Monday, May 07, 2012

The Gold Behind THIS Dollar is Gone FOREVER

Anyone ever ask the question, “How did gold and silver disappear out of our coinage system?” We had them both until you could make more melting the coins down and selling them as bullion.

Go back to 1920, they actually used gold and silver coins. You had the option of paper, gold and silver. There was no real shortage of metal coins for one reason, they paid no interest. Money in the bank could be loaned to someone else with an expected rate of return.

There was however a bond between the currency and gold and silver. They were one and the same. People that understood a currency backed by gold and silver knew the paper was as good as gold. Well, we have progressed a bit. The twenty dollar gold coin is still minted by the US Mint, but they’re not selling it for $20 anymore.

Inflation as far as the general public is concerned has nothing to do with government; it’s just a fact of life. Things over time just cost more.

The only thing that has kept pace with the value of a $20 gold piece is the Dow Jones Average. A move of 500 points on the DJIA reflects your loss or gain from the year 1890. Not many people today have been holding stock that long. Of course I digress.

The thing to really examine is that in the 1920’s your bank loan was payable in gold to the bank. There was a certainty to that that every banker could appreciate. Plus even if the saver knew nothing about inflation, they were protected from it and got a real return on their savings. Twenty dollars of paper money was just as good as a 20 dollar gold piece, they were interchangeable.

Fast forward to today. Interest rates are at 1% and inflation is at 8%. People marvel at the cost of silver and gold. The real disconnect is between the banks and government inflation. The banks’ loan money long and have to cover short term. Inflation leaves them with a built in loss. In today’s world, borrowers are paying back, a hell of a lot less in real dollars than they borrowed 20 years ago. In the 1920’s with gold as base, this couldn’t happen. A dollar WAS a dollar and time had nothing to do with it. The concept that the dime you loaned would buy the same can of beans 20 years later was a given. In today’s world, that isn’t true. Bankers lose over the long term as do savers. Today’s dollar isn’t going to have the purchasing power it does today, in 20 years.

The masses have been weaned off of their commons sense that revolved around the interchangeability of printed currency for Specie. What if we returned to using silver and gold in our currency? How would it work out? We could value silver at $100 per ounce and gold at $2,000 an ounce.

Examine an old 20 dollar gold piece. Even the newly minted gold coins say 20 dollars. The copper penny had to come to an end in 1982. It cost more for the copper than the penny was worth. There was nothing stopping you from melting the pennies down and selling them back to the government to make new coins. So now we have a copper clad zinc penny (FYI a copper penny 1982 weighs in at 3.11 grams and a zinc clad weighs in at 2.5 grams).

Reality could be a new government edict. Issue a new currency backed by gold and silver (Chances are slim to none on this). But take everyone’s savings and divide it by 100 and convert it to new dollars. We would be back to 1920 and it would take two zeros off of the national debt (don’t think for one moment that it would in any way solve that problem). The penny would again represent buying power (four cent a gallon gasoline, WOW!). It could work, but what do you do if prices go up again? Gold and silver will again start to disappear out of the system. There is a saying, “bad money chases out good money.”

The sad thing is that the present financial system is working “Just Great!” No need to change anything. The European Euro is in its death throes, our real estate market has had the “Cesspool” sign removed and replaced with one saying “Government Financed Housing.” The only drawback, the smell is not going away. The thing that cracked me up today was a comment I read, “Everyone figures that they have to work to the age of 80 before they can retire, and that’s two years longer than they are expected to live!” Go Figure.

Copyright 2012 by Jim Brubaker


Sackerson said...

Look at Hugo Alinas Price's Mexican Libertad coinage - no face value, just a statement of the silver content by weight. That gets round the melting down problem.

Anonymous said...

To quote the Grateful Dead: "What a long strange trip its been."

And it will get stranger.

John Westing said...

I hope I don't have to work until 80!

Anonymous said...

Retirement is a farce. What is wrong with working until you are 80? You should be happy to be alive, healthy and functioning at that age. People should work and contribute until their dying day. Work should be enjoyable and therapeutic and necessary to existence. It is needed for sanity.

If you hate your job and look forward to retiring that just means you are dysfunctional, didn't plan your life out and don't have your goals and purposes clarified and in alignment.

A life of just fishing and golfing is really perverted. Anyone doing that has withdrawn from life and is already dead.

Jim in San Marcos said...

Hi Anon 7:32

That's not the point. The retiree saves up the money and the government spends it all. Thats theft, but it is better known as inflation.

