Silver back into coins

I know we'll never come to an agreement about this, but I'd just add two points.

1. This analysis assumes that the current price of gold and silver is the correct price for conversion. But if there was additional demand as money, the prices would most likely be a lot higher. By some accounts, the value of the dollar has decreased by 90%+ since the gold backing was removed, and the traditional silver dollar has a melt value around $13. By restoring former values, a lot of your concerns disappear.

2. There are about 5billion ounces of gold and 1billion ounces of silver in identifiable inventories around the world. Monetizing that at current prices is far more than the $1trillion in circulating currency.

When you combine 1 + 2, it doesn't seem so impossible even on a world-wide basis. But I agree that it will never happen under just about any conceivable circumstances. On that we agree.

 

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didn't france mint a coin for circulation with some silver in it last year or this year?

 

I have read the material, and find it to be a typical simplistic "solution" to a complex problem - in other words "sound and fury signifying nothing".

Your hero states his fundamental proposal this way:

Restated his proposal is that a government fix the value of an undenominated one ounce silver coin on a daily basis, as the international price of silver, plus seigniorage (a profit margin for the mint), rounded up to the next 5 monetary units (peso, dollar, yuan, whatever); and once fixed such valuation could never be reduced.

This means, of course, that had such a plan been in effect before the Hunt brothers nearly cornered the silver market in 1980, the proposed coin would have been valued at $55 for the past 29+ years!

Need I say more?

 

You need not say more. As I predicted, the response would be "the way things are is the only way they could possibly be." It's easy to dismiss an argument without actually having to refute it. I see no reason why it is some sort of economic law that currencies MUST always depreciate. If the plan had been in place, the Hunt situation would probably never have occurred. But let's say it did and silver coins carried a value equal to $55. So what? How much intrinsic value is in a paper $100 bill? How much metal in a dollar coin? We constantly use currency in this manner, yet can't open our minds to new possibilities. Somehow, the whole concept of sound money abhors people. This is why I said it will never happen. It is ingrained too deeply in our minds that prices always go up and the value of currency always goes down, and that's perfectly okay and shouldn't try to be corrected.

Edit: Here's another way of looking at it. Most foreign currencies do not have a fixed dollar value. They only have a floating rate value. The concept of reintroducing silver as money in this way isn't conceptually different than accepting the idea that two currencies can circulate at the same time in the same place. Many nations with weak domestic currencies have historically used the US dollar in this manner [until recently]. It's a new twist on an old theme.

 

Predictable response. You accept the fact that over time, the cost of living goes up and the purchasing power of the dollar goes down. But you can't accept the notion that it should even be attempted to circulate a coin that basically retains its historical purchasing power relative to the depreciating currency. Over time, gold and silver prices will rise relative to the Federal Reserve Note whether you like it or not. It makes perfect sense to experiment with the system and try to tweak it a bit so that people other than central bankers and speculators can participate.

But what I posted was not really for you or the other naysayers since the response was predicted. It is for the fence-sitters and open minded folks to examine and draw their own conculsion. I enjoy the study of the mechanics of how the old gold system worked and how a hard money system might be implemented or partially implemented today.

 

That wasn't my response, but I really don't know why I am violating Jim M's signature line, so I'll stop doing it and end my participation in this discussion here.

 

I will give you my reason not to do it - because I do not want my taxes to go up any more than they are or will be. How much profit do you think the mint is making as it mints the worthless coins? If those worthless coins cost as much to mint as the value of the coins, all that profit goes away. Washington cannot exist with an ever INCREASING money supply, so they are going to get it from the next source - me and you.

 

foreign sometimes produce silver coins for general circulation. but its face value is quite high.

 

We've been over this before. Money doesn't have to have intrinsic value. That's obvious because ours doesn't. But one of the functions of money is to act as a store of value, and fiat money doesn't do this very well over time, particularly in a world of trillion dollar deficits funded by monetizing the debt. For someone living paycheck to paycheck, it doesn't really matter because the money is spent before it depreciates. For someone trying to save money to spend in the future, it's a big deal. We live in a world where a currency that maintained or even increased in purchasing power would be an enormous benefit to some people. People can buy gold or silver to try to keep up, but let's face it, we are speculating. A sound currency such as the one Mr. Price suggested would make life more comfortable for millions of ordinary people. And what could possibly be wrong with that?

 

Commodity based money backed by fiat currency - sounds sorta like modified fractional banking to me.

