On 9 December 2009 Representative Ron Paul
introduced H.R. 4248 the Free
Competition in Currency Act of 2009. This Act has the potential to impact the investment world more
than any other legislation that has been enacted for decades. The
impact on the bond market, Treasury market, stock market and general economy
would be tremendous and disruptive.
The aims of the Act are fairly simple to (1) repeal
federal law which currently decrees unconstitutional forms of currency legal
tender, (2) prohibit federal taxes on gold, silver, platinum, palladium or
rhodium bullion, (3) prohibit States from assessing tax or fees on any
currency or monetary instrument used in interstate or foreign commerce that
has legal tender status under the United States Constitution, (4) repeal
federal criminal code pertaining to gold, silver or other metal coins and
nullify any previous convictions under those codes.
Like he has often been when attempting to restore
the checks and balances of the Constitution on this issue with H.R. 4248 Dr.
Ron Paul is the lone voice in the wilderness and has no co-sponsors. To
my knowledge the only legislation Dr. Ron Paul has introduced that has been
approved and enacted is Public Law 99-185 and Public Law 99-61 which require
under 31
United States Code 5,112 that
‘the Secretary shall mint and issue, in quantities sufficient to meet
public demand, coins which’ contain .999 fine silver or
fine gold. When the public wants to buy gold or silver, lawful money,
there should be enough!
H.R. 1207 – FEDERAL RESERVE TRANSPARENCY ACT
OF 2009
On 26 February 2009 Representative Ron Paul of Texas
introduced H.R. 1207 the
Federal Reserve Transparency Act of 2009. Most in the financial establishment chuckled, politicians
ignored it and the general public was clueless as to its effect. But
because of rapid education of the public and the political pain they exerted
on the politicians the bill now has 317 co-sponsors.
To fully understand the impact of the H.R. 4248
legislation it is important to take a short journey through American legal
history.
CONSTITUTIONAL LEGAL TENDER
Under Article 1 Section 8 Clause 5 Congress is given
the power to ‘Coin Money, regulate the Value thereof’.
Notice the Constitution does not say what money is only that it is
something that is coined
rather than printed.
The Tenth Amendment states, “The powers not delegated to the
United States by the Constitution, nor prohibited by it to the States, are
reserved to the States respectively, or to the people.” The
Constitution operates on the principle that if a power is not specifically
delegated then it is prohibited.
In this case, the Federal Government is given no
authority to make anything legal tender. The Federal Reserve Act of 1913 was enacted by Congress creating the
Federal Reserve and it would not be the first unconstitutional legislation.
They habitually violate their own laws.
Because Congress does not have the power to declare
anything legal tender and because the Federal Reserve was created by Congress
therefore it follows that the Federal Reserve cannot declare anything legal
tender. The individual States do retain the power to declare things
legal tender but are restricted under Article 1 Section 10 Clause 1 from
making any ‘Thing but gold and silver Coin a Tender in Payment of Debts’.
The creature
cannot exceed the creator.
The Founding Fathers strongly supported the hard
money system. After all, they had just fought a Revolution after living
through the tyranny of King George with the Stamp Act, Writs of Assistance,
destruction from the the Continental hyperinflation and implosion of the economy.
Despite the constraints of the Constitution the
monetary system of the United States has been perpetually in violation.
For example, the United States Dollar or Federal Reserve Note Dollar
went poof multiple times last century including on 5 April
1933 when FDR decreed gold to be a dangerous weapon of mass
financial destruction, deemed it a controlled substance and threatened any
United States citizen with jail time for owning it, on 4 June, 1963 and
24 June 1968 when silver certificate redemption was completely ceased and 15
August 1971 during the Nixon shock.
WHAT IS A DOLLAR?
Dr. Edwin Vieira, J.D., is the author of the
preeminent legal treatise on monetary jurisprudence in American law Pieces Of
Eight, holds four degrees from Harvard and practices law before the United
States Supreme Court. I highly recommend reading Dr. Vieira’s
entire essay, What
Is A Dollar?, which is quoted
only in small part here:
2. Do the present monetary statutes intelligibly
define the “dollar’”?
Unfortunately, the present monetary statutes do not
define the “dollar” in an intelligible fashion.
a. Federal
Reserve Notes. Most people associate the noun
“dollar” with the Federal Reserve Note (“FRN”)
“dollar bill,” engraved with the portrait of President George
Washington. This association is mistaken.
