U.S. Secret Service Bans Certain Gold and Silver Coins On eBay

By Jon Matonis
Forbes
Saturday, December 15, 2012

http://www.forbes.com/sites/jonmatonis/2012/12/15/u-s-secret-service-bans-certain-gold-and-silver-coins-on-ebay/

eBay was contacted by the U.S. Secret Service sometime last month to remove the Liberty Dollar precious metal coins. Citing consistency with eBay's general policy of not listing counterfeit items, eBay spokesperson Ryan Moore confirmed the ban with Coin World.  The following email was sent to affected sellers when the systematic removals began:

"The United States Secret Service has requested the removal of all Norfed Liberty dollars on the eBay site as counterfeits. … Please do not relist this item(s). We appreciate that you chose to list this coin on our site and understand there was no ill intent on your part. Your listing fees have been credited to your account."

Real is fake and fake is real. That's pretty much the monetary world that we live in now as we are coerced to trade and pay taxes in the designated and one 'legitimate' State currency. Certainly, the U.S. Secret Service wouldn't want anyone purchasing pure (.999 fine) gold and silver medallions mistakenly thinking that they might be getting official and real money issued under the authority of the United States.

Deriving its authority from Title 18 of the United States Code, Section 3056, the United States Secret Service is one of the nation's oldest federal investigative law enforcement agencies and it was originally founded in 1865 as a branch of the U.S. Treasury Department to combat the counterfeiting of U.S. currency. In addition to its mandate of protecting the president, vice president, and others, the U.S. Secret Service is responsible for maintaining the integrity of the nation's financial infrastructure and payment systems:

"The Secret Service has jurisdiction over violations involving the counterfeiting of United States obligations and securities. Some of the counterfeited United States obligations and securities commonly investigated by the Secret Service include U.S. currency (to include coins), U.S. Treasury checks, Department of Agriculture food coupons and U.S. postage stamps."

Rather than the beginning of a second wave of gold confiscation, this action to remove coins at eBay and other sites is aimed directly at NORFED Liberty Dollars issued from the now defunct mint of monetary architect Bernard von Nothaus who was convicting of counterfeiting in 2011. For those that haven't followed every twist and turn of this landmark case, I would recommend the amicus curiae brief filed by GATA, the brilliant piece from Lew Rockwell, and the possible implications of the von Nothaus case on other attempts to start a new currency.

The State's nervousness with alternative money creation extends far beyond the lookalikes and the replicas. It goes to the heart of creating a new monetary system evidenced by the targeted shut down of systems that achieve significant market adoption or present an embarrassing dilemma. At issue in the von Nothaus motion to set aside his conviction is the larger constitutional question of whether the government has the power to outlaw the private coinage of money.

Presiding over one of the most egregious assaults on monetary freedom in history, District Court Judge Voorhees still has not set a date for the von Nothaus sentencing. In announcing the verdict, U.S. Attorney Anne M. Tompkins declared:

"Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism. While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country. We are determined to meet these threats through infiltration, disruption, and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government."

"It's a loser's game to suppress private money that is sound in order to protect government-issued money that is unsound," writes Seth Lipsky in the Wall Street Journal.

For budding monetary entrepreneurs that may be seeking legitimacy to avoid von Nothaus' fate, Robert Murphy of the Mises Institute points out the folly of searching for legal loopholes because "if any attempts to circumvent the dollar actually got off the ground, then the government would find some legal pretext to shut it down." If a competing system posed a genuine threat to its monopoly on money, the government would find a way to prosecute it, "meaning no entrepreneur would spend the resources and time trying to launch an alternative system."

Decentralized and digital currencies without a single point of failure are starting to show some resiliency to arbitrary and capricious shutdowns.

Political freedom can only be preceded by economic freedom which is preceded by monetary freedom. And, critical elements of monetary freedom are currency competition and the right of private coinage. We need more entrepreneurs that rely on the free market, not the law, as their weapon of legitimacy.

For further reading:
"Thoughts On The Liberty Dollar Debacle", Brandon Smith, undated

Bitcoin & Precious Metals, The First Diversified Portfolio of the Rebel In History

By Silver Vigilante
Monday, July 30, 2012

http://silvervigilante.com/bitcoin-precious-metals-the-first-diversified-portfolio-of-the-rebel-in-history/

For the first time in history, the rebel alliance can compile a diversified portfolio that reflects his or her inter-essences, that is interests.  While not only can investments be made under the dominant financial system which undermine that system, such as physically delivered precious metals, mediums of exchange can nowadays also be taken outside that paradigm.  German alternative analog world paper currencies have gained attention and velocity more-so than the digital, universal bitcoin, but it is the latter which is the first publicly traded, globally accepted currency, predisposing it to longer-term popularity.

The man in whose name millions were murdered, Karl Marx wrote of commodities:

A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference.

The nature of the need of virtual items such as bitcoin is that, first and foremost, in this day and age, we live in a “global village.” Although 90% of the population lives in the city, a meridian in the history of civilization, they can be in constant contact with each other. So why not setup a similar, p2p system to ensure constant transacting as well – full service,  24/7. It satisfies the desires of millions if not billions of individuals to step outside the dominant paradigm. It comes from the stomach and from fancy. Our stomachs, our instinct for self-preservation, tell us that our survival depends on an understanding and moral opposition to the way things are, and those who ensure they stay us as such. Our fancy, our style, tells us we better use the dancing or lose it.

Karl Marx’s definition of a commodity explains accurately also the state in which fiat currencies find themselves. They satisfy the wants of the majority well enough, but this status is grounded in force, and not choice. As Karl Marx states, this does not matter. So, the  US Dollar has been chosen by the Empire to satisfy the wants and needs of the public at large. Out of the vacuum this creates for other means, bitcoin has arisen, in a manner somewhat different from the precious metals, but due to similar consciousnesses; consciousnesses which recognize the wants and need for another way of peace, tranquility and prosperity.

Historically, rebellions have depended on the dominant currency of a time and place or barter. Silver has been the poor man’s gold, but not all rebels are poor. A war on silver has also led to practical genocides against silver holders, as the United States experienced as the Crime of 1873.  Silver does not offer the properties to be adopted by the general population as a mainstream medium of exchange. The most important of these properties, given the current socio-economic paradigm, is convenience. Silver is bulky, and takes currently too much work for the average person to send overseas in an exchange. Bitcoin solves this problem. Now bitcoins can be readily available to be sent in an exchange with the promise of other goods anywhere in the world, instantly. This automatically creates the monetary space for a worldwide and unified peace and freedom movement to evolve.

Read the rest of the article.

Another Market Not Available to U.S. Citizens

By Jon Matonis
Forbes
Monday, April 9, 2012

http://www.forbes.com/sites/jonmatonis/2012/04/09/another-market-not-available-to-u-s-citizens/

I find this incredible. U.S. citizens blocked out a market that the rest of the developed world has access to. Of course, I am speaking about the CFD market. CFD stands for "contract for difference" and it is a marketplace where regular people can trade the markets of the large trading houses without the same capital requirements. So, basically it is a form of democratized financial trading for the masses.

In financial parlance, a contract for difference is a contract between two parties stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. Alternatively, if the difference is negative, then the buyer pays instead to the seller. Utilizing leverage, CFDs are traded on margin without the need for ownership of the underlying asset and positions may be either long or short. Unlike futures contracts, CFDs have no fixed contract size or expiry date. Investors appreciate these instruments because of their flexibility as CFDs can be traded in an almost endless variety of contracts that are sometimes unavailable at the traditional exchanges, such as diamonds and even bitcoin.

Due to restrictions by the Securities and Exchange Commission on over-the-counter financial instruments, trading in the CFD market is not an option for U.S. residents and U.S. citizens but curiously you can still buy a book about the practice on Amazon's U.S. site. Having lived and worked in both Ireland and the United Kingdom, the choices available to foreigners in the area of online trading and online gaming puts the U.S. market to shame. CFD markets and spread betting are prevalent in other locales not to mention the smorgasbord of voluntary online gambling and poker choices.  Gibraltar has staked their jurisdictional reputation on supporting the online wagering industry and they are the leader.

America's puritanical heritage has traditionally steered it away from such pursuits but that is changing slowly. Legislation continues to be evolving in the direction of permitting online casinos and gambling provided that the established gaming lobbies and layered tax jurisdictions can receive their pound of flesh.