 

This is exactly right, there is far far more money now than in the days when money was inexorably pegged to precious metals. The cessation of that link from the 1920s on up to the final break in the 1960's is what has permitted world governments to print far more money, create far more credit etc. That has led to remarkable economic growth, but is coupled with risks of instability. But even when the USA was on the gold and or silver standard, there were still remarkable financial meltdowns that are largely forgotten today, that of 1837, the 1857 panic, then 1873, 1893, then 1907 and the one most of us are familiar with that of the Great Depression. Gold and silver played their contributing parts to several of those meltdowns or near meltdowns.

In that vane, I will opin that really your money is not completely separated from the influence of PM's if you put a percentage of your funds into PM's - not as an investment! - but rather as an insurance policy for a portion of your net worth. As of 1975 every American has the right to purchase and sell gold, in fact the US government still continues to crank out gold and silver coins on an almost daily basis(sporadically lately, but still going) and you can exchange your inflated dollars for said PM's at your whim and desire.

 

Actually it is somewhat complicated, but easier in a sense to just have trade coins - much like some countries in the Mideast and Asia, and some Latin American countries do for gold and silver coins - they trade in value at the market price of the metal in them. You cannot issue a PM coin with a set face value and predictably determine what it's value will be if you cannot reign in inflation, public insecurity etc. Countries like Mexico have done that with their coins up to and including the 100 Pesos coins in the late 1970s only to see the melt value of the coins exceed the face value and the coins disappear into melting pots. Mexico even tried this again in the 1990s with the Nuevo Peso, issuing $10 peso coins that had a silver center. They did not last long before a rise in silver made them worth more than face.

But Mexico continues to do Onza coins in gold and silver with no value other than the value of the metal in them. They are lovely, but the Mexican government taxes the bejeebers out of them so they are prohibitive for most purposes other than collecting.

Frankly, premiums above the melt value of gold are a phenomenon primarily in western countries. I can tell you that gold, even commemoratives in China traded at the value of the metal. I know that for a fact, I bought gold in China from reputable government stores and they sold it based on the value of the gold and not some markup.

 

You're getting close, but can't quite see it.

If the value of silver goes down, the money maintains its value just as it does today if the value of paper or zinc go down. No difference. Coins made a year later from silver at $4 will still have a legal tender value of $18 - just like today with the materials we use. Nothing is different on the downside. Nothing. If you don't like that system, then you can't like ours.

All of the protection comes into play when there is inflation in monetary metals, such as what we have today. The paper $10 bill can't duplicate this protection because the dollar itself can fall in value. If this happens, the silver coin increases its exchange rate value to the paper dollar just as a sound foreign currency would, and without relying on more government credit. And again I ask, why is that a bad thing? You seem to have an affinity for depreciating currencies.

 

I agree. The concept put forward by Mr. Price is very much like a trade coin except for the suggestion that the legal tender value always remain marginally higher than the highest achieved silver price to avoid the melting of the coins.

 

Regarding the first part, there is more money now, but not more purchasing power except for that generated by real inflation adjusted economic growth that would have probably occurred with or without the gold standard since it was well underway before the end of the gold/silver standard.

Regarding the second part, a gold and silver standard will never prevent the normal business cycles of capitalism caused by over-expansion, technological changes, war, famine, inventory buildups, and bad lending practices. The idea is inflation protection and greater control over government expansion through the printing press. Gold and silver cannot repeal human nature.

 

I disagree with assigning a value to a trade coin, it's value is relative only to the value of the metal in the coin anyway. Governments, banks, and crooks all have been "assigning" values to coins ever since time immemorial, but in the end only demand or lack thereof determines the real value.

Say for instance the ASE's have a nominal value of $1. But pray do share, what does that matter? Obviously no government in their right mind is going to assign a high value to a coin - Japan did this back in 1989 with a 100000 Yen coin in gold that was worth more in face value than the metal value. Only to have an enormous counterfeiting problem as a result. Canada did some gimmick with $300 coins that were guaranteed for that value if gold went under said value, but of course it didn't but they short ended that very quickly.

That is what I like about the Onza coins from Mexico, you know what you are getting .999 fine of one ounce of gold. No nonsensical and meaningless value like 5000 Pesos or anything. Any such assigned value has no effect, no real guarantee of value - because values are only as good as the government assigning them - if you trust the government of Mexico or the USA for that matter to assign a said value to a piece of metal.

PM's should trade on their merits, no more no less.