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Ron Paul: In Government We Trust, Part III

by Ron Paul | Texas Straight Talk
September 15, 2008

I’ve discussed just a few benefits of sound money in the last two weeks, and contrasted them to the perils of fiat currency. Sound money keeps government spending in check, keeps trade fair and honest, which reduces the temptations, and many underlying causes, for governments to wage wars. It also gives you the peace of mind of knowing that your savings will be able to sustain you in your retirement.

So if sound money is such a good thing, what is stopping people from simply trading with each other in gold and silver? Why are you still being paid in fiat dollars, and why can’t you pay for gas in gold? The answer is that the government has enacted policies that provide considerable stumbling blocks to such transactions.

One of the main stumbling blocks is Federal legal tender laws, which state that government-controlled fiat currency MUST be accepted for many kinds of monetary transactions. In light of this, Gresham’s Law takes effect. Gresham’s Law states that bad money drives out good money. Meaning, if someone is forced to accept your bad money, it is to your advantage to pass it off, like a hot potato, in exchange for something of value. Any good money you have, you will hoard. Eventually, real money is driven out of circulation and under people’s mattresses, so to speak. In the absence of legal tender laws, people are free to accept the medium of exchange of their choice, and are likely to insist on payment in something of real value.

Related to legal tender laws, contracts in gold are not enforced. Meaning if two parties agree to exchange goods or services for gold, and end up in a dispute, the courts will simply settle the dispute in Federal Reserve notes. Governments should do very little, in my estimation, but it should enforce contracts and property rights through the courts. But in this instance it shirks this basic duty, when it comes to gold, as one way to keep control of our economy and the medium of exchange. One is also expected to pay sales tax on the purchase of gold. This is as ludicrous as if you paid sales tax at the bank when you converted dollars into quarters! The IRS also expects you to pay capital gains tax on gold, which is so backwards, since gains on gold really represent decline in the value of the dollar!

Legal tender laws should be repealed at the Federal level. Congress has the Constitutional duty to protect the integrity of our money. However, since it has passed this duty off, and the Federal Reserve has only debased our currency, Congress should no longer force Americans to do business in dollars if they would prefer to transact in gold, or silver, or cigarettes or seashells, for that matter. Free people should be free to associate and do business in ways that benefit them. Instead they are forced to use the unstable dollar to their own detriment, and the benefit the government.



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hold on a second

You are assuming a lot. If the price of gold were directly related to the supply of dollars vs. the supply of gold, you would be correct. However, gold's position as a back-seat currency among other factors introduces a ton of volatility.

First, what price are you looking at? The spot price? This isn't the cost of putting physical gold in your hands. Look at silver right now. The spot price is $10.50, but I can't find physical silver for less than $14.50. Spot prices are less meaningful than the assurance of physical possession. They are also less volatile.

Gold is typically used as an alternative for simple savings, not transactions. Given transaction costs, including things like capital gains taxes, required for you to exchange gold for dollars then dollars for goods, this means that the value of gold changes depending on how well the dollar can be used as a store of value. When dollar inflation (monetary and price) is low, people will not flee to gold for savings, and subsequently, the price will drop. You'll notice that since the dollar has been regaining value against other currencies, the price of gold has gone down.

Gold is also treated as an alternative investment. If the market looks bad, people may divert their investments into gold, pushing the price up. Thus, the more volatile inflation figures and our economy are, the more volatile the price of gold will be.

Consumer prices are based more on supply and demand conditions of today than speculations of tomorrow. Investments, including gold, are based more upon speculation. Since the future is always more uncertain than the present, gold is more volatile than consumer prices.

The US has made gold illegal before, and it could do so again. This places a very uncertain risk premium on gold. Who will the government bail-out, and who will it leave alone? The answer is quite unclear. So if the dollar crashes, will gold be made illegal? Who knows?

Central banks play a huge role in actively "capping" or suppressing the price of gold. www.gata.org has a lot of information on the technical nature of this, but the basic idea is that central banks are putting more gold into the market than they are claiming. This is done to discredit gold as an alternative currency. They want people to believe that gold's price is based purely on whimsical speculations than its ability to fulfill a unique and rationally-demanded role, while supply increases play little part. I don't doubt they'd actually seek to make it volatile as well.