No statute defines – or ever has defined
– the “one dollar” FRN
as the ”dollar,” or even as a species of
“dollar.” Moreover, the United States Code provides
that FRNs “shall be redeemed in lawful money on demand at the Treasury
Department of the United States * * * or at any Federal Reserve bank.”4 Thus, FRNs are
not themselves “lawful money” – otherwise, they would not
be “redeemable in lawful money.” And if FRNs are not even
“lawful money,” it is inconceivable that they are somehow
“dollars,” the very units in which all “United States money
is expressed.”5
b. United
States coins. The situation with coinage is more complex,
but equally (if not more) confusing. The United States
Code provides for three different types of coinage denominated in
“dollars”: namely, base-metallic coinage, gold coinage, and silver
coinage.
c. Currency
of “equal purchasing power”. The UnitedStates
Code provides no answer to this perplexing question. Indeed, it mandates
that the question should not even be capable of being asked. For
the Code commands that “the Secretary [of the Treasury] shall
redeem gold certificates owned by the Federal reserve banks at times and in
amounts the Secretary decides are necessary to maintain the equal
purchasing power of each kind of United States currency.14
The term dollar
is used in Article 1 Section 9 Clause 1 and the Seventh Amendment.
Neither the slave-trade faction nor the right to trial by jury would
have accepted these provisions without a clear definition of what the dollar
is.
Therefore, their support of these provisions
inferentially establishes what a literal reading of them straightforwardly
suggests: to wit, that the noun “dollar” refers, not to a mere
name applicable to whatever Congress whimsically might decide thereafter to
call a “dollar,” but instead to a particular coin so familiar in
American experience as to be beyond political transmogrification.
… Obviously, Jefferson’s free-market, scientific approach is
a world apart from the arbitrary way in which Congress has set up the
mutually incompatible and internally irrational sets of silver, gold, and
base- metallic coins that exist today.
2) The Coinage Act of 1792. Little more than a year after Hamilton’s Report, Congress enacted
its principles into law.
Section 9 of the Coinage Act of 1792 contained
the monetary definitions for the United States monetary system and defined
DOLLARS or UNITS – each to be of the value of
a Spanish milled dollar as the same is now current, and to contain three
hundred and seventy one grains and four sixteenth parts of a grain of pure,
or four hundred and sixteen grains of standard silver.
THE COINAGE ACT OF 1792
It is interesting to see the difference between how
the Founding Fathers and the current politicians deal with those who engage
in quantitative easing. For example, on 21 November 2002 at the
National Economists Club in Washington DC Federal Reserve Chairman Ben Bernanke said,
A little parable may prove useful: Today an ounce of
gold sells for $300, more or less. Now suppose that a modern alchemist solves
his subject’s oldest problem by finding a way to produce unlimited
amounts of new gold at essentially no cost. Moreover, his invention is widely
publicized and scientifically verified, and he announces his intention to
begin massive production of gold within days. What would happen to the price
of gold? Presumably, the potentially unlimited supply of cheap gold would
cause the market price of gold to plummet. Indeed, if the market for gold is
to any degree efficient, the price of gold would collapse immediately after
the announcement of the invention, before the alchemist had produced and
marketed a single ounce of yellow metal.
What has this got to do with monetary policy? Like
gold, U.S. dollars have value only to the extent that they are strictly
limited in supply. But the U.S. government has a technology, called a
printing press (or, today, its electronic equivalent), that allows it to produce as many U.S.
dollars as it wishes at essentially no cost. By increasing
the number of U.S. dollars in circulation, or even by credibly threatening to
do so, the U.S. government can also reduce the value of a dollar in terms of
goods and services, which is equivalent to raising the prices in dollars of
those goods and services.
Section 19 of the 1792 Coinage Act provided:
SEC. 19. And
be it further enacted, That if any of the gold or silver coins
which shall be struck or coined at the said mint shall be debased or made
worse as to the proportion of fine gold or fine silver therein contained, or
shall be of less weight or value than the same ought to be pursuant to the
directions of this act, through the default or with the connivance of any of
the officers or persons who shall be employed at the said mint, for the purpose
of profit or gain, or otherwise with a fraudulent intent, and if any of the
said officers or persons shall embezzle any of the metals which shall at any
time be committed to their charge for the purpose of being coined, or any of
the coins which shall be struck or coined at the said mint, every such
officer or person who shall commit any or either of the said offences, shall
be deemed guilty of felony, and shall
suffer death.