The restrictions against the CFD market in America are just another example of protecting us from ourselves, but instead of protection from the "sin of compulsive wagering" it is protection from the "sin of excessive leverage".

Now, there is also the sin of illiquid asset trading. Recently, the SEC charged SharesPost and Felix Investments over pre-IPO trading in the illiquid shares of Facebook. This activity occurs over an online trading platform for private shares that provides a way for small and large shareholders to cash out and new entrants to participate prior to a formal IPO event. Eventually, successful innovations such as SharesPost and SecondMarket may be driven overseas as well due to excessive regulation.

Although I disagree with Josh Brown's capitulatory conclusions of while-the-rules-aren’t-perfect-they’re-the-only-rules-we've-got attitude for the private shares secondary market, he certainly has a colorful way of describing it:

"Imagine a private market where tech-savvy people and the Digerati could buy and sell within their own little bubble stretching from San Francisco to the off-campus housing around Stanford to the Diablo Mountain range bordering the eastern fringe of San Jose.  There would be no need for all that physical “dead tree” paperwork or the prying eyes of CNBC and the Wall Street Journal.  There could be less rules because, frankly, these would be negotiated transactions between millionaires and billionaires – a brotherhood of enlightened self-interest, in it for the challenge and intellectual self-satisfaction with the money being a mere afterthought."

But we do want our private markets if we so choose, sorry Mr. Brown. It isn't all millionaires and billionaires. Marketplaces like the CFD market and the private shares secondary market are alternative free-market solutions to a financial world rife with favoritism and increasing regulatory chokeholds. Regulating these emerging markets in the U.S. under the guise of "it's for your own protection" doesn't fly and it's offensive. Markets will always seek a way to self-regulate and to survive.

Competing Currencies: A Defense Against Profligate Government Spending

By U.S. Rep. Ron Paul
Monday, July 11, 2011

http://paul.house.gov/index.php?option=com_content&view=article&id=1891

The end of June marked what is hopefully the end of the Federal Reserve's policy of quantitative easing. For months the Fed has purchased hundreds of billions of dollars of Treasury debt, enabling the government to fund its profligate deficit spending, push the national debt to its limit, and further devalue the dollar. Confidence in the dollar is plummeting, confidence in the euro has been shattered by the European bond crisis, and beleaguered consumers and investors are slowly but surely awakening to the fact that government-issued currencies do not hold their value.

Currency is sound only when it is recognized and accepted as such by individuals, through the actions of the market, without coercion. Throughout history, gold and silver have been the two commodities that have most satisfied the requirements of sound money. This is why people around the world are flocking once again to gold and silver as a store of value to replace their rapidly depreciating paper currencies. Even central banks have come to their senses and have begun to stock up on gold once again.

But in our country today, attempting to use gold and silver as money is severely punished, regardless of the fact that it is the only constitutionally-allowed legal tender. n one recent instance, entrepreneurs who attempted to create their own gold and silver currency were convicted by the federal government of "counterfeiting." Also, consider another case of an individual who was convicted of tax evasion for paying his employees with silver and gold coins rather than fiat paper dollars. The federal government acknowledges that such coins are legal tender at their face value, as they were issued by the U.S. government. But when it comes to income taxes owed by the employees who received them, the IRS suddenly deems the coins to be worth their full market value as precious metals.

These cases highlight the fact that a government monopoly on the issuance of money is purely a method of central control over the economy. If you can be forced to accept the government's increasingly devalued dollar, there is no limit to how far the government will go to debauch the currency. Anyone who attempts to create a market-based currency -- meaning a currency with real value as determined by markets -- threatens to embarrass the federal government and expose the folly of our fiat monetary system. So the government destroys competition through its usual tools of arrest, confiscation, and incarceration.

This is why I have taken steps to restore the constitutional monetary system envisioned and practiced by our Founding Fathers. I recently introduced HR 1098, the Free Competition in Currency Act. This bill eliminates three of the major obstacles to the circulation of sound money: federal legal tender laws that force acceptance of Federal Reserve Notes; "counterfeiting" laws that serve no purpose other than to ban the creation of private commodity currencies; and tax laws that penalize the use of gold and silver coins as money. During this Congress I hope to hold hearings on this bill in order to highlight the importance of returning to a sound monetary system.

Allowing market participants to choose a sound currency will ensure that individuals' needs are met, rather than the needs of the government. Restoring sound money will restrict the ability of the government to reduce the citizenry's purchasing power and burden future generations with debt. Unlike the current system which benefits the Fed and its banking cartel, all Americans are better off with a sound currency.

Use the Dollar or Else

by Llewellyn H. Rockwell, Jr.
Lewrockwell.com
Wednesday, April 6, 2011

http://www.lewrockwell.com/rockwell/use-the-dollar-or-else176.html

Look up the phrase "a unique form of domestic terrorism" on a search engine and you will turn up a story about a man whom the US government is trying to cage from now until the time of his death.

And his crime? His unique form of terrorism? He minted silver and copper coins and sold them. In other words, he did what innumerable entrepreneurs from the beginning of time have done. He attempted to provide consumers with a store of value. No one was forced to buy. He met a market demand, and that’s it.

Whom did he hurt? No one. Unlike illegal drugs, which the government bans on grounds that it doesn’t want us to hurt ourselves, these silver coins did not endanger their users. They only gave people an option on what to do with their money. Did the proprietor attempt to claim that these were legal tender for monetary exchange? No, he sold them for what they are.

Could people use them for money? Yes, but people can use anything for money: shoes, shells, flash drives, or books. Whether something is money or not depends on the intentions behind the exchange. Do you acquire something to consume it? It is not money. Do you acquire something in order to trade it for something else? In that case, it takes on money-like properties.

It is wholly understandable that people have doubts about the future of the paper dollar. Many people are seeking alternatives, in their own financial interest. What this proprietor did was provide something that turned out to be a possible alternative to the dollar. And for that, and that alone, he is being hounded and destroyed.

His name is Bernard von NotHaus and he is 67 years old. In the course of the proceedings, he was called every name imaginable. He was called a crook, a terrorist, a crank, and a crazy man. What he actually did, however, should be fully legal and encouraged in any nation, in all times and all places.

A nation that is confident about its money’s future would not fear currency competition. A nation with a dying money uses every possible means to crush the competition. That is precisely what is happening in the case of the so-called Liberty Dollar.

What’s striking here is that no one believes there is any reason to argue the point. It is obvious to his persecutors that he is a criminal. "He's playing on a core idea of the radical right, that evil bankers in the Federal Reserve are ripping you off by controlling the money supply," said Mark Potok of the Southern Poverty Law Center. "He very much exists in the world of the anti-government patriot movement, whatever he may say. That's who his customers are."

And what is the interest of the SLPC in this case? This is a group that claims to be about stopping hate and racism – and this has something to do with opposing poverty. And yet here they are intervening in a case in which a man is actually trying to prevent people from being impoverished. As for the Fed, it is not exactly an act of hate to point out that the Fed controls the money supply. Bernanke himself admits this!

The government has made no bones about the foundation of its case. Citing a Civil War-era law, prosecutors say that it is a crime to compete with the official dollar. Note that they are not citing the U.S. Constitution, which nowhere prevents such a thing. In fact, private coinage has a rich history in the U.S. It was essential when the West was being settled. Providing coinage services was as common as any other trade.

But since 1971, when the dollar became all paper, there has been a sense that its viability needs the backing of federal guns in order to thrive. This attitude is inconsistent with freedom. The right of private coinage is an essential part of free enterprise. Currency competition, especially in a digital age, is something that every country needs.

As Seth Lipsky wrote in the Wall Street Journal, "it's a loser's game to suppress private money that is sound in order to protect government-issued money that is unsound."

Precisely. As Lipsky points out, NotHaus operated very close to the line in terms of legality. He put the dollar sign on his coins, for example, and sold them with numbers. I can’t comment on his business dealings or the integrity of his operations. But this much is clear: the grounds on which he is being hounded are egregious and tyrannical.

Allowing for alternative currencies is not terrorism. It is a path to monetary reform, merely an application of the principle of free enterprise to a sector that should have never fallen so completely to government control. The people who are working to provide alternatives should not be jailed; they should be celebrated in every country that values freedom.