A point to ponder: old age is full of aches and pains and general failure of your body to perform as it did in youth. Retirement is a plan to take that into consideration. Not everyone will be lucky enough to have their health when they retire.

Anonymous said...

My two cents --
Aches, pains and failure to perform might come from stopping work and being productive. Work and production might contribute to better health. Of course if someone isn't that fortunate they will need something to fall back on or someone to take care of them or work for them. But then again if that is the case what is the point of being alive? Which I think goes along with Anon 7:32's viewpoint. I also believe that one will live a happier and longer life if they die "in harness". Civilized man has become pretty wimpy. In undeveloped countries you see very old people working in the fields or whatever into their 80's, 90's and beyond and they are happy to be productive and a contributor. I don't like the American retirement mentality either. It is like dying before your body dies.

Anonymous said...

Retirement that people earn I can deal with, but having to pay taxes so someone on a government pension can play golf all day is a bit much. Maybe Congress will help fix this mess.

Jim in San Marcos said...

Hi Anon 5:35

If you love your job like I do, I don't even entertain the idea of retirement. I have trouble taking the 6 weeks vacation I am entitled to each year.

I think a lot of people hate their job and maybe even the person they work for. Retirement is their salvation, they have dreamed about it for 30 years or more.

Idealistically, work should be fun, and enjoyable and that isn't always the case. Some bosses out there can make every employee feel miserable while on the job.

I think in todays world, many people retire and start up a business and become their own boss.

I have no problems with Anon 7:42's views, his attitude suggests that he's the boss and you had better toe the line. As an employee, I would like to work for someone with a more open mind.

Old age people working in undeveloped third world countries kind of points to a lack of a retirement program.

I look at retirement as a time, where you make your own job and you are the boss.

I do think as you indirectly alluded to, the retirement age may be raised by about 14 years. If that doesn't cause a Civil War, we should be good to go.

AIM said...

This is a concept that I don't think many people have a full understanding of. Do you realize when a government employee retires he/she goes off with a nice lifelong pension and health insurance for the rest of his life and sometimes the pension is as much or more as his/her salary when they were on the job. Let's say that 10 people have occupied and retired from that specific government job. That means that the taxpayer are paying 10 salaries and 10 health insurance plans for one government job.

Same goes for Congress. Taxpayers aren't paying the salaries and benefits of 535 politicians, it is more like 535 X 5 politicians.

Doesn't seem too cost effective to me. Definitely makes the motion to make government smaller a good notion. Especially since over 50% of government jobs are not productive or beneficial to our country or us taxpayers. We're paying for people to give us problems and interfere in our businesses and personal lives.

Jim in San Marcos said...

Hi Sackerson

Sorry for the late response, thank you for the link.

I don't think that it will work well. If you buy gold or silver today, there is a premium charge to turn currency into silver and vice versa. When silver and gold were part of the monetary system, there was no premium for converting from metal to paper and back.

The real problem with metal backed currency's is inflation. The coin becomes more valuable than the currency it represents. Tragically, even our penny bit the dust in 1982 when copper prices rose.

Once you separate metal currency from the dollar, the printing presses can run wild with no control. A newly printed 100 dollar bill has the buying power of a silver dollar minted 100 years ago. The metal hasn't lost its purchasing power--and we are not talking miracles here.

AIM said...

Paralleling the stock market (DJIA) when it rose from 1,000 to 13,000 was our money supply (M2). That's right, it went up 13X as well. Meaning that the current value of businesses is false. And not much real wealth has been created over all of these years. Not much wealth has been created. Wages pretty much stayed the same throughout this whole period. This is what central banks and money printing can do.

It's been a slow process of destroying our economy and our country's potentials.

It is all coming to an end now. They've made a mess of it all.

Jim in San Marcos said...


They haven't stopped printing money, but there is an issue in Congress, cut the farm subsidies or cut the food stamps. The Democrats want to keep the food stamps, but I have to ask, we need someone to grow the food, and if there is no profit in growing food, you ain't going to get much to eat whether you have food stamps or not.

You can print food stamps, you can't print food. What eludes people is where does government food come from? I guess the right people (Congress) are not listening

Tyrone said...

Nothing surprising here... but note that the plan was... HOPE.

California facing higher $16 billion shortfall
SACRAMENTO, Calif. (AP) — California's budget deficit has swelled to a projected $16 billion — much larger than had been predicted just months ago — and will force severe cuts to schools and public safety if voters fail to approve tax increases in November, Gov. Jerry Brown said Saturday.

