Chasing the Gold Standard

I suppose it is an article of faith here in the Bar that the first nation to adopt a true gold standard is going to have a commanding advantage internationally?

If not, it is here in the Whiskey Redan, deep in the heart of Texas. A “redan,” you will recall, is a fortification with only three corners, and I chose the term partially because Gary had already snagged “the Whiskey Bunker” and to allow myself to define what the three most important factors are easily, according to my whim of the moment. Today I’m going to go with “God, Gold, and Guns,” which you will notice is in alphabetical order. We don’t discuss religion in the Bar, politics and economics being quite controversial enough, so that leaves us with Gold and Guns.

We can deal with the Gun facet pretty easily: if a government doesn’t have “guns” (i.e., military forces sufficient to deal with less than friendly neighbors), it won’t be long before a nation is absorbed by more belligerant and better-armed forces. If the people don’t have guns, governments tend to overreach. When the people don’t have guns, crime rises.

Which brings us to everyone’s favorite topic, shimmering metals, and, in particular, the much-disputed question of whether they are a “barbaric relic” or the best means of assuring both a stable monetary system and preventing governments from inflating through the printing press.

Amazing, isn’t it, how putting matters simply can make them much clearer? Why doesn’t any government have a gold standard? Because there was too much “money” and power to be gained by going to fiat currency. Despite the obvious advantages geopolitically why isn’t anyone doing more than flirting very tentatively with the idea of money that is backed unit for unit with gold or silver? Because governments don’t want to give up the power they have or fear that cutting back on so-called “safety nets” would lead to their destruction. More than that, every nation I can think of quickly has spent itself into such a hole that it cannot simply recall all of the paper currency and swap it out for gold and silver at parity or even a sensible fraction thereof. I doubt that the Feds could have managed a penny on the dollar even before the stupifying debt incursion of the last eighteen months–and we have only their unverified word on how much physical gold is on hand. A country with no foreign debt might have some chance of pulling conversion off without devastating consequences, but are there any governments that don’t have foreign debt or own that of others? Perhaps a period with a two- or three-tiered exchange rate, such as Hugo Chavez inagurated recently, would work. In Venezuela, now, what your money is worth depends upon what you are spending it on! My idea of good economic policy does not include armed guards in business establishments to prevent the owners from raising their prices. Ceylon (sorry, “Sri Lanka”) tried it but is too small; Monaco isn’t a good candidate, either, nor is Andorra.

So there the golden fruit hangs, seemingly out of reach. IF a country with reasonable clout (the US, Britain, BRIC, perhaps even an OPEC member) could make the transition without losing heads or thrones there would be no further question of what the world’s reserve currency would be. We can certainly take Saudi Arabia off the list of possibilities because the price of keeping the house of Saud in charge is $70/barrel in giveaways. Short of defaulting internally and externally and eliminating the notion of “entitlements” the Feds and Parliament certainly can’t get away with it, and such actions would surely precipitate blood in the streets of a nation where 40% of the citizens are on the dole and 40% of those employed work for government at some level.

I learned long ago from a very fine general, “Don’t bring me a problem unless you have a solution.” This saved the general a lot of frivolous complaints, but it did something better: the person who has the problem is most likely the one best-qualified to formulate a solution. It forces people to think for themselves as well as taking into account their familiarity with the restrictions and results. Of course I have an answer to the problem of what nation can–and must, by its Constitution–adopt a strict gold standard, and by fortuitous happenstance that country neither prints fiat “money” nor does it have vast foreign or internal debt. It is laboring under the small inconvenience of having been occupied by a foreign power for a hundred and fifty years.

Yes, I’m back to the campaign to restore the Republic of Texas via a public vote whether to request an amendment to the US Constitution to allow Texas to be admitted as a State (a process that will take at least twenty years and bales of Timmy’s paper) or to ratify the current treaty between those United States and the Republic of Texas, reclaim our independence, suggest with firm politeness that the Feds and all of their works retire to their side of our respective borders, and insist that Washington abide by the 2004 decree of a Federal Judge that Washington “cease and desist hostilities against the land and people of Texas.” I don’t know about you, but I consider the IRS and federal mandates to be hostile.

The day one more than fifty per cent. of the voters agrees we would prefer to be the ninth richest nation in the world rather than a satrap of Baghdad on the Potomac, we revert instantly to our 1836 Constitution which has been updated with scrupulous legality only to include universal sufferage. Other than that the Convention, very wisely indeed, left that splendid brief document alone.

Our Constitution states specifically that “money” shall consist of gold and silver coins we mint ourselves. You can look up the “for profit corporation dba the State of Texas” and see what our financial position is with Dun and Bradstreet. (While you’re at it, check on the for-profit corporation dba the USA.) You can infer easily how rapidly expenses will drop when ties are cut with DC. Consider just a few…the cost of gasoline, alcohol, and tobacco…the end of Federal mandates which cost us billions a year…the immediate and very real “raise” everyone employed within our borders would receive when income taxes and FICA were removed. Our Constitution, like yours, forbids taxing earnings or heads, but we can make it stick when you didn’t. The true dream of the Republic is not to regain a Wild West with saloons, spittons, and gunfights, but to start over very, very carefully, learning from the mistakes and abuses of the past 175 years and attain a true Jeffersonian republic.