Llewellyn H. Rockwell, Jr., former editorial assistant to Ludwig von Mises and congressional chief of staff to Ron Paul, is founder and chairman of the Mises Institute, executor for the estate of Murray N. Rothbard, and editor of LewRockwell.com. Reprinted with permission.

For further reading:
"Hard Money, Hard Time", Thomas L. Knapp, April 7, 2011
"The 'Crime' of Private Money", Robert Murphy, April 7, 2011
"How to Start Your Own Private Currency", Derek Thompson, The Atlantic, April 5, 2011
"Von NotHaus Affair Shows Two Sides Of Coinage", Addison Wiggin, Forbes, April 4, 2011
"When Private Money Becomes a Felony Offense", Seth Lipsky, The Wall Street Journal, March 31, 2011
"Anne Tompkins: Tyranny's Whore", Larken Rose, March 29, 2011

Liberty Dollar Founder Convicted in Federal Court

By Chris Powell
Gold Anti-Trust Action Committee
Saturday, March 19, 2011

http://gata.org/node/9717

Here's hoping that yesterday's conviction of Liberty Dollar founder Bernard von NotHaus in federal court in North Carolina won't discourage the advocates of free markets in gold and silver and competitive currencies.

Those objectives were advanced by Liberty Dollar's seeking to put precious metal back into the hands of the people and back into circulation as currency. But the details of von NotHaus' conviction, as cited in the statement issued by the U.S. attorney for the Western District of North Carolina, Anne Tompkins, suggest that Liberty Dollar pursued those objectives in the wrong way -- a way the government was able to construe as more or less counterfeiting.

That is, Liberty Dollar's coins "were marked with the dollar sign, the words 'dollar,' 'USA,' 'Liberty,' 'Trust in God' (instead of 'In God We Trust'), and other features associated with legitimate U.S. coinage."

Of course the suggestion of counterfeiting was always a little silly, insofar as Liberty Dollar's coins were precious metal and general-circulation U.S. currency coins have all been base metal since 1965. How can a supposed counterfeit be worth more than a legitimate original? It's doubtful that any user of a Liberty Dollar coin was ever really confused about the difference.

But Liberty Dollar also was part of an organization that aimed to repeal the Federal Reserve System and thus was more easily construed as subversion. Certainly the Liberty Dollar operation was politically subversive, and the government seems to have gone nearly berserk about it precisely because of its politics.

"Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism," U.S. Attorney Tompkins said. "While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country. ... We are determined to meet these threats through infiltration, disruption, and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government."

Undermining the legitimate currency of this country? Representing a clear and present danger to the country's economic stability?

Does the U.S. attorney mean undermining the currency that has lost something like 98 percent of its value since the enactment in 1913 of the Federal Reserve System about which the Liberty Dollar operation complained? Does the U.S. attorney mean a danger to the economic stability of the country that has been using that ever-devaluing currency, the country that has experienced only booms and busts and even a couple of depressions under the reign of the Federal Reserve? And by "democratic form of government," does the U.S. attorney mean the Federal Reserve System that, in secret, rigs markets and bestows virtually infinite patronage on the large banking houses that have been looting the country?

If undermining that currency and the economic stability of the country that uses it is really a crime, and if damaging democracy is really a crime, why haven't a few Fed chairmen been prosecuted?

As for the nececessity for the government to infiltrate organizations that might challenge the currency system, the Liberty Dollar enterprise functioned entirely in the open. It operated an Internet site and distributed press releases. Unlike the government, it wasn't in the business of keeping secrets. It seems to have been quite candid about what it was doing.

Nevertheless, Liberty Dollar probably was mistaken, legally and tactically, in its minting format, its using devices that could liken its coins to government coins. If the Liberty Dollar coins didn't use those devices, if Liberty Dollar had distinguished its coins by weight of metal rather than any dollar value and had imprinted on them some legend explicitly distinguishing them from government coins, the case might have ended differently -- or well might not have been prosecuted at all.

In any event the Liberty Dollar case was more a political case than a case of counterfeiting, fraud, or deceit. Indeed, the country probably has gained more from it -- gained some understanding of the currency system -- than the country has lost from the circulation of some precious metal coinage. U.S. District Court Judge Richard Voorhees should take this into account when sentencing von NotHaus.

Today's story in the Asheville Citizen-Times about the conviction of von NotHaus is here. And some sardonic commentary about his conviction can be found at Zero Hedge.

Chris Powell is the Secretary/Treasurer and Director for Gold Anti-Trust Action Committee. Reprinted with permission.

For further reading:
"A ‘Unique’ Form of ‘Terrorism’", The New York Sun, March 20, 2011
"Liberty to Mint Your Own Coins? These Guys Did Not Read the Constitution", Damien Hoffman, March 20 2011
"Using Gold As Money Is Terrorism: U.S. Attorney Tompkins", Walt Thiessen, March 19, 2011
"Local Liberty Dollar 'architect' Bernard von NotHaus convicted", Tom Lovett, March 19, 2011
"Liberty Dollar Founder Reportedly Found Guilty", Brian Doherty, reason, March 18, 2011
"Defendant Convicted of Minting His Own Currency", Department of Justice Press Release, March 18, 2011
"Give me liberty or give me jail", David Forbes, February 3, 2010

The Validity of Bimetallism

By Sandeep Jaitly
Gold Basis Service
Sunday, January 9, 2011

http://bullionbasis.com/web_documents/the_validity_of_bimetallism.pdf

Bimetallism is often thought of as an unworkable system of monetary arrangement. In the last form that bimetallism existed prior to the ‘de-monetisation’ of silver across the globe in the 19th century, this is certainly true. But in its original form, with floating ratios, it is a perfectly valid monetary system.

The problem, as ever, comes with the attempt to fix prices. Bimetallism – on the strict proviso that the ratio of gold to silver is not fixed – is a perfectly viable system. Since time immemorial, money was defined in terms of silver, not gold. The Pound Sterling was originally defined as 5,400 Troy grains of silver; 240 Pfennigs originally equalled one Troy pound of silver and the Indian Rupee was equal to 175 Troy grains to name but a few. Gold coinage, in so far that it existed, was very much limited in circulation. An often overlooked fact is that gold coinage was never originally defined in terms of silver. Trying to enforce a fixed relationship between gold and silver is like trying to enforce a fixed relationship between the exchange of chalk and cheese.

The United Kingdom’s Pound Sterling will be used as an example to show the blunderfilled journey from a silver based monetary unit to a gold one. Dating back to Saxon times, the Pound Sterling was defined as 5,400 Troy grains of silver divided into 240 pennies or 20 shillings. Henry VIII was the first gross monetary debaser in British history – mixing copper with silver in a ratio of 2:1 thus causing one Troy pound of silver to produce 60 shillings instead of 20. He earned the sobriquet ‘old copper nose’ when his debased coins, after minimal use, produced a coppery shine on the king’s nose.

There had been occasional dalliances with gold coinage in the early medieval period, but each attempt involved fixing the gold/silver ratio such that the gold coins were undervalued leading to them being melted for silver. The first serious attempt at a ‘floating’ gold coin was the guinea issued in 1663. 44½ guineas were defined to equal one Troy pound of gold. It was generally accepted – although fluctuations occurred – at 21 shillings. In 1697, the first blunder happened. A proclamation was made – for reason unknown – that the Exchequer accept guineas at 22 shillings (fixed.) This in effect overvalued gold compared to the rest of Europe: the gold/silver ratio in England had now advanced to 16.01, whereas in the rest of Europe is barely rose above 15. It had the effect of draining silver coin from England and replacing it with European gold: a ‘riskfree’ arbitrage could be made with comparative ease. It must be remembered that the mint was open to both gold and silver in England then. Sir Isaac Newton, master of the royal mint, was consulted about the problem of the vanishing silver specie.

Newton, as one might expect, saw the nature of the problem easily and recommended that the value of the guinea be brought down to be more in line with European rates of gold/silver exchange. The recommendation was taken up and the guinea brought down to 21 shillings by royal proclamation – but this was insufficient according to Newton’s prescription. Even though the implied gold/silver ratio had been brought down from 16.01 to 15.28, it still remained above levels prevailing in continental Europe. In 1715, the Netherland’s West Friesland had an implied gold/silver ratio of 15, as did France. Silver specie continued to flow out of England. Newton, as the records indicate, did not sound out the idea of a floating market rate between the guinea and pound Sterling. As a general frame of thought, ‘change’ is not something the British are generally keen on.