If gold were allowed the same "privileges" as federal reserve notes or enough of them to see it become used as a currency, it would be much less volatile...as would consumer prices.

Gold

One thing I don't understand is:
If we were on the gold standard and if gold has moved from a low of $368 and a high of $1002 as it has in the last five years and is currently at $750, would the price of potatoes fluctuated the same amount? What about the price of a home a car, etc.
If the prices of goods were in dollars with a fixed gold price and there were no inflation would we not find ourselves in a position that it would be very profitable to sell the dollars when gold was expensive and to buy when cheap. That is what De Gaul did when Nixon was in office forcing us to get off the gold standard. It all seems very confusing to me. We cannot deny that sound money is a good thing. I don't know if a gold standard would fix it or not . I don't know what could. Of course it would help if there were absolutely no way for the government to spend more than they had except in the case of a real emergency and that only with a 2/3 approval of congress or something on that order.

thgolding

I was talking to a hughly

I was talking to a hughly educated gentleman this weekend, he has taken economic classes, and he thought inflation was from realestate agents fees, hahahaha, im a real estate agent, so I had a good debate. we talked for a couple hours, a state rep was with me and backed me up "its created out of thin air" everytime someone takes out a new loan, wallahbing = new money!!! He was so shocked this is how money works. I dont blame him, its really hard to believe. I sent him a bunch of money videos.
This is the biggest issue for me, if we dont have sound money and politicians arent talking about it, they are off track.
My second biggest issue is 501c3 churches and the governments involvement.

Fractional Reserve Banking

Explain it to just about anyone on the street and watch their eyes get as big as saucers. "You mean they can just do that?!"

- -
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RP2012!

I tried it today with the bank teller

She had no clue what I was talking about.

Nothing against tellers, but

Nothing against tellers, but they are nearly the lowest level employees of banking corporations. I wouldn't expect them to know a great deal about the business aside from clearing checks, etc.

BUT they should know! That would be a very good thing!

...

You actually explained the mechanics of it to her?

And she had no clue? the fact that a person can sit by passively while being told the sordid story of how money is created out of thin air, is a sad tale.

Wow. I guess high school ain't all it used to be.

- -
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http://www.cafepress.com/thirdparty08

RP2012!

I'm a Christian and I agree

that churches should pay the same income taxes the Constitution requires for everyone. NO INCOME TAXES!! In the days before the IRS, churches and their pastors had all the political rights that any other citizen had. This was forced on churches by the creation of the IRS and the income tax. Formerly, pastors were free to endorse people of good moral character for political office and preach against immoral policy But, they have sold their birthright for a mess of tax exemptions. Think about it. Can the IRS or US govt buy any person's or group's right of political endorsement and speech with a tax exemption. Constitutional rights cannot be purchased with the emoluments of government.Only a treasonous scoundrel would attempt to do so.

Plan B

Ron Paul for speaker of the house. Third in line for president.
grant

Sigh: Fat chance.

Much as I'd like to see Ron as Speaker, that's a tougher hurdle than getting him on the presidential ballot.

First: The Rs need to retake the house.

Second: The speaker is elected by the majority party's house members. They're virtually all neocons - much moreso than the primary voters.

= = = =
"Obama’s Economists: ‘Stimulus’ Has Cost $278,000 per Job."

That means: For each job "created or saved" about five were destroyed.

NCMarc's picture

Is it illegal to trade?

I've never seen a law against trading. If I have something you want and you have something I want, what is to stop us from trading each other? Well, Gold is nothing more than someone trading for something else. So what is the harm in that?

-----
A great empire, like a great cake, is most easily diminished at the edges. - Ben Franklin

The government also requires

The government also requires taxes to be paid on barter (trade) transactions, as far as I understand.

So yeah, you can trade those 4 chrome mag wheels for your neighbors extra car stereo system, but you both are *supposed* to pay taxes on the reasonable value exchanged.

Yeah, right... and people are supposed to pay sales & use tax on items they buy via mail order as well (for states with income taxes)...... nobody does that, either.

...

Do you suppose NOW people will listen to him?

It's not like he's just coming up with this information today. He's been saying this all along, as we all know.

