Germany is facing an historic decision of whether to stick with the Euro and more bailouts of other Eurozone nations, or withdraw and establish its own strong currency. Their Constitutional Court will decide on September 6 whether it is legal for the European Central Bank (ECB) to buy sovereign bonds to fund further bailouts of Greece, Spain, and others.
On August 24, Bloomberg.com wrote; “European Central Bank President Mario Draghi may wait until Germany’s Constitutional Court rules on the legality of Europe’s permanent bailout fund (the ‘European Stability Mechanism – ESM) before unveiling full details of his plan to buy government bonds.”
Time is short for German leaders to decide! The USA and other nations like to ‘kick the can down the road’ and continue hopeless ‘propping’ of their failing fiat currencies, but Germany must decide now. To stimulate their thinking about using gold as money, I sent the letter below to Chancellor Angela Merkel, with copies to her Finance Minister W. Schaeuble, and Frank Schaeffler, a member of parliament and the finance leader of the ‘Free Democratic Party’. He has been a strong opponent of ‘using’ Germany to bailout other nations. I also sent them a copy of my book Monetary Revolution USA (it includes a plan to convert the US monetary system to gold as money), and my November 30, 2011 essay “A Three Step Plan to Save the Euro with Gold.”
The situation has gotten so much worse since my Nov-2011 essay, I now recommend that Germany quit the Euro and take the lead by using gold as money (with weight of gold as the ‘unit of account’ for pricing and payments).
Dear Chancellor Merkel: I enclose my book ‘Monetary Revolution-USA’, and my essay ‘… Save the Euro with Gold’ for your consideration. Both describe the benefits of the gold standard (which history shows ALWAYS brings more peace, prosperity, employment, and stability) and a plan for conversion from the present fiat currency. As an introduction, my bio is on page 135 of the book.
The world knows that you and Germany face an historic decision soon on whether to, 1) Continue ‘bailing out’ the Euro and other nations, or 2) Be a leader and convert the Euro (or a new Deutsche Mark) to be redeemable in gold. Better yet, drop the ‘names’ and use gold as money, with weight as the unit of account for pricing (paper notes and base-metal token coins can be used for convenience, but must be redeemable by any bearer on demand), and allow private mints.
I predict that if Germany goes to the gold standard, all other nations,(including the USA and China) will soon follow, because most Sellers will not accept their trash fiat paper for payment. Germany is big enough to start the process, and although there will be initial whining from nations and banks that wanted more bailouts, the above benefits will soon show. These have always been the results in history (your Ludwig Erhardt’s conversion to sound money and free-market pricing in 1948 is an example).
The politicians and bankers in other nations will keep ‘propping up’ their currencies until they fail, but you face a need to decide soon. PLEASE make the most of it and go to GOLD. If no other EU nations join you, then do it alone, and make good history!
Thanks for reading. I will appreciate your comments. Sincerely, David Redick
With the world’s fourth largest economy, a stable government, and second only to the USA with about 3,400 tonnes of gold, Germany is well postured to be a leader that others will follow. Credit goes to Patrick Barron, an Adjunct Instructor in Austrian Economics at the University of Iowa (patrickbarron.blogspot.com, [email protected] ) for originating the idea of focusing on Germany to take the lead.
How Germany Can Convert to Gold as Money
Here are the key steps (which applies to ALL nations!):
1. Terminate use of the Euro
2. Use gold as money, with weight of gold (with a stated ‘fineness’ in carats) as the unit of account for pricing goods and services, with no names such as ‘Deutsche Mark’ (Note: Politicians like ’names’ so they can change the amount of gold ‘backing’ in order to inflate. Thus the DM name may be imposed, but it is critical to have redeemability for a certain weight of gold!) End legal tender laws, and allow private mints. The mints would issue, a) coins with gold content (typically a disc in the center), and b) paper notes and token coins (base metal) that would be redeemable for gold by bearer on demand. The only government role would be to verify the amount of gold reserves each mint claims to hold for redemption.’ Silver and other metals could be used, based on market demand, with no fixed ratio of value to gold. Some people and banks will call this ‘chaos’, but it is in fact ‘choice’, which gives incentive for mints to provide a good product. These choices that will determine which mints and metals are used the most. Mints will compete by touting their strong reserves (ratio of money issued vs reserves), market usage, etc. Today’s government monopolies give no choice and money that is losing value.
3, End the central bank. This will end most of the control that elite banking and industry leaders and politicians use to abuse the monetary system to their advantage (fees for exclusive rights to sell government securities, interest on money they create and sell to the government -which pays them with securities-, ‘lender of last resort’, bailouts, fund wars, etc.’)