The state of the kingdom’s silver coin had become so dwindled and worn that it was necessary to declare in 1774 that silver should be legal tender for sums over £25 by weight and not by tale (i.e. number of coins.) Silver – completely by blunder – had been replaced by gold, whilst silver remained the legal basis for Pound Sterling. The two states were incongruous. The official closing of the mint to silver in the United Kingdom [as it was by then] was achieved in 1816, when gold became the legal basis for Pound Sterling. This was merely a formality as the gold standard had been implicit for decades as silver left the country.

The road to hell...

It seems like a series of innocuous events led to the adoption of a gold standard in the United Kingdom. With malice not a forethought, the country ended up on a gold standard. All this due to something as simple as fixing a ratio. Other nations followed suit. The United Kingdom, by 1816, was a power with no equal and the rest of the world could not watch idly. The United Kingdom was the first country of size to ‘de-monetize’ silver. By the end of the 19th century – virtually all of Europe had switched to gold as the legal basis for currency (implicit or not) and silver – by the whim of governments – had become a mere token issue.

This transition had horrific consequences across the world – and it was not as pleasant a sojourn as the British experienced. Silver remained the basis for the currencies of India, China and many more. Those that were last to convert their standard from silver to gold suffered the most. In a very short space of time, these countries found that imports [from gold based countries] were getting far more costly, and exports were being paid for in voluminous amounts of silver. In some cases, this caused a rapid escalation in the general price level. This occurred in China prior to the communist revolution. It had the effect of wiping out the agricultural classes and causing mass destitution paving the way for Mao to take command with his ignorant ideologies. India, under the imperial yoke of Great Britain, did not adopt a gold standard until 1893 – after the majority of the “civilized” world. A similar fate awaited them as China. Attempting to fix a gold coin’s price in silver terms, a seemingly innocent desire, was the progenitor of communism.

The correct way of practicing bimetallism

Silver was the legal basis for money across the entire globe and that is the way it should have remained. The ancient currencies (e.g. Rupee and Pound) were defined in terms of silver alone. That was perfectly sufficient. The introduction of gold coin should have been under a different nomenclature so as to imply no fixed relationship between gold and silver. This was initially done – the gold guinea not being defined initially in terms of pounds Sterling.

The two rates of exchange should be left to the market. With the strict proviso that the mints across all countries are open to both gold and silver in any size tender, any geographical differences in the (market traded) gold/silver ratio will tend to be arbitraged away. The market process would naturally achieve what Newton initially wanted: minimal difference between different countries’ gold/silver ratio rates.

A huge discovery of silver reserves in the United States – as occurred in the 19th century – would have the effect of elevating the gold/silver exchange ratio locally. Perversely, the nominal amount of gold within US borders is likely to increase with this glut of silver. A sharp move higher in the US gold/silver ratio would induce surrounding countries to send gold to the United States in exchange for the cheaper silver to be exported. The effect would be to normalise the gold/silver ratio in the United States in relation to the ratio in surrounding countries.

The problem was not with bimetallism but with the mechanics of its establishment. Bimetallism is paradise so long as exchanges between the metal are free, and mints are open to unlimited tender in both metals. It is up to the people to decide which metal they prefer and there should be no hindrance from government in this choice. From a legal perspective, there was nothing lacking in having silver as the basis for money. What was lacking was the prevailing mentality that gold could and should somehow be fixed in relationship to silver. No other pairs of distinct entities have this kind of relationship forced on them. Gold and silver are no different.

Reprinted with permission.

Sources:
Banking and Currency, Ernest Sikes, 1905.
The Early history of Gold in India, Rajni Nanda, 1992.

Why Silver Should Be Legal Mexican Currency

Scott Smith of The Daily Bell interviewed Hugo Salinas-Price on "Why Silver Should Be Legal Mexican Currency" (May 23, 2010).

Introduction: Hugo Salinas Price, 75, is a successful, retired businessman who lives in Mexico. He has been a follower of the Austrian School of Economics since his youth. He has written three books in Spanish on how and why silver should be instituted as money in Mexico, in parallel with paper money, and numerous related articles in English and Spanish, posted at his website. His organization, the Mexican Civic Association Pro Silver, is actively lobbying the Mexican Congress to approve legislation, which will institute the pure silver "Libertad" ounce as money.

Daily Bell: What is your campaign in Mexico for sound financial policy?

Hugo Salinas-Price: I actually avoid discussing "sound financial policy" because one can argue about that till the cows come home. During the last fifteen years I have devoted my efforts to one single aim, and that is to achieve the monetization of a silver ounce coin currently minted by our Central Bank. This coin has no engraved monetary value and is called the "Libertad" coin; it can very easily be turned into a monetary coin, that is to say, a coin with a monetary value. As such, anyone owning such a coin could, if he or she wished, be able to pay any bill or debt denominated in Mexican pesos.

The monetary value of this coin would be slightly higher than its bullion value; the monetary value would not fluctuate according to the price of the silver ounce, but its monetary value would be raised if the bullion price of silver rose and closed in on the monetary value. The Central Bank would give the coin its monetary value, according to a formula in the proposed legislation.

If the price of silver fell to $1 dollars an ounce, the monetary value of the coin would remain where it was last pegged. (But it would still be better money than any paper or digital money in the world!)

On the other hand, if silver should go to $50 dollars an ounce, this coin would remain in circulation, useable as money, because then its monetary value would be about $57 dollars, and stay there until a further rise in the value of bullion silver.

The monetized silver ounce would be an excellent refuge for savings and would attract them irresistibly. You don't need a bank account, you don't even have to know how to sign your name, to invest your savings in this simple and inflation-proof way.

This coin would be better money than the US dollar and I expect many Americans would be wanting to own these "Libertad" ounces once monetization is realized.

Daily Bell: Has Mexico always suffered from an unsound economy? Does Mexico now have a stable political structure?

Hugo Salinas-Price: The first question is like asking me "When did you stop beating your wife?"

Seriously, I think the Mexican economy is sounder than the US economy – which isn't saying too much. The Mexican economy is much less complex than the American economy. Think of the Mexican economy as a low, wide pyramid or mound. The American economy is by comparison a skyscraper. Personally, I don't like to occupy hotel rooms above the 12th story, thinking of the possibility of a fire. Think also of all the things that can go wrong for a skyscraper: a power outage, and you and your family are on the 30th floor. No elevators, no water, no refrigerator...you get the idea. The American economy is vulnerable in ways that the Mexican economy is not.

Mexicans have mostly fully-paid housing – the house may be very modest, such that most Americans would not care to live that way, but – it is paid for! Mortgages are not widespread; during recent years there was an increasing use of mortgages but on the whole, the Mexican population lives in housing that is paid for.

Mexican indebtedness is not as great as in the US; because until recently, 70% of the population did not have bank accounts – which given the behavior of banks in general, is a very good thing.

Mexicans, unlike Americans, are used to bearing with hard times. They can "cope" with situations which would drive an American to despair. We do not have a government that prints the World's money, so we haven't been as coddled by all levels of government, as the American people.

About political stability: I don't think American political stability is stronger than ours. We don't have Tea Parties and we don't think about taking up guns and holing up in our houses. Matter of fact, I think I see a Revolution brewing right in the old U.S. of A. But of course, we can always be the object of "Regime Change" by the Powers That Be in Washington, D.C. It's happened before, though most Mexicans are not aware of the fact that our Glorious Revolution of 1910, was a "Regime Change" Operation, carried out covertly by the U.S., because Mexico was getting too prosperous and inviting European Capital into the country, in preference to American Capital. So, it can happen again – any excuse will do. How about: "The Drug War in Mexico threatens American security"? That ought to do the trick.

Read the rest of the article.

From The Daily Bell After Thoughts:

Hugo Salinas-Price comes across as thoughtful and gracious soul – someone who truly has the good of his country in mind in many ways. His is certainly a life well-lived. He has built a national Mexican company from the bottom up, provided for his family and then spent his mature years engaged in a great struggle to introduce sound money into the economy of his native land. In fact, given the sensibleness of his endeavor (which grows closer to success in our opinion every year) you would think that his campaign to create a legal and circulating silver dollar in Mexico would already have borne fruit.

