Red States Are Taking Action Against Dollar Devaluation

Texas wants $5 billion bullion buy to launch its own sound money

Bullion.Directory precious metals analysis 04 December, 2024
By Peter Reagan
Financial Market Strategist at Birch Gold Group

Like when the head of National Public Radio said the First Amendment the number one obstacle in battling disinformation:

This keeps getting crazier! The head of NPR hates the Constitution of the USA. https://t.co/1Xp8Pi12fs

— Elon Musk (@elonmusk) April 17, 2024

Those are the times we live in, and the Tenth Amendment isn’t faring any better… If you’re a regular reader, you may even remember this important instruction from the Founding Fathers:

No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.

If the First is a challenge for Katherine Maher, then the Tenth is an enemy long defeated by the Federal Reserve. We have replaced real money with the Fed’s banknotes, violating the Constitution. The bedrock of this nation. You know, that specific rule is in there for a darn good reason, as Dr. Ron Paul reminds us in his essay on America’s first hyperinflation.

Is there any hope for the Tenth Amendment to make a comeback? The answer is Yes – and Texas might be the state to do it.

Opening shots fired in currency civil war?

As noted on a very appropriately named website, Rep. Mark Dorazio’s House Bill 1062, introduced last month, would require the state to buy gold ($4 billion worth) and silver ($1 billion) over the next two years.

You know, “dollar-cost averaging.” Just like Birch Gold Group customers, it looks like the state of Texas wants to diversify its savings.

To swap some of their fake money for real money.

I ask, what took them so long?

The days of calling physical precious metals an “optional” investment choice cherished by fringe elements like doomsday preppers and Revolutionary War reenactors are long behind us.

With central banks buying over 1,000 tons of gold a year, it’s clear that the metal is returning to money status. When the dust settles, it appears we will again be left with gold as money and paper as… well, paper.

Mises Institute’s William Greene said that it only takes a few states to start using gold and silver as money to undermine the fiat currency system. The result isn’t a collapse – in fact, it’s the opposite:

“As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

Greene describes this as a “reverse Gresham’s Law” effect. Essentially, everyone would prefer to be paid in gold and silver. This insistence on good money over bad money would benefit early adopters and incentivize the use of cold, hard cash once again. An end to economic stagnation and the steady impoverishment of the inflation tax… Sounds great, doesn’t it?

For all these reasons, I’ll be watching Texas House Bill 1062 closely. Much more so than the other Texas bill, the one aiming to create a gold-backed currency. We’re not particularly fond of that one.

Why use a gold-backed currency when you can use gold itself as money, instead? You only need a 12 lb gold bar to buy a house! (The messenger bag I carry to work every day weighs more than that.)

When you’re earning and spending money made of gold rather than paper certificates representing gold, you don’t have to worry about whether the certificates are fully backed. (There’s a reason that “cold, hard cash” was the preferred means of payment throughout American history…)

To be clear, the battle for sound money is a long one. It has taken the Sound Money Defense League a long time to eliminate state-imposed taxes on sales of gold and silver – and even that isn’t fully complete.

Reinstituting gold and silver as money will be a much bigger project. I don’t expect the Federal Reserve or anyone else with a vested interest in profiting on the destruction of our purchasing power to go down without a fight.

Even so, the global battle to return to the gold standard must start in the U.S. For two reasons:

1. There will be a massive first-mover advantage, just as Greene described above. A flow of real wealth to the treasury, an influx of banking business – I’d prefer our nation to enjoy those benefits!
2. Call me old-fashioned, but I believe the U.S. should lead the free world by example. We abandoned the gold standard only to return to it once before. To paraphrase JFK, We choose to return to the gold standard not because it is easy, but because it is hard.

If not us, then who?

The BRICS countries and their mismanaged economies aren’t likely to spearhead the movement. Their hyperinflated currencies tell the tale. As we’ve discussed previously, their central banks have just as much to lose as our own Fed.

Neither will the Euro zone, who’s just as fond of Modern Monetary Theory as Paul Krugman and Janet Yellen are.

Zimbabwe, in fact, is currently the only nation on earth experimenting with the gold standard. Out of sheer desperation – as a last resort “in an effort to mitigate the currency instability and hyperinflation that has plagued the country for decades.”

Wouldn’t it be smart to return to the gold standard before grappling with decades of currency instability and hyperinflation?