The Democratic governor said the shortfall grew from $9.2 billion in January in part because tax collections have not come in as high as expected and the economy isn't growing as fast as hoped for. The deficit has also risen because lawsuits and federal requirements have blocked billions of dollars in state cuts.

AIM said...

Hey Jim,

The IMF is buying up lots of gold. Many central banks are too. China, India, etc. are doing likewise.

The common man isn't aware of such activities... only the educated and/or vigilant.

What message is this central bank and sovereign gold buying sending?

Tyrone said...

Let's see if they really have the balls to do it...

California targets health, public workers to fix budget hole
SAN FRANCISCO (Reuters) - California Governor Jerry Brown on Monday unveiled a revised state budget plan that calls for new cuts to healthcare for the poor and elderly and reduced work hours for state employees as part of an effort to close a $15.7 billion budget gap.
Under Brown's new budget plan, spending cuts would hit the state's health-care program for low-income Californians and the elderly, reducing in-home support services and other medical programs. It would also slash the state's CalWORKS welfare program by nearly $1 billion.

Additionally, state employee compensation would be reduced by 5 percent by cutting work hours.

Jim in San Marcos said...

Hi Tyrone

It would have taken balls to fix it years ago----

Bullsh#t isn't going to cut it now.

There is no money left to spend, California has borrowed every dime they can from next year's tax returns for this years budget.


Anonymous said...

Dividing the 15.7 billion shortfall into the population of CA makes this seemingly large problem appear quite small.

Jim in San Marcos said...

Hi Anon 2:13

With 37 million people that comes out to about $400 per person or about $1,400 per family figuring 3.48 people per household.

Thats only a three month revision of the shortfall, I'll bet it doubles given another 3 months.

I don't see any good news on the horizon.

aim said...

Hey Jim,
You seemed to have missed my Q. What do you think about all of the sovereign and central bank gold buying going on?

aim said...

If Jerry Brown wasn't a stupid socialist democrat puppet, and really wanted to fix California's economic situation he would:

get out of bed with the unions
end collective bargaining
trim all non-essentials off spending
eradicate the minimum wage
take all the barriers off small biz
give corporations a tax moratorium
reduce welfare recipients
give benefits to businesses that locate in CA
cut income taxes
don't tax the rich any further
stop meddling in the private lives and businesses of the citizens

THAT is how you would stimulate the Calif economy.

Jim in San Marcos said...


Sorry for the delayed response.

Gold means nothing to a sovereign state unless its citizens are trying to redeem the currency for gold in some sort of panic. At that point it becomes unlawful to own gold.

There are news releases that the IMF buys and sells gold, but it makes little sense. You can't spend gold, you have to convert it to a currency.

I would suggest that the IMF gold is really a peg that floats free of each currency. Each member pledges gold, but that can be redeemed with cash at the going gold exchange rate. For instance, say the United States pledged 1 ton of gold when it was valued at $300 an ounce, well by todays standards, that's about $1,500 an ounce. So the IMF can sell that pledged ton of gold on the open market or the US will redeem it with current value dollars. No gold is changing hands, it's just a conversion that understands how each nation can creatively use the currency printing presses.

The only real reason for a country to hold gold is in international trade. Even if your currency is worthless, gold bullion has value on an international level.

The question arises, how can a country buy gold from people with printed paper? If the rewards from investing are reasonable people will prefer cash over gold.

The real profit or loss on gold is on an individual or personal basis. Gold isn't an investment, it is a store of value. An ounce of gold is normally about two weeks of wages and an ounce of silver is one days wages.

So whatever the IMF or foreign countries are doing with gold, matters little. they have notoriously bought high and sold low almost every time. The price of gold is of no consequence to them, they can always print more dollars if they feel the need for more gold.

I hope that answers your question

HelicopterBen said...

"The banks’ loan money long and have to cover short term. Inflation leaves them with a built in loss."

The banks loan thin air long and after the comming collapse of this thin air fictional reserve system the banks will get to be paid back on demand in Federal Reserve Notes (real paper as legal tender) that are collateralized by law and are relatively very rare in number (<1 trillion, the rest $15t in t-bills) when compared to the gazillion thin air dollars that are only magnetic ink.

Did you ever wonder why T-bills have continually stayed at such low discounts since this crisis began? It aint the Fed printing them (even the Fed wants real T-bills). It is because next to gold, T-bills and Fed Notes are the only real money out there. Why hoard gold when you can just hoard Federal Reserve Notes as lumps in your mattress.

Just where is everyone going to get these Fed Notes to pay pack these loans and derivities? Fed Notes could make gold look like a piker. ;-)