Given the shape of the Mexican economy and of paper money in general, Hugo Salinas-Price's monetary solution makes sense. Silver is the money of the people, just as gold has traditionally been the money of bankers and the wealthy. Silver has traded in a ratio with gold for millennia, and thus bi-metallism has been the monetary standard of choice for many cultures and countries. Historically, this is provable and seems reasonable to us here at the Bell, but such is the decrepitude of modern understanding of money that the Internet is assaulted a thousand times a day with elaborate monetary plans featuring all kinds of money stuff and strategies.

Essentially, money over the millennia has proven to have four characteristics:

(1) durability (value),

(2) divisibility (malleability),

(3) transportability, and

(4) noncounterfeitability (serviceability)

As free-market economist Murray Rothbard has famously pointed out, money evolved from a competition featuring different kinds of money stuff. Gold and silver (and to a lesser extent copper), precious metals often found together, were not appointed by a committee or king. The market itself determined the choice of money historically – and in fact money has manifested itself in other forms as well – beads, salt, sugar even large, carved rocks. But ultimately and over and over, the market itself has chosen gold and silver as the money of choice.

We have often observed in these modest pages that a gold (or silver) backed currency would prove most attractive if some country were to step forward and issue it. In fact, were Iceland or Greece or some other nation currently struggling with the ruinous ramifications of mercantilist fiat money to simply back the national currency with gold, many difficulties would be reduced or eliminated. (Of course, a country would need to find the gold to begin with, but that is a separate question.)

In the best of all worlds, of course, a country and a ruling class will not mandate the composition of money nor control its circulation. The market itself would decide on the composition of money, the kinds of banking that was demanded and even the level of fractionality with which money would circulate, if any. In fact, money really is a pretty simple issue once the market itself is re-involved. In a laissez-faire money economy, interest rates would fluctuate regionally, no doubt, the supply of money would vary from region to region and even inflation or deflation rates would be variable.

What we have today, of course, is much different. The powers-that-be have taken the various paraphernalia of money – its banks, bills and issuance – and gradually hollowed them out, offering instead an imitation that provides a historical representation but none of the control or value. Even government mints, which used to stamp gold and silver, today work overtime stamping what in the past would have been considered slugs – any kind of non-precious metals.

From our point of view it is only a matter of time until some nation, some group or even some region re-introduces currency backed by precious metals – or even, as Hugo Salinas-Price hopes, circulates the metal itself as a national money. If he has his way, Mexico will be the first major modern country to do this. We wish him well in this important quest. When Mexico does begin to circulate its Libertad, others countries will soon follow. The benefits will be clear and fairly immediate.

What if Your Gold Isn't Really There?

By Patrick A. Heller
Numismaster.com
Tuesday, April 6, 2010

http://numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=10006

One of the lesser reported comments before the Commodity Futures Trading Commission March 25 hearings about the imposition of possible trading limits for gold and silver could end up having the strongest impact in the future.

At one point during the testimony of individual investor Harvey Organ, analyst Adrian Douglas was allowed to share his expertise on the nature of gold trading by the London Bullion Market Association. The London market is the world’s largest exchange for gold. There, all contracts are, in theory, for physical delivery of the commodity.

This is much different than the smaller COMEX market in New York City, where almost all activity is to net purchases and sales to avoid having to take physical delivery. For instance, an investor with a long position will tend to sell the contract before maturity or exchange it for another with a longer term. Those with short positions, likewise, normally buy back their COMEX positions or roll them over into short contracts with maturities further in the future.

However, the theoretical operation of the London market does not match what actually happens. As on the New York COMEX, a high percentage of the trades on the London market are between parties that have no intention of delivering or of taking delivery of the physical goods.

The extent of the paper trading on the London exchange is what Adrian Douglas discussed. From his analysis, Douglas thinks that the ratio of gold in the vaults to cover commitments versus the amount of open contracts is less than 1 to 100. In other words, one ounce of gold is the only inventory available to cover contracts totaling more than 100 ounces of gold.

This news appeared to so shock the CFTC commissioners that they asked another speaker, Jeff Christian, for his opinion on this point. Christian readily agreed with the figure, and then tried to downplay its importance because the market has traded in this fashion for a long time.

The London Bullion Market Association contracts emphasize that those who buy gold contracts through it are not really buying gold. Instead, they are becoming an unsecured creditor of the LBMA. In any kind of run to take delivery on contracts, almost all parties will be out of luck.

The efforts by central banks in the Far East and Middle East to remove physical gold from London to fulfill their long contracts must be wreaking havoc for the LBMA. So, if you think you own gold when you own a gold contract in London for physical delivery of gold upon maturity, you probably don’t.

Similarly, those who think they own gold because they own shares of gold or silver exchange traded funds (ETFs) may be in for a huge surprise. GLD, the symbol for the largest gold ETF, uses HSBC as its lead storage company. HSBC is widely considered to have the largest gold short position on the COMEX. It is a possibility, though it would be at least improper if not illegal, that some of the GLD gold holdings may be pledged as collateral against the COMEX short contracts. The prospectus for GLD discloses that shareholders of the ETF are not actually owners of physical metals, but are actually creditors of the fund.

The same problem exists with the largest silver ETF, trading under the symbol SLV. The head custodian is JPMorgan Chase, who holds the world’s largest silver short position. Again, it is possible that some of the ETF silver is pledged as collateral to short commodity contracts, with ETF investors left holding only a claim against the assets of the fund.

If you think you own gold by holding a COMEX contract, don’t hold your breath. The COMEX has adopted several rule changes over the past year to allow the sellers of contracts to deliver shares of an ETF instead of the physical metal. Of course, the COMEX has long allowed contracts to be settled for cash instead of the commodity.

Maybe you think you own gold because you hold a “certificate” of ownership. The most common of these programs involve gold supposedly stored at the Perth Mint in Australia and at the Royal Canadian Mint in Canada.

While the auditors of the Perth Mint report that there are sufficient inventories on hand to settle all certificates, there was a never-resolved issue raised about two years ago. The Perth Mint is owned by Gold Corporation, which in turned is owned by the government of the state of Western Australia. Gold Corporation also has a 40 percent ownership interest in the AGR Matthey partnership, a major refinery. Simply stated, the AGR Matthey operation defaulted on delivering some gold or silver and appears to have borrowed some metal from the Perth Mint to make good. So, instead of necessarily having all the physical metal in house, the Perth Mint may have a receivable for significant quantities of physical gold and silver from an entity that simply does not have the metal to deliver.

The Royal Canadian Mint had its own controversy over the audit of its 2008 financial statements. The amount of precious metals inventory reflected on the financial statements did not match the lesser amount actually counted as being at the Mint. A difference of more than 17,500 ounces of gold was never fully explained, thought Mint officials think some of it may have been accidentally sold off as low purity slag from the Mint’s operations. Although it looks like the Royal Canadian Mint runs a tighter operation than the Perth Mint, COMEX, or LBMA, they don’t deserve a clean bill of health either.

Finally, if you think you own gold in storage, check to see if your storage contract is for allocated or unallocated metals. Allocated metals mean that specific inventory is set aside with your name on it. It is your asset and not an asset of the storage company. Unallocated accounts means that your holdings are lumped in with everyone else’s of the same description and you don’t own any particular coins or ingots. In fact, the inventory is actually owned by the storage company. This means that the “owners” of metal stored there are only creditors of the storage company, rather than owners of physical metals.

The safest ways to know that you own gold (and silver) is to hold the physical metals directly in your own hands, in safe deposit storage where the box is in your name, or in allocated storage. If you hold any other kind of asset that you think represents ownership of gold, maybe you don’t. In the past year, some major investment funds have been abandoning these uncertain forms of gold ownership to replace them with physical gold. For your own protection, you may want to do the same. The risks of owning paper gold are now part of the CFTC record, so don’t wait to take action.

Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Reprinted with permission.