As David Reilly of Bloomberg reported on 29 January
2010 in Secret Banking Cabal Emerges
From AIG Shadows:
Later, when it became clear information would be
disclosed, New York Fed legal group staffer James Bergin e-mailed
colleagues saying: “I have to think this train is probably going to
leave the station soon and we need to focus our efforts on explaining the
story as best we can. There were too many people involved in the deals
— too many counterparties, too many lawyers and advisors, too many
people from AIG — to keep a determined Congress from the
information.”
Think of the enormity of that statement. A staffer
at a body with little public accountability and that exists to serve bankers
is lamenting the inability to keep Congress in the dark. …
Now, I’m not saying Congress should be
meddling in interest-rate decisions, or micro-managing bank regulation. Nor
do I think we should all don tin-foil hats and start ranting about the Trilateral
Commission.
Yet when unelected and unaccountable agencies pick
banking winners while trying to end-run Congress, even as taxpayers are
forced to lend, spend and guarantee about $8 trillion to prop up the
financial system, our collective blood should boil.
Reuters reported on 8 December 2009 that the Chinese do not
put up with this type of financial terrorism:
Yang Yanming was sentenced to death in late 2005 and
took the secret of the whereabouts of 65 million yuan ($9.52 million) of the
misappropriated funds to his grave, the Beijing Evening News said.
The report added that Yang was the first person
working in China’s securities sector to be executed. …
Conscious that the growing gap between rich and poor
could generate resentment, China is battling corruption and stock trading
abuses. It has used the death penalty as a deterrent in serious cases.
It will be interesting to see if there is swing in
the political attitude of the people towards the Federal Reserve engaging in
quantitative easing. As Dr. Ron Paul was the lone voice in the
wilderness with calling for an audit of the Federal Reserve, is currently a
lone voice about competing currencies and while he is joined by an
increasingly shrill chorus condemning the bailouts he may yet become a lone
voice in championing in introducing stiff legislation as a deterrent instead
of rewarding the nefarious behavior with bailouts. If legislation like
the 1792 Coinage Act were to be passed then there would likely be a lot of
rounding up to do. Financial criminals, whether engaged in something
large like unconstitutional legal tender or something small like a potential
Monex fraud, should take heed.
CURRENCY CONTROLS
Many currency controls are in place which support
the FRN$ by hindering its competitors such as gold, silver, platinum,
palladium or rhodium. H.R. 4248 intends to remove these barriers.
More may be implemented and holders of FRN$ may their usefulness and
velocity frozen.
For example, there are ‘qualified
intermediary’ rules the Infernal Revenue Service require foreign banks
to follow even where legislation protects bank privacy. The PATRIOT Act
allows for ’sneak and peak’ warrants along with the ability to
confiscate cash at will and in secret.
A particularly insidious but scarcely mentioned
currency control was implemented by the United States Mint on 14 December 2006 which provided:
The United States Mint has implemented regulations
to limit the exportation, melting, or treatment of one-cent (penny) and
5-cent (nickel) United States coins, to safeguard against a potential
shortage of these coins in circulation. … Prevailing prices of
copper, nickel and zinc have caused the production costs of pennies and
nickels to significantly exceed their respective face values.
“We are taking this action because the Nation needs its
coinage for commerce,” said Director Ed Moy. “We don’t want
to see our
pennies and nickels melted down so a few individuals can take advantage of
the American taxpayer. Replacing these coins would be an enormous cost to
taxpayers.”
Specifically, the new regulations prohibit, with
certain exceptions, the melting or treatment of all one-cent and 5-cent
coins. The regulations also prohibit the unlicensed exportation of these
coins, except that travelers may take up to $5 in these coins out of the
country, and individuals may ship up to $100 in these coins out of the
country in any one shipment for legitimate coinage and numismatic purposes.
In all essential respects, these regulations are patterned after
the Department of the Treasury’s regulations prohibiting the
exportation, melting, or treatment of silver coins between 1967 and 1969, and
the regulations prohibiting the exportation, melting, or treatment of
one-cent coins between 1974 and 1978.
