Competition in Currency
Research for Online Investors

by John Dalt

1/07/10

Back in the saddle.  Yesterday I wrote about the importance of confidence in trading and investing.  A couple of readers sent in notes of encouragement.  This morning we strapped on our boots and hit a good mark on a recommendation, so all is well with the world!

I spent some time today at dailypaul.com; this is a website that covers Ron Paul (L. TX).  They have Ron Paul’s statement on introducing the “Free Competition in Currency Act” in Congress.  This bill would have the effect of restoring Constitutional gold and silver as currency in the U.S.

Congressman Paul is well known as a lone voice in congress for conservative, limited government.  He has introduced legislation to audit the Federal Reserve that will expose their shenanigans during the credit crisis.

Article 1, Section 8 of the Constitution gives power to the federal government to “coin Money, regulate the Value thereof, and of foreign Coin.”  Article 1, Section 10 forbids states from “make anything but gold and silver Coin a Tender in payment of Debts.”  While states are not required to have legal tender laws, they are restricted in that they can only recognize gold and silver as legal tender.

There is nothing in the Constitution that grants the federal government the power to establish legal tender (money).  Our government has crowded out real money with Federal laws, and replaced it with Federal Reserve Notes and coins made of alloys.  Neither of these have any real value.  They are, except in exchange for more of the same, worthless scrip.

The federal government restricted private mints from producing coins from gold and silver that can be used as currency with the 1864 Coinage Act. This law was to ‘protect citizens from substandard and debased coinage’.  If a law enables the government to do what the law bans, what should be the remedy?

Ron Paul’s bill to establish competition in currency would restore value to our currency, or force it out of circulation as it was replaced with currency that has value based in precious metals. Which would you rather take in payment for goods or services, a ‘federal reserve note’, or a ‘gold certificate’ that maintained value?

This is known as Gresham’s Law, bad money always drives out good money.  When we take 'good' money we hoard it and spend the 'bad' money.  The goal is to get rid of the 'bad' money, rather than hold it, as it has less value.

When the U.S. replaced silver dimes, quarters and half-dollars with sandwiched alloy coins, people quickly took the silver coins out of circulation.  They spent the alloy coins but hoarded the silver coins.  Who among us does not have a few silver coins in safe keeping, to remind us when the U.S. had 'real' money. 

Almost, two thousand years ago, during the Roman Empire, people would ‘clip coins’; that is they would file a little silver off the edge of a Roman Denarius or take a small sliver off in one place. These coins were recognized as worth less, so were spent first to get rid of them. Does this remind you of our definition of inflation, and the velocity of money? As inflation occurs, the velocity of money increases.

Who took the bottom edge?

Ron Paul’s statement introducing “The Free Competition in Currency Act” is a good introduction to understanding these issues.

I will be out of the office tomorrow, traveling to a weekend meeting in St. Louis.  We will still put out our premium service emails, but will not be preparing MarketToday.

To the mailbag:
While on our Model A trip, we visited Monticello and Montpelier.  As I stood in the room where the Declaration of independence (Monticello) and the Constitution (Montpelier) were drafted I wondered what Thomas Jefferson and James Madison would think of what is happening today. ---subscriber F.C.

I think they would be sad and disgusted.
John

"In times of universal deceit, speaking the truth is a revolutionary act."---George Orwell

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Home Page

Back to Top