For further reading:
"The Latest Gold Fraud Bombshell: Canada's Only Bullion Bank Gold Vault Is Practically Empty", Zero Hedge, April 7, 2010
"For Warren Mosler: A Primer on the Difference Between Honesty and Fraud", Jesse's Café Américain, April 6, 2010
"Silver Short Squeeze Could Be Imminent", National Inflation Association, April 3, 2010

CFTC Gets Facts of Bullion Manipulation

By Patrick A. Heller
Numismaster.com
Tuesday, March 30, 2010

http://numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=9921

Last Thursday, the Commodity Futures Trading Commission held hearings on the possible imposition of commodity futures and options trading limits in the precious metals markets. Each of the five commissioners plus two CFTC staff members made presentations. In addition, 14 outside parties accepted invitations to make presentations.

This hearing came about in part because of long-term complaints from organizations such as the Gold Anti-Trust Action Committee and individual analysts such as Ted Butler, Reg Howe, James Turk, Frank Veneroso and Adrian Douglas that the gold and silver commodity markets have been subject to blatant extensive price suppression manipulation by the U.S. government and its trading partners.

Among the outsiders making presentations at this hearing were Bill Murphy, in his capacity as chairman of GATA, and Harvey Organ, an individual investor.

Murphy was advised to expect a strict time limit of five minutes for his presentation, even though the CFTC chairman Gary Gensler had the option to allow more time. In order to provide the maximum documentation possible into the official written record of these proceedings, Murphy raced through his 6-1/2 minute oral presentation in just five minutes. It was not a graceful presentation, but Murphy introduced a lot information into the record that the CFTC can no longer pretend not to know.

After his formal remarks, Murphy was asked by commissioner Bart Chilton if he could provide some specific instances where such manipulation had occurred. This was the opening for Murphy to introduce a bombshell.

In November 2009, Andrew Maguire, a former Goldman Sachs silver trader in that firm’s London office, had contacted the CFTC Enforcement Division to report the illegal manipulation of the silver market by traders at JPMorgan Chase. He described how the JPMorgan Chase silver traders bragged openly about their actions, including how they gave a signal to the market in advance so that other traders could make a profit during the price suppressions.

Maguire had a series of e-mails with Eliud Ramirez of the CFTC Enforcement Division explaining how the manipulations were tied to the Bureau of Labor Statistics monthly release of non-farm payroll figures and other recurring events. On Feb. 3, 2010, Maguire sent an e-mail to Ramirez and commissioner Chilton saying that he had observed the JPMorgan Chase signal that the price of silver would be knocked down upon the announcement of the non-farm payroll report at 8:30 a.m. on Feb. 5. Maguire then sent them e-mails on Feb. 5 as this suppression was in process, pointing out that it would not be possible for him to have such accurate advance information about this development if the markets were not controlled by JPMorgan Chase.

Maguire asked to be invited to speak at the CFTC hearings this past Thursday. When he was not invited, he contacted Adrian Douglas, another director of GATA, on March 23 to supply this information to be made public at the CFTC hearings. Murphy filled Maguire’s request in response to Chilton’s question asking for specific instances of price manipulation. When I saw him Saturday, Murphy told me that the CFTC commissioners all went pale as he described exactly how the CFTC was provided this detailed information about silver price manipulation but had not yet done anything about it.

During Harvey Organ’s presentation, a question came up about whether large short positions on the London Bullion Market Exchange also reflected efforts to suppress gold and silver prices. Adrian Douglas was permitted to address the hearing on this issue, a subject he has studied extensively. Douglas pointed out that the huge volume of trading levels in the London market (averaging $22 billion per day) could not possibly be settled by delivery of physical metals. To this point, the commissioners asked Jeffrey Christian, one of the other speakers who runs CPM Group – one of the most respected precious metals consultancies, whether Douglas’s contention that the London gold and silver markets could not be settled by delivery of physical metal for all the contracts. Christian rejects the concept that the gold and silver markets are manipulated, but he did confirm Douglas’s analysis.

In effect, the commissioners were told that almost all of the trading activities on the London exchange were merely settled by paper for paper, not for physical metals as the exchange supposedly requires. Further, the commissioners were told that it was impossible for the London exchange to ever deliver all the gold and silver owed to the owners of contracts.

After the hearing, GATA publicly released copies of Maguire’s e-mails with the CFTC. Murphy also revealed that Maguire had recorded all of his telephone conversations with the CFTC without asking for their permission to do so. This is legal to do in Britain, but such recordings cannot legally be provided to other parties. GATA is currently working to ensure that these recorded conversations can be legally released to the public.

This past Saturday, Murphy addressed a full room with his Numismatic Theatre presentation at the American Numismatic Association convention in Fort Worth. There, he shared much of the breaking information he provided to the CFTC commissioners. Little did we know at the time, but at about then Andrew Maguire’s car, in which his wife and he were riding, was struck by a hit-and-run driver. Both Maguire and his wife were briefly hospitalized. The police eventually arrested the other driver. The Maguires may be considered more than lucky. There are other past would-be whistle blowers about the manipulation in gold and silver markets that died in unusual accidents before they were able to bring forth their evidence.

Curiously, the live television broadcast of the CFTC hearing suffered a technical failure right as Murphy was set to begin his testimony. This was corrected right after Murphy was finished. At the same time, at least one live voice broadcast failed during Murphy’s presentation. Coincidence?

Now that this information about silver price manipulation and about the massive shortage of physical gold and silver on the London exchange is part of the official record, I expect huge fallout. Remember, after the five men were arrested for breaking into the Democratic headquarters in Watergate in June 1972, it took more than two years for President Nixon to resign. I don’t think it will take anywhere near this long for last Thursday’s revelations to blow back against the U.S. government and the U.S. dollar. Once the public realizes the extent of the manipulation, gold and silver prices are likely to skyrocket.

I think this hearing will be the beginning of the end for those trying to suppress gold and silver prices. If you would like to view what happened yourself, please check the video clips listed below.

• To view Bill Murphy’s prepared statement to the CFTC, see http://www.youtube.com/watch?v=9wIMpe9SjfQ

• To view Bill Murphy’s citation of specific instances of silver market price manipulation to the CFTC, see http://www.youtube.com/watch?v=e9bUOr6JP4s

• To view Adrian Douglas’s discussion of the Ponzi-like gold trading on the London Bullion Market Exchange to the CFTC, see http://www.youtube.com/watch?v=jok3XLBz_SI

• To view all or part of the March 25 CFTC hearings, see http://www.capitolconnection.net/capcon/cftc/032510/FCTCwebcast.htm

Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Reprinted with permission.

For further reading:
"It's Ponzimonium in the Gold Market", Nathan Lewis, March 31, 2010
"The Coming Precious Metals Short Squeeze", John Rubino, March 30, 2010
"CFTC Hearing; Poised to Act!", Jason Hommel, March 30, 2010
"Former Goldman Commodities Research Analyst Confirms LBMA OTC Gold Market Is 'Paper Gold' Ponzi", Zero Hedge, March 28, 2010
"Dispute over curbs on metal futures", Gregory Meyer, Financial Times, March 26, 2010
"A great day at the CFTC, and another one's coming", Gold Anti-Trust Action Committee Inc., March 25, 2010
"Whistleblower Exposes JP Morgan's Silver Manipulation Scheme", Zero Hedge, March 25, 2010
"Comments for the Commission for the Public Hearing on the Metals Markets", Adrian Douglas, March 25, 2010

Where Have All the Monetary Cranks Gone?

By Lawrence W. Reed
The Freeman
Monday, February 22, 2010

http://www.thefreemanonline.org/headline/monetary-cranks/

“Monetary crank” was never exactly a household phrase, but I know for certain it was much more widely used and understood a century ago than it is today. If you had nutty ideas about money (such as: “cranking out lots of it will make us wealthy”), you were a monetary crank. We don’t hear the term much these days even though the world is full of people — some in high places — whose pictures ought to be in the dictionary right next to the term.

There must have been some monetary cranks around as early as ancient Israel, at the time of the prophet Isaiah, who took his people to task for allowing the depreciation of their money. “Thy silver has become dross, thy wine mixed with water,” admonished the prophet.

John Law of Scotland ranks as one of history’s more colorful monetary cranks. When Louis XIV died in 1715, he left the French treasury flat broke and a five-year-old successor on the throne. It wasn’t hard for the snake-oil salesman Law to secure an audience with the toddler king’s regent, Philippe d’Orléans. Philippe embraced Law’s recommendation, which was to simply print the money the regime needed. The regent then appointed Law the official controller general of finances, a perch from which he orchestrated a massive hyperinflation that ruined the currency in a mere five years.

