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Gold Is Money. Dollars Are Debt.

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company-dickson-buchananLast fall, SchiffGold Precious Metals Specialist Dickson Buchanan attended the Gold Standard Institute’s conference in New York City. In this article, Dickson explains the philosophy of Keith Weiner, founder of the Gold Standard Institute (GSI). Like Peter Schiff, Weiner is deeply concerned about the destruction of the US dollar by the Federal Reserve’s monetary policies and believes we need to return to using gold as money. Any views expressed here do not necessarily reflect the views of Peter Schiff or SchiffGold.

“The greatest problem facing the world today is monetary,” began The Gold Standard Institute’s founder Keith Weiner in his opening remarks at the New York City conference. Having successfully made the transition from technology entrepreneur to world-class monetary economist, Keith walked us through his business plan for the Gold Standard Institute (GSI). An advocate of what he calls the “unadulterated gold standard,” Keith gave a detailed presentation of the reasons why the gold standard is not only superior to the present fiat system but is also urgently necessary for today. Throughout his talk, several thought-provoking issues were raised that differentiated GSI from other sound money advocates.

Perhaps the most uncommon part of the presentation was Keith’s argument that “rising prices” are not the central problem we face, and therefore should not take up so much focus and energy. He argues that prices rising at 2% or so year over year is not painful or dynamic enough of an issue to wake people up to the dangers of centrally planned money and credit. Dismissing the conventional view of inflation, he offers an alternative definition that coheres with his broader theory: “Inflation is an expansion of counterfeit credit.” He explained that this is indeed terribly harmful and destructive to the economy, but it does not always lead to rising prices (nor are they the most harmful consequence of all).

Mainstream economists like Paul Krugman love to debunk and mock naysayers when it comes to whether prices are indeed rising or not. Keith laments that this has become the central issue instead of the exponentially rising debt with no real means to repay it. This is where he believes sound money activists should focus and where both popular economists like Krugman and politicians alike don’t have any good answers for the policies they are pursuing.

Here again, Keith shows GSI’s message to be somewhat unique. One difference between money and credit is that money must be the asset that extinguishes debt. Keith demonstrates that while dollars pass as money today, they are nothing more than a defunct credit instrument – a broken promise, or in his own words, “counterfeit.” It follows that the rising levels of debt in the current system cannot adequately be terminated by counterfeit paper. In such a system, debt is simply shifted from one balance sheet to another in a kind of closed loop environment. All the while, debt continues to grow at greater or lesser speed.

This subtle but crucial distinction lies at the heart of our monetary woes that began long ago, but were treacherously aggravated in 1971 when Nixon severed all ties between gold and the dollar. Extinguishing credit implies the use of an asset with no strings attached, no counterparty risk, and no outstanding claims or liabilities attached to it. In other words, it implies gold. An ounce in the hand really does make all the difference, Keith reiterated.

When the gravity of the problems discussed in conferences like these eventually hit home, it’s easy to fall into a kind of gloom and doom scenario where all seems lost and the violin starts to play. This conference did not end that way. Keith concluded his presentation with a plan to restore gold to its rightful role in the monetary realm. Not mere wishful thinking, the plan contained concrete steps that would spark gold to recirculate in a money role. Essential elements included the removal of the capital gains tax on gold and silver and removing the outdated legal tender laws. On the other side of the coin, Keith hopes to introduce a bond that is issued, couponed, and fully paid in ounces of gold.

After the conference, we were able to catch up with Keith and ask him a few questions. Below you will find his responses.

Keith Weiner Question and Answer Session

15 01 29 Keith WeinerQuestion: As an advocate for the return to the gold standard, what do you believe are the most pressing reasons we need a gold standard now more than ever? What do you see as the biggest obstacles that stand in the way?

Answer: To quote John Maynard Keynes citing Vladimir Lenin, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” This perfectly describes the Fed regime and the dollar. Our perverse monetary system is imposing the perverse incentive that destruction is profitable.

The biggest obstacle is that dollar critics believe that rising prices is the key problem with the dollar. People care about rising prices, but not that much. Other problems are critical: exponentially rising debt, pathologically falling interest, destruction of the saver and savings, consumption of capital, and the design defect of the dollar itself. The dollar cannot extinguish a debt, make it go out of existence. The dollar can only shift a debt. So debt grows out of control.

Question: What do you believe are the consequences that await the US and the world if we don’t return to gold as money?

Answer: Civilization is built upon a base of capital. People naturally want to build things and accumulate more capital. Honest money enables them to do this. Our corrupt monetary system makes us consume and destroy capital. What happens when it’s all gone? Collapse.

Question: There are quite a few individuals and organizations who talk about the need to return to a gold standard, including Peter Schiff. What makes the Gold Standard Institute different?

Answer: GSI is a non-profit. As a non-profit, it can engage with everyone without the competitive issues faced by a dealer or broker. I think GSI’s message is somewhat different as well [see above]. It’s really hard to communicate monetary economics so that the layman can understand. GSI is developing media to help people see it clearly. This is slow, especially at first. It also costs money, which I think could be hard to justify in a for-profit business.

Question: Peter believes that the Federal Reserve will reinstitute quantitative easing in 2015. What do you think about the end of QE and what’s on deck for 2015?

Answer: As an economist, I am in the minority that predicted falling real interest rates even when they began to rise in 2013, and I continue to predict falling interest rates. I think this trend continues whether or not there is a QE [see graph – you would not be able to tell when QE occurred if the episodes weren’t labeled]. I don’t think the Fed’s goal is a lower dollar, so called “currency wars.” I also don’t think the dollar’s value necessarily falls when the quantity of dollars increases. The Fed cares about the solvency of the big banks, and of course its primary mission is enabling the Treasury to borrow more. I think it will act if either of these goals is threatened, and I do not underestimate the tricks still in the Fed’s bag. However, I don’t expect another QE, much less so soon. I think their next monetary intervention will be something different, possibly something in the repo market.
15 01 29 D Buchanan 10 Year Yield
Question: Gold is still one of the most under-owned assets in the country and world. What would you say to someone right now who might be on the fence about buying physical gold and silver bullion?

Answer: If you own dollars, you are a creditor of Uncle Sam. The dollar is just a little slice of the government’s debt. One buys gold not necessarily as a speculation that its price will rise, but to avoid being the creditor to a counterparty you don’t necessarily trust. If the gold price does rise, then you have more dollars, sure. But each of them is worth proportionally less. Think of the poor folks in Cyprus. Those who bought gold before the banking system collapsed had options. Those who didn’t, didn’t.

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