Our money will be “good as gold” because it will be gold. True, for convenience there may be paper currency, but it will say “redeemable for the equivalent in precious metals,” not “Federal Reserve Note.” Your $100 dollar bill is an IOU you cannot count on collecting; if we had one, it would be worth roughly a tenth of an ounce of gold today, tomorrow, and for decades to come. Yes, the metals market does fluctuate, doesn’t it? So do exchange rates. I can see the scurry to hold Texas Gold or even fully-backed paper (be that notes or even bonds if we chose to offer some) because our money will be real. Today’s Bernanke is the equivalent of an Andrew Jackson twenty years ago, a loss of 80% of stated value. The dollar of today is worth less than 4% of an oversized bill a hundred years ago. That is the penalty of fiat currency. We have our own system of Texas banks and deposits in them would be far safer than in your local, FDIC “guaranteed” banks. We’ll have bullion to back our claims. They don’t.

I cannot foresee the Republic of Texas feeling any need to sell bonds, but if it did they would be an excellent value so long as we break free without being invaded again by US or UN forces. Americans are so accustomed to having everything controlled by the fell hand of the Statists that it can be difficult to grasp how few legitimate expenses a truly Constitutional government has. In “Educating the Masses,” archived here, I discussed my solution to the one thing the Texas Constitution says about education: that there must be a “plan” to educate the children. Compare the cost-effectiveness (to say nothing of the superior results we can guarantee) of my plan versus Washington, D.C. spending $14,000/year/student. When the kids can go to private schools there for as little as $7,000 a year (Although Obama’s children are in pricey Friends at eight times that), why on earth is there a disastrously ineffective public school system in the District of Columbia? Silly question; power, the ability to tax and spend, and the politics of envy and racism. As an aside, I am appalled by the very concept of “hate speech.” Someone explain to me why speech permitted under the First Amendment is showing up at a military funeral with a sign that says “Thank God for dead soldiers,” clearly meant to mock, not to comfort the family, but I will be walking on very thin ice if I say what I think about a Marine General’s suggestion that gay troops be billeted together! I haven’t any objection to “separate but equal” (a school system that produced superior education and far less strife; propinquity has not lead to true friendship between those of different color and religions), but I really disapprove of putting all of the–someone come up with a word that won’t get me arrested–in barracks where they can party hearty after lights out knowing that everyone else there is either a potential partner or like-minded. That is scarcely conducive to “good order and discipline.” Wry laugh. We can understand Thomas Jefferson’s sensible suggestion that a brothel be located close to the University of Virginia so that the boys’ minds wouldn’t be distracted in a time when young ladies were supervised strictly. I have trouble with a Lysistrata Corps.

Back to business. At a guess, fewer than 2% of you, dear readers, reside in our fair Republic. (Simple arithmetic. Divide by 50 plus at least Australia, Switzerland, China, and South Africa, where I correspond with readers.) The reasons our fight to regain our freedom should be of interest to you are myriad: as an example to your own governments and citizens; as a shining dream you can partake of by applying for citizenship and paying a flat 10% tax during your probationary period; and as an investment opportunity that is far safer than what goes on in your land, just for starters.

Our goal is to reduce government intrusion to the bare minimum required to keep the peace, internally and externally. Government HAS no other valid purposes than to protect the citizenry and its borders. When the Colonies broke off from England (an England somewhat distracted at the time or the rebellion would never have succeeded) it was for a dream of freedom, the most minamal of governments, and–laughter–individual gain. Nothing wrong with that, free enterprise being the best way to raise the standard of living of all citizens. Our promise is of a Republic where what you earn is yours to keep, where local “taxing authorities” cannot demand property taxes to fund their pet projects, where income is generated primarily through taxes on foreign corporations–including those headquartered in the US–and tariffs, and you are free to use what you earn to support your family, start or expand a business, and prepare for your own future. No, there won’t be any welfare, but those who will not work can either not eat, convince friends/family/churches/charitable institutions to support them, or go to any of your forty-nine states. That worked for Tommy Thompson, and it will work for us.

Just imagine a truly gold-backed currency, and no income taxes, property taxes, “sin” taxes, EPA, NEA, or socialized medicine. I’ll close with a discussion of that. I receive Social Security, and if I live to be well over a hundred I am unlikely to recoup what we “contributed” for over forty years. I have no choice about being on Medicare, which takes precedence over the TriCare a “grateful” government promised me for life for the sacrifices John and I made. The government removes that sum without my permission, and my only option is to refuse my stipend and have no medical insurance at all other than TriCare, which doesn’t appear to cover much any more. The tariff last year was right at $1200, making the (very unusual) three trips I made to the doctor cost me $412 each, including co-pays. This is not my idea of a good bargain. This price will probably triple in coming months, in a world where Obamacrats, desperate for money, denied any COLA increases for the next three years. Left to my own devices I would have a catastrophic care policy and simply pay the current average of $110/visit. In the world we are trying to make no one will provide “free” medical care for those whom, quite frankly, we expect to seek refuge in your welfare states, but no one will attempt to mandate what arrangements you make for your medical care, either. I did an analysis based on what it cost to go to our family doctor in 1955–cash only, of course. In inflation-adjusted dollars it would cost you $35 for a standard office visit if the government and “health care insurance” did not exist.

The “land of the free and the home of the brave” doesn’t look much like that to me, any more. The latest Gary North suggests that the “trade of the decade” is to shed all stocks and buy uranium. I’m sure that is excellent advice…but suggest that you hedge your bets by investing in Texas-based corporations. If our bid for freedom fails, Texas was still the last into the depression and hit most lightly by it. Ah, but if we succeed…I am certain you could take to the idea of dividends paid in gold.

Linda Brady Traynham
Whiskey & Gunpowder

March 30, 2010

The Daily Reckoning