But today dawns a new light...hopefully, people will begin to see the wisdom of Dr. Paul.

It may be petty of me, but I so want to say, "See? Told ya so." Instead, I will graciously welcome newcomers into the light, with a sigh of relief that another person's eyes have been opened.

Unfortunately, I think the

Unfortunately, I think the only people that are going to listen to him are the people that are subscribers to Texas Straight Talk. No one else really seems to care, if they are even aware.

Dr Paul, if you are reading this....

Please take it upon yourself to do a remake of the 1980 Free To Choose 10 part one hour series.....this time with you as the host. Hey, Johnny Carson does not own the Tonight Show, and neither does Milton Friedman own the Free to Choose format.

As you may recall, its a blockbuster of a format! Its a proven winner to get the ideas of freedom out there into the marketplace of ideas.

Plus, its a proven sale for PBS, with a predicable viewership!

Most of all, the DVD sales would be off the charts and go right into the Campaign for Liberty's pocketbook!

Dr Paul, in much the same way that Uncle Milton went to Scotland and Hong Kong and even to the Printing Presses to make his points, you could do so as well.

Most of all, you could face three or four who disagree with you for the 2nd half hour,.... the best part of the show! Best of all, your team will get to do the editing, not Fox news!

I am sure after watching you, millions more Americans will join the cause of Freedom.

Please give this project your highest priority....

In Peace & Liberty,
Treg

Yes, please BUY this wonderful libertarian BOOK! We all must know the History of Freedom! Buy it today!

"The System of Liberty: Themes in the History of Classical Liberalism" ...by author George Smith --
Buy it Here: http://www.amazon.com/dp/05211820

That's an excellent idea

That's an excellent idea Treg!

In Atlas Shrugged, the novel by Ayn Rand...

She makes this point as well.... that gold standard reigns in government spending. She even builds the novel somewhat around this very concept.

In Peace & Liberty,
Treg

Yes, please BUY this wonderful libertarian BOOK! We all must know the History of Freedom! Buy it today!

"The System of Liberty: Themes in the History of Classical Liberalism" ...by author George Smith --
Buy it Here: http://www.amazon.com/dp/05211820

I remember a while ago...

..hearing of someone who paid his employees in gold and silver.

The IRS caught up with him, naturally and it went to court.

In the end, he won because he paid them in US gold coins which is indeed legal tender.

So each week he would hand each employee... say two gold Eagles. At the time, probably around $400/oz.... but only $40.00 face value!!

His employees were claiming an income of only $40 per week! Paying income tax on $40 per week!

Maybe this is a good place to start. Once it becomes easier to be paid in gold, others may begin to accept it as currency as well.

I may not know the truth, but I know when I'm being lied to...

I may not know the truth, but I know when I'm being lied to...

His employees were claiming

His employees were claiming an income of only $40 per week! Paying income tax on $40 per week!

Unfortunately the government could charge them capital gains on the difference when they exchange them for fed notes to pay others in fiat money.

But it sounds like it would:
- Cut their contributions to the insolvent federal retirement plans.
- Let them hold their savings mostly untaxed in the form of the gold coins until it's advantagous to convert them. An interesting way to defer taxes on some of your retirement savings beyond the IRA and 401(k) limits. B-)

Note: I am NOT a lawyer, tax or otherwise. Playing nonstandard games with the tax man is hazardous.

= = = =
"Obama’s Economists: ‘Stimulus’ Has Cost $278,000 per Job."

That means: For each job "created or saved" about five were destroyed.

It definitely is hazardous.

It definitely is hazardous. Have you ever seen what they do to people who hold out on the IRS? They wring them out to dry!

The SWAT team is sent in, loaded with automatic weapons, they break down the doors, drag the people out of their homes and off to jail and then proceed to steal all of their stuff.

That sounds like a government based on freedom and liberty to me...

...

good start

Employers paying in silver/gold eagles is a good start. To help the employees, it would be useful if the employer also paid for a CPA to do their taxes and recommend local coin dealers to exchange the coins for FRNs.

Thank you for posting this. Well stated.

Fed. Reserve notes are the equivalent of hot potatoes, to be passed quickly so we are not stuck holding them. Great analogy.

Thanks for the info

Here's a Hot Potatoe Bump!!