The French did it all over again during the 1790s, when Robespierre and the revolutionaries argued that the recipe for a currency of reliable value was paper and ink mixed with guns, bayonets, and confiscated Catholic Church property. That little ride took about five years too — and ended in a similar wreck.

Monetary cranks appeared in America in the nineteenth century but President Ulysses S. Grant’s treasury secretary, Benjamin Bristow, was not one of them. In his annual message of 1874, Bristow declared:

The history of irredeemable paper cur­rency repeats itself whenever and wher­ever it is used. It increases present prices, deludes the laborer with the idea that he is getting higher wages, and brings a fictitious prosperity from which follow inflation of business and credit and excess of enterprise in ever-increasing ratio, until it is discovered that trade and commerce have become fatally diseased, when confidence is de­stroyed, and then comes the shock to credit, followed by disaster and depres­sion, and a demand for relief by further issues. . . . The universal use of, and reliance on, such a currency tends to blunt the moral sense and impair the natural self-dependence of the people, and trains them to the belief that the Government must directly assist their individual fortunes and business, help them in their personal affairs, and ena­ble them to discharge their debts by partial payment. This inconvertible paper currency begets the delusion that the remedy for private pecuniary dis­tress is in legislative measures, and makes the people unmindful of the fact that the true remedy is in greater pro­duction and less spending, and that real prosperity comes only from individual effort and thrift.

Bristow’s warning was not enough to prevent Congress in the last quarter of the nineteenth century from buying into the nostrums of the monetary cranks of that era, the “silverites.” Here’s that story:

The paper greenback inflation of the Civil War era left many Americans suspicious of plans to revive a policy of deliberate paper-money ex­pansion on behalf of any special interest. In 1875 Congress passed the Specie Resumption Act, declaring that the gov­ernment would redeem the greenbacks at par in gold on January 1, 1879. To protect the redemption of the green­backs, it was thought that the Treasury would have to maintain a minimum of $100 million in gold on reserve. The most that the inflationist cranks got was a government pledge not to cancel the greenbacks once redeemed but to reissue them so that the total num­ber outstanding would remain the same.

Hi Yo Silver!

The inflationists’ attention then turned to another medium: silver. The greenbackers became “silverites,” and their rallying cry be­came “Free Silver at 16 to 1,” meaning they wanted the federal government to buy as much silver as was available and stand ready to redeem 16 ounces of it for an ounce of gold. They also wanted legal tender paper silver certificates printed as well. They had enough influence to secure passage of the Bland-Allison Act in February 1878 — the first of the acts putting the government in the busi­ness of purchasing silver for coinage.

Bland-Allison passed over President Rutherford B. Hayes’s veto. In his veto message Hayes noted that “A currency worth less than it purports to be worth will in the end defraud not only creditors, but all who are engaged in legitimate busi­ness, and none more surely than those who are dependent on their daily labor for their daily bread.”

The silverite cranks were dissat­isfied with Bland-Allison because it did not go far enough. It did not provide for free and unlimited government purchase and coinage of silver at 16 to 1. The only silver to be coined would be the two to four mil­lion dollars’ worth that the govern­ment purchased each month, and the Treasury, while the law was on the books, rarely bought more than the minimum amount.

Silver producers in particular had a vested interest in the matter, for the market price of silver had begun a long-term decline in the 1870s. Securing a government pledge to buy silver at a higher price than could be obtained in the free market was an obviously lucrative arrangement. As the market ratio of silver to gold steadily rose above 16 to 1, the profit potential became enormous.

The silverites’ drive for favorable legislation culminated in the Sherman Silver Purchase Act of 1890, which replaced Bland-Allison. The Sherman Act stipulated that the Treasury had to purchase 4.5 million ounces of silver per month, or roughly twice the amount under Bland-Allison. The silver purchases mandated by the law represented almost the entire output of American silver mines.

An inflationary boom yielded to panic and a deflationary bust in 1893. President Grover Cleveland led the successful fight to repeal the silver legislation, an indispensable step toward restoration of a sound currency.

The monetary cranks didn’t disappear, however. Their chief intellectual supporter, William “Coin” Harvey, continued to agitate for silver and paper-based inflation. Cleveland’s own party nominated a monetary crank, William Jennings Bryan, for president in 1896. The silver issue didn’t go away until the Gold Standard Act of 1900 settled it.

Maybe we don’t hear the words “monetary crank” these days because the culprits truly have vanished and everybody has smartened up when it comes to money. But wait a minute! If that were the case, how do we explain a dollar that’s now worth about a nickel of its 1913 value, the year something called the Federal Reserve was created?

Hmm. Maybe the only people who have smartened up are the monetary cranks themselves. They’re now wearing pinstripe suits and instead of selling inflation per se, they’re hawking “stimulus” and “full employment.”

Lawrence Reed is the president of the Foundation for Economic Education. Reprinted with permission.

Hunt Brothers Demanded Physical Delivery Too

By Jon Matonis

"A billion dollars isn't what it used to be." --Bunker Hunt on the Sunday after Black Thursday when confronted with a significant payment demand from Engelhard.

If you want to know what happens when multiple long positions demand physical delivery of a commodity all at once, you need look no further than the Hunt brothers silver saga of 1979-1980. They did nothing illegal, the Chicago Board of Trade (CBOT) and COMEX changed the rules in the middle of the game, the Commodity Futures Trading Commission (CFTC) implemented new regulations, and the Hunts were bankrupted, unjustly. All they really did was simply request the delivery of the physical metal for which they held valid, legal contracts. The shorts were unable to meet the delivery at any price because enough deliverable silver did not exist - a classic short squeeze and the panic was on.

This is their story. In conjunction with wealthy investment partners from Saudi Arabia, the Hunt brothers, Bunker and Herbert initially, amassed a legendary silver hoard that had supported itself with ever-increasing prices propelled along the way by their continued margin buying on the exchanges.

Beginning in 1973 and continuing into 1974, they slowly began purchasing silver futures contracts totaling 55 million oz and then took physical delivery of all the contracts. Since Bunker was concerned with impending inflation and the potential confiscation of precious metals following Nixon's closing of the gold window, he arranged for transfer of the bullion to Switzerland. Larry LaBorde summed it up best:

"Meanwhile, back at the ranch, (the Circle K Ranch in Texas) brother in law Randy Kreiling and his brother Tilmon held a shooting contest amongst the cowboys to find the best marksmen. The dozen best marksmen were hired for a special assignment to ride shotgun on one of the largest private silver transfers in history. The Circle K cowboys flew on 3 specially chartered 707 jets to Chicago and New York where they were met by a convoy of armored trucks during the middle of the night. Forty million oz of silver was loaded onto the planes and they immediately flew to Zurich where they were met by another convoy of armored trucks. The cowboys loaded the trucks and silver was dispersed to six different storage locations in Switzerland. The transfer cost Bunker and Herbert $200,000. The storage costs for the 40 million oz in Switzerland and the 15 million oz still in the US amounted to $3 million/year." (from "H.L. Hunt's Boys and the Circle K Cowboys", January 26, 2004)

By the spring of 1974, the markets started to get worried about the amount of silver out in private hands, because annual demand was 450 million oz but annual production was just 245 million oz. Of the estimated 700 million oz. above ground, only 200 million of that was deliverable against futures contracts. Silver had risen to above $6 per oz during this time and then settled back to the $3 to $4 range for several years.

The Arabian Connection

Then, in 1978, a significant development occurred. John Connally, former governor of Texas, introduced Bunker to a Saudi sheik at the Mayflower hotel in Washington. Sheik Khalid bin Mahfouz was staying at the same hotel as Bunker and John Connally, and they met in bin Mahfouz's suite, which consisted of the entire hotel floor, complete with 30 or 40 security guards. The goal was to get the Hunts in the front door with these very wealthy Arab sheikhs, and the Hunts would sell the Saudis on the value of silver over the worthless U.S. dollar with the hope of enlisting them for coordinated joint purchases.

