacy implications of the proposed rules.

In our comment, we opposed the rules for three reasons:

1. The new reports are unlikely to be effective in preventing terrorism financing — the primary impetus behind the regulations in the first place.

2. While the agency sought the advice of financial institutions, other law enforcement agencies, and even foreign governments when developing the rule, FinCEN never solicited the opinions of privacy advocates during the drafting process.

3. The agency has not provided any evidence that the technological systems are in place to safely receive, transmit, and store the vast quantities of highly-sensitive information the rules would require.

We strongly oppose the government’s attempt to pry into the sensitive financial dealings of citizens, especially when there is no demonstrated need and no evidence that the agency is equipped to handle that much sensitive information. Comments on the proposed rules are due December 29th, and can be submitted here. We urge you to join us in opposing these intrusive new regulations.

UPDATE: The comment period closed on December 29th. You can view the entire docket, including all the comments submitted to FinCEN, here.

For further reading:
"Current U.S. Dollar Currency Controls", Trace Mayer, June 10, 2009

Saturday, January 1, 2011

Anonymous Cash = Freedom

By Stowe Boyd
Saturday, December 18, 2010

Since terrorists and drug lords take advantage of anonymity of cash, Jonathan Lipow argues for a transition from cash to smart cards or other digital solutions in "Turn In Your Bin Ladens":

"From a technical point of view, such an initiative is entirely feasible. The trick is to lower the cost of making transactions to the point where even the smallest payments can be executed efficiently. For example, a Twitter application known as TwitPay allows you to use your cellphone and a PayPal account to transfer money. In Kenya, a mobile banking system known as M-Pesa allows six million people to execute small payments using SMS messages.

Unfortunately, cellular-based systems are unsuitable as a complete replacement for physical money, particularly in the developing world. Cellphone coverage doesn’t yet extend to many rural regions or small urban centers; in addition, such systems remain too vulnerable to cybercrime and power grid or mobile service disruptions.

A better approach would be to use smart cards with biometric security features, like the Universal Electronic Payments System. In South Africa, the technology company Net1 now distributes social welfare grants to almost four million people. It’s simple: with a battery-operated, point-of-sale device akin to a credit-card terminal, money is transferred from one person’s card to another; during the process, the cards download and record each other’s transaction records.

Every few days, employees from the payments system head out to the villages and make their own money transfers, downloading the transaction histories of the cards they come into contact with, which contain the histories of the cards they interacted with, and so on. That data is then downloaded into the company’s mainframe, as a way of monitoring the flow of funds across the cards.

Best of all, the system can function offline and off the power grid, providing a secure means of payment under all conditions and without any geographic limitations. And the incremental cost of executing a transaction via this system is essentially zero. It is a promising model for the global economy.

In a cashless economy, insurgents’ and terrorists’ electronic payments would generate audit trails that could be screened by data mining software; every payment and transfer would yield a treasure trove of information about their agents, their locations and their intentions. This would pose similar challenges for criminals."

And Big Brother would know how much you are spending on cigarettes, booze, dirty magazines, and betting with your bowling team.

I will leave aside the obvious — the ubiquity, convenience and flexibility of paper money — and the more philosophical questions of the benefits to society that anonymous money brings, for a moment, although I think these are the right points to discuss.

What about the costs of transitioning to a smartcard-system system of this sort? At least with cell phone-based approaches people generally have pay phones already. But if billions of people are coaxed to switch to smartcards to buy their daily bread, won’t it cost a fair bit to get up and running? Like hundreds of billions of dollars?

And who does such a system benefit? Not the part-time sex worker, trying to make ends meet in a down economy. Not the bellman at the airport, whose tips might disappear after the transition to cards. Not the homeless guy I gave $2 to the other day, or the busker playing guitar in the train station. Or the Green Peace folks collecting coins at the park.

The ones that benefit are the those selling the cards and the readers. And the policy-makers who want to see the flow of cash to find — supposedly — drug lords and terrorists, but secretly want to know everything about everybody.

But this is the argument for pervasive surveillance again. In the name of security and safety, they say we should all accept the intrusion of the government into our private lives so that the state can be protected from its enemies. After all, they say, if we aren’t doing anything illegal, why should we care? What have we got to hide?

But we have the right to privacy in our doings. We don’t have to say why we want privacy: it is our right.

And the shadowy doings at the margins of people’s lives are exactly the point of privacy. The man funneling money to a child born to his mistress without his wife’s knowledge, or a woman loaning money to her brother without her husband knowing: they want anonymous cash. The rich golfer that takes a woman not his wife out on the town has a right to privacy, even if a narrow-minded and moralistic society doesn’t think so.

We have known for years — decades — that pot is no more (and perhaps less) dangerous than alcohol, but the laws are slow to change. And in the meantime, millions of people are buying pot. At some point in the near future, the prohibition will end, and it will then become a regulated and taxed commodity, like alcohol. In the meantime, people slip into the shadow world to buy a bag. And they are justified, since laws that are enacted without regard to science and health — that are ideological and repressive — are illegitimate, and the people have the right to run around them.

Historically, tyrannical governments have attempted to raise taxes to unsupportable levels, and cash money could change hands without the government being aware: the gray economy. While today’s government may not be engaged in this sort of economic control, the use of traceable digital money would certainly be the sort of economic foundation a tyranny would want.

The advocates of total intelligence as a way to catch the bad guys are going down the wrong path. To counter the drug lords, we simply have to make pot legal. And if we contort our free and open societies to counter terrorists’ use of cash, they have won.

This is similar to the ‘security theater’ that goes on in our airports: where techniques that do not work are employed to convey a sense of security, and unobtrusive techniques that do work — like the Israelis’ airport security — are not used because of the politics around ‘profiling’. In order to meet some hypothetical threat from terrorists, our personal privacy and free movement are held hostage. At what cost? Who benefits from all the back scatter scanners being bought?

I maintain that cash is a prerequisite of a free society. If the authorities start rounding up all the money, and begin distributing smartcards, it’s time to rally in the streets.

Cash is not a metaphor for freedom, it is a requirement of freedom. A strong society that accepts human nature without moralizing will always have anonymous cash. Only totalitarian governments — where everything not expressly required is illegal — would want to monitor the flow of every cent.

Technically, it would be possible to design and deploy anonymous digital money, just like we could be encrypting all telephone calls. But governments always want to reserve the right to listen in on our conversations secretly, so the phone systems are inherently insecure. But cash predates the notion of modern nation states, and even our modern currencies are unbugged.

We shouldn’t let the government be a party to every transaction, gift, or exchange we engage in. And if we let them, they will want to, and once they get that ability, we might never be able to go back.

Reprinted with permission.