The new regulations authorize a fine of not more
than $10,000, or imprisonment
of not more than five years, or both, against a person who
knowingly violates the regulations. In addition, by law, any coins exported,
melted, or treated in violation of the regulation shall be forfeited to the
United States Government.
Better be careful with the amount of pocket change
you take across the border into Mexico to buy gum. You may find
yourself unjustly criminally liable and headed to jail!
ECONOMIC IMPLICATIONS
The Federal Reserve Note is a bill of credit, a debt
instrument. As Murray Rothbard observed on page 18 of his
1963 America’s Great Depression, “It is true that credit
contraction may overcompensate, and, while contraction proceeds, it may cause
interest rates to be higher than free-market levels, and investment lower
than in the free market. But since contraction causes no positive
malinvestments, it will not lead to any painful period of depression and
adjustment.”
Mr. Rothbard continues the observation that
government policy can hobble the adjustment process by: “(1) Prevent or
delay liquidation, (2) Inflate further, (3) Keep wage rates up, (4) Keep
prices up, (5) Stimulate consumption and discourage saving and (6) Subsidize
unemployment.”
H.R. 4248 would hasten the liquidation of the FRN$
credit instruments and hobble the government and central bank’s ability
to inflate further. Because the monetary metals are safe stores of
value it would encourage savings. The cascading effect this would have
on wage rates, prices and the inability to subsidize unemployment would allow
the country to recover from this greater depression much quicker.
UNAVOIDABLE COLLAPSE
The current unconstitutional monetary system will
collapse. It is not a matter of if but when. Tremendous resources
are being mashelled in an attempt to stop the collapse but it is about as
effectual as a lone man putting forth his arm to stop the might Amazon from
flowing or some costumed King
named Cnut decreeing
that the tide should not rise. Economic law will takes it course.
As Ludwig von Mises predicted decades ago in chapter 20 of Human
Action, ‘The boom can last only as long as the credit expansion
progresses at an ever-accelerated pace. … But then finally the
masses wake up. … A breakdown occurs. The crack-up boom appears.’
The fiat currency system with the Federal Reserve
Note dollar as the world reserve currency is in the process of and will
eventually completely breakdown and fail. There is no easy solution.
The more capital is misallocated through bailouts the more painful the
liquidation and correction will be.
Dr. Ron Paul’s legislative prescription to the
monetary ailments is like taking a drug addict off drugs; the simplest, most
ethical and most likely solution to put America back in a position to
generate freedom, peace and prosperity. To ignore H.R. 4248 and
continue with the current monetary system is like giving an alcoholic a
stolen bottle of whisky to cure his headache; while it may mask the pain in
the short term it causes more damage, is immoral to steal the whisky and will
lead to a worse headache later.
CONCLUSION
With unlimited greed, insatiable and imprudent
desires in Wall Street and Washington it must be that the whole operation
must combine and climax in an unsustainable debt bubble that either implodes
in a depression or erupts in hyperinflation. But in the grand design,
gold and silver’s primary role are not as economic tools, insurance
against depression or hyperinflation, but guarantors of liberty when actually
used in ordinary daily transactions.
Gold, silver and the other precious metals protect
against confiscation through inflation which is a form of taxation without
representation or due process of law. These shiny metals are not mere
barbaric commodities but essential checks and balances in the American
political machinery.
Thus, the fight over of competing currencies is
about more than just wealth. It is a fight with only two destinies:
freedom of choice or coercion. To realize the first and vanish
the second will not have too high a price because without it you will have
paid the ultimate anyway without a return.
Dr. Ron Paul’s H.R. 4248 the Free
Competition in Currency Act of 2009 would return America to a Constitutional monetary system, lay the
foundation for freedom, peace and prosperity and clear up the unintelligible
federal law in these regards. For these reasons I endorse this
legislation.
Disclosures: Long physical gold and silver with no interest in the problematic SLV
or GLD ETFs or the platinum ETFs.
Trace Mayer
RuntoGold.com
Trace Mayer, J.D., holds a degree in Accounting from Brigham Young
University, a law degree from California Western School of Law and studies
the Austrian school of economics. He works as an entrepreneur, investor,
journalist and monetary scientist. He is a strong advocate of the freedom of
speech, a member of the Society of Professional Journalists and the San Diego
County Bar Association. He has appeared on ABC, NBC, BNN, many radio shows
and presented at many investment conferences throughout the world.
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