Khalid bin Mahfouz became intrigued, but since he had close ties to the Saudi royal family, Crown Prince Fahd and Prince Abdullah, and since the plan involved the potential elevation of silver to reserve asset status within the Saudi Arabian Monetary Authority, bin Mahfouz wished to be discreet. The operation was to be organized so that his name would not appear in public. Then on July 15, 1979, the company was formally established in Bermuda and registered under the name International Metals Investment Company, or IMIC for short. The stated object was dealing in precious metals and its shares were divided equally between Nelson Bunker Hunt, W. Herbert Hunt, and the two designated Saudi Arabian money men, Ali bin Mussalem and Mohammed Aboud al-Amoudi. The primary silver accumulation would now occur through the IMIC vehicle and two other well-connected middlemen, the Lebanese Naji Nahas and the Palestinian Mahmoud Fustok.

The Accumulation Phase

On August 1, 1979, a new name showed up on the CFTC's daily reports of silver purchasers. The buyer was International Metals Investment Company through an account at Merrill Lynch's Dallas office opened by Herbert Hunt just seven days earlier. Other buying syndicates, including Naji Nahas and the Banque Populaire Suisse, with big money behind them entered the silver market in the first week of August without being noticed.

In all during that period, over 43 million oz of silver contracts were purchased through the Comex and the CBOT with delivery to be taken that fall. In the fall of 1979 the silver price doubled from $8 to $16/oz in only two months and the COMEX and the CBOT started to panic. The warehouses of the two exchanges only held 120 million oz of silver and that amount was traded in October alone. Many buyers, including the Hunts through their International Metal Investment Company were taking delivery on all their contracts. As disorienting as the price escalation was, even more of a concern was the exact identity of IMIC since the CFTC only had a post-office box number located in Hamilton, Bermuda.

The Hunts continued to accumulate silver throughout 1979. Again from Larry LaBorde:

"Late in 1979 the CBOT changed the rules and stated that no investor could hold over 3 million oz of silver contracts and the margin requirement were raised. All contracts over 3 million oz per trader must be liquidated by February of 1980. Bunker accused the COMEX and CBOT board members of having a financial interest in the silver market themselves. Investigations later found that many had substantial silver short positions. Bunker knew that a shortage now existed or they would not be screaming so loudly. He bought even more. The price on the last day of 1979 was $34.45/oz. At this point Bunker and Herbert held 40 million oz in Switzerland and 90 million oz of bullion they jointly owned through International Metals Investment Company. In addition to all that, IMIC had contracts on another 90 million oz due for delivery that March from the Comex, bringing the grand total to 235 million oz. The younger brother, Lamar, had even entered the arena and had taken a $300 million dollar, 10 million oz, silver position by the end of 1979."

Changing the Rules

In early January, it became evident that COMEX intended to change the rules of the game. And then finally on January 7th of 1980, the COMEX changed their rules to only allow 10 million/oz of contracts per trader and that all contracts over that amount must be liquidated before February 18th. Of course, the CFTC promptly backed up the ruling. The escape hatch for the Hunts and some of the other large longs was simply to convert their futures contracts into physicals, lease the physicals abroad at interest rates, which were tax deductions, and shift their future forward buying to the London Metal Exchange. On January 17th silver hit $50/oz, Bunker had continued to buy. At that point in time the Hunt's silver position was worth $4.5 billion dollars bringing their profits in silver to $3.5 billion dollars. The chart below illustrates the great Silver Spike of early 1980.

The "Silver Spike"

On January 21st, the COMEX announced that it was suspending trading in silver and that they would only accept liquidation orders. Predictably with trading suspended and only liquidation orders going through, the price of silver dropped $10/oz and stayed around $39/oz until the end of January. Long lines formed outside of metal dealer shops and scrap silver, old silver coin collections, and family silverware came into the market - about 22 million oz in all. In early February the Hunt group took delivery of another 26 million oz from Chicago. The Hunt's North Sea oil through Placid Oil was coming on line and generating $200 million /year from that venture alone. There was talk of a takeover of Texaco Oil. Bunker was also talking to other Middle Eastern rulers about putting together another silver buying group.

Forever the optimist, Bunker faithfully believed that he could maintain the silver spike if only he had cooperative fresh buying. From Larry LaBorde:

"By March 14th silver was down to $21/oz, Paul Volcker had raised interest rates, and the dollar had firmed up. International Metals still held 60 million oz of futures contracts. Their margin calls on those contracts amounted to $10 million dollars a day! Bunker still believed the price would go back up if only he could promote more buying. He scrambled around Europe looking for a buying partner but the more the price dropped the harder it was to borrow more money against his silver holdings to buy even more silver to hold up the price."

The Hunt's brokerage connection in New York and London, Bache Halsey Stuart Shields, sent the Hunts a margin call for $100 million on March 26th of 1980. Since the Hunts had also purchased vast quantities of Bache stock (more than 5% of issued and outstanding shares), they were technically "insiders" required to adhere to the rules of only fractional stock selling permitted on a monthly basis. With their Bache stock illiquid and silver in free fall, the Hunt brothers had run out of cash. Bunker was in Paris that day so he called Herbert and simply said, "Shut it down". Herbert promptly told his broker the following morning that they could not meet their total $135 million dollar margin call.

The Hunt's brokers immediately sold $100 million dollars worth of silver on that day. Their account only had $90 million dollars worth of equity and they were expected to lose all that the next day. The CFTC chairman, the Chairman of the Federal Reserve, and the US Treasury Secretary began an around the clock silver monitoring session. Whoever could have foreseen the day when a change in the price of silver would cause tremors through the entire stock market and adversely affect the reputations of leading brokerage and commodity firms. Wall Street was on edge.

Silver Thursday

On March 27th (Silver Thursday), silver opened at $15.80 and closed at $10.80. The stock market crashed on rumors of Hunt Brother liquidations of stocks in order to cover his silver losses, but the market then rallied to close roughly at the same level. The Hunt's bullion purchases were all averaged around $10/oz, but their futures contracts were purchased at or about $35/oz. When it was all over the Hunts owed approximately $1.5 billion dollars.

Fearing a financial disaster, Federal Reserve Chairman Paul Volker gave approval for an emergency bailout plan for the brothers and a group of banks agreed to loan the brothers $1.1 billion with the family posting $8 billion in collateral. With this final act the brother's older sister, Margaret, finally put her foot down and demanded to know just what Bunker had intended to accomplish in the silver market? Bunker sheepishly replied, "I was just trying to make some money" (see Larry LaBorde).

Nelson Bunker Hunt filed for personal bankruptcy in September of 1988. Within one year he exited bankruptcy with a net worth of $5 to 10 million dollars and a debt to the IRS of $90 million dollars which had to be repaid in 15 years. In a 1989 settlement with the United States Commodity Futures Trading Commission, Nelson Bunker Hunt was also fined US$10 million and banned from trading in the commodity markets as a result of charges of conspiring to manipulate the silver market stemming from his attempt to corner the market in silver. Bunker's trusts, set up by his father H.L. Hunt, were valued at approximately $200 million dollars. The payments to the IRS finally stopped in 2003.

For further reading:
"The Art of Silver Manipulation", Ed Zimmer, November 13, 2009
"Once world's richest man, Bunker Hunt has 'no regrets' 29 years after silver collapse", Doug J. Swanson, The Dallas Morning News , March 22, 2009
"Let's Be Hunts", David Bond, August 17, 2008
"H.L. Hunt's Boys and the Circle K Cowboys", Larry LaBorde, January 26, 2004
"Move Over Fisk and Gould", James Turk, Free Gold Money Report, August 16, 1999
"Hunts are Ruled Part of a Scheme to Control Silver", The New York Times, August 21, 1988
"Trial of Hunt Brothers In Silver Case Begins", The New York Times, February 25, 1988
"The Hunt Brothers; Battling a Billion-Dollar Debt", The New York Times, September 27, 1987
Beyond Greed: The Hunt Family's Bold Attempt to Corner the Silver Market, Stephen Fay, 1982
Silver Bulls: The Great Silver Boom and Bust, Paul Sarnoff, 1980
"Silverfinger: The Hunt Brothers Story", Harry Hurt III, Playboy, September 1980
"Bunker's Busted Silver Bubble", Time, May 12, 1980
"He Has a Passion for Silver", Time, April 7, 1980