For all these reasons, we’re giving the Texas gold-as-money bill our approval. But we’ll have to wait until mid-January at least to see whether this common-sense, good-idea effort gets a chance to see the light of day.

It might not. If there’s one thing we know for sure, the Federal Reserve hates competition…

Trying to limit gold buying is not a good idea

You would think that world leaders would get a few clues from history when it comes to private gold ownership. The lessons that should have been taught to all state heads are as follows:

1. People want gold and silver bullion
2. If they can’t get it legally, they will turn to whatever option is available, because gold outlasts legislation
3. The longer and harsher the attempt to curb gold investment is, the more economic chaos there will be (especially in emerging markets)

Despite this, Turkey now faces the ramifications of attempting to place an import quota on gold to deal with its trade deficit.

A trade deficit isn’t caused by a country’s citizens, or by gold.

Its blame lies solely on the government, since the government sets trade policies. Everyday citizens are desperate for gold, considering the nation’s 50% inflation rate – also not the citizens’ fault! Yet, as always, it’s gold that’s blamed and citizens who suffer when things go wrong.

Where to start? Well, a kilogram of gold in Turkey now costs $5,000 more than on international markets. But by all accounts, that only refers to raw, unprocessed gold. Once it’s smelted into bullion or turned into jewelry, the premium rises much more.

More gold was intercepted being smuggled into Turkey between January and October this year than the entire previous decade. But industry insiders say that this is just a fraction of the total gold being smuggled into the country.

In other words, Turks are willing to break the law, and pay eye-watering premiums for gold, just to preserve a scrap of their purchasing power.

The jewelry sector is suffering, as well. An astounding 250,000 jobs are under risk because of this outlandish government action.

“The market has shrunk by 30 percent. Businesses are closing, and layoffs have begun. We are on the verge of losing a century-old industry,” said Burak Yakin, president of the Jewelry Exporters’ Association.

Of course there are calls for reform, but why should the government care? Did the governments of Venezuela, Argentina, and indeed Turkey care when their economic stability was being undermined and the currency destroyed?

Not particularly.

What is more likely to happen, unfortunately, is an extension of the Latin American scenario with an even worse twist: Rapidly depreciating currency, with shrinking options to acquire protection against it.

China declares gold bullion a “high-risk investment” (but only if you’re a citizen)

How brazen can China get when it comes to accumulating gold on the government level while denying citizens access to it? The sky is the limit, it seems.

The first thing to note is that, similarly to Russia, private banks in China are little more than storefronts for the government. Here in the U.S., there are cries of collusion between official and private banking sectors when the former bails out the latter. In Russia and China, they don’t even bother pretending there’s a difference.

People wonder if we’re really a free country, and so on, and so on. We’re not sure anyone in China believes their private banks are separate from the state.

Keeping this in mind, Chinese commercial banks have recently raised the risk assessment for gold as an investment, citing “recent volatility” as the reason.

How ridiculous can it get? Gold is the anti-risk asset! Gold price has almost doubled within a year. Should the price be sliced in half tomorrow, gold owners would only need to sit on it for a little while.

History has shown us one thing very clearly: No matter how much its price fluctuates in the short term, over the long term the price goes up.

And that is how the role of gold as an investment should be considered. Gold is a long-term investment. Personally, I think of gold as a form of savings rather than investment… Either way, it’s not cryptocurrency. It’s not an asset for folks looking to flip it for a quick profit.

Even funnier, this “gold warning” for Chinese citizens only applies to physical gold. How, I ask you, is it more hazardous to buy a gold bullion bar than to speculate on gold futures on a commodities exchange? I guarantee you the futures market is much more volatile!

But still, Chinese citizens can just ignore this nonsense and keep buying gold, can’t they? Well…

In the best interests of the citizens, these steps include preventing new account openings, limiting trading to those who already have accounts, raising minimum investments and, of course, imposing limitations on gold bullion purchases.

“We’ve locked you out of your account for your own safety” much?

The term “risk tolerance” is already being used as a sort of damage control, with account holders supposedly being limited or not based on their risk tolerance assessment. (No point in trying to unpack that bit of doublespeak.)

I have to wonder if the PBoC is concerned about gold bullion price volatility? Not really though.

I bet they’re going to keep buying gold by the ton, month after month, under the table. They just don’t want any competition from their citizens.

This article was originally published here

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