4, End government deposit insurance. This will cause depositors to ‘wake up’ and consider the solvency of banks they use. Weak banks would lose customers; a positive incentive for banks to avoid excess risk and low reserves, which are the major causes ‘of failing banks worldwide. Private insurance may become available, and would be priced in relation to the banks strength, and paid for by the depositor.
Once the new gold money is introduced, I predict all nations will soon follow in converting to their own gold money as their fake money is refused as payment by Sellers and Lenders. In this case, good money drives out bad; the reverse of Gresham’s Law. This would end the justification by governments for money-control schemes that central banks, the IMF, and the BIS pursue worldwide. These changes are all based on free market incentive and reality, not laws or ‘G-20 style’ legal agreements:
1. The concept of a ‘reserve currency’ would no longer be needed because any gold-based money would be accepted in world trade, or for bank reserves, if there was confidence it could be redeemed for gold
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2. When most nations convert to gold money, the concept of a ‘price’ for gold will vanish. The reverse will occur, as coins or notes are ‘valued’ in the weight of gold they contain or represent, and Sellers advertise ‘prices’ in grams (milli, micro?) or ounces of gold,
3. The foreign exchange business (Forex) with banks will wither and die as it becomes useless, as will government manipulation of the gold market (such as the Exchange Stabilization Fund in the US)
4. People like to give ‘names’ to money (DM, Dollar, Franc, etc.), but these would be social terms and would not need to appear on the money (but weight of gold would), unless the minter chooses to do so. Weight of gold will be the unit of account.
5. Nations will convert to gold money on their own terms, as and when needed. There will be no need for grand conferences (G20, G100?) to set rules, although some ‘Agreements’ may occur, and then whither when the ‘rules’ become onerous and counterproductive.
6. There will be no ‘weak’ or ‘strong’ currencies or ‘pegs’, all of which were part of the manipulations in the past. Gold will be the great equalizer and honest broker. The games will be over (and most of the wars).
7. In the present system of constant inflation, borrowers have the advantage of repaying loans with depreciated (less value) money, but with gold as money (by weight) its value may increase during the term of the loan, thus giving the lender an advantage of being paid in a weight that is more valuable. I predict that loan terms will be developed to adjust for this, because both borrowers and lenders will demand it. The likelihood of appreciation will also be a positive incentive to save more, and borrow less.
When all major nations convert to gold, we can expect the following benefits when the new gold money becomes legal. History will smile on Germany for being the leader.
1. More Peace: Wars are very expensive. The absence of an unlimited supply of fake money will inhibit the starting of wars; Diplomacy will be used instead. Imperialistic aggressors will have trouble getting funded.
2. More Prosperity: Gold money will increase in purchasing power if percent economic growth exceeds the percent addition of newly mined gold. Savings will be rewarded, and more money (purchasing power) will be available for investments. Managers can plan better with stable currency.
3. Less Government: Governments need money to grow.
Taxation has its limits, and in the absence of the unlimited supply of fake money, government programs, staffing, and spending will be limited. There will be less intervention in, and control of, our lives and work. More Liberty, Peace, and Prosperity will be the dividends.
4. Fewer and Smaller Business Cycles and Depressions: The ‘highs’ of major business cycles are caused by bad investments due to excess availability of money (credit and currency); too many new dollars chasing a limited number of deals, many of which are high risk. The incentive is to ‘do something’ with the excess money. When the pool of money is reduced (Fed cutbacks) the frenzy drops like a rock. With a limited supply of real gold money, any frenzies would soon run out of money to feed them, and the cycles would be small or none.
5. Fewer Jobs ‘Off-Shored’: Due major increase in US wage and benefit costs after WW2, starting in the ‘80s, factories were built in other nations where costs are lower (first Mexico, then China, India, etc.) and the jobs moved out of the US! The same applies to software since the ‘90s. In addition, there is no limit to how much a country can import when it issues the world’s reserve currency and can make it out of thin air. That’s why our imports have soared since 1971 (when Nixon ended the dollar’s tie to gold), and many of our factories have shut down. With gold as money, the importers run out of money, and local producers get the business. This is one of the self-regulating aspects of gold. Patrick Barron also wrote about this.
6. Fewer Sovereign Defaults and No Currency Devaluations: In the past, many nations have defaulted (stopped payments) on some or all of their debt when they became overburdened, and then devalued (reduced face value) their currency to increase exports (lower prices). This robs lenders, and holders of the currency, but lets the nation enjoy a ‘fresh-start’, hopefully with reduced government spending and fewer anti-business laws. Argentina in 2002 is a recent example. When gold is money, the devalue option ends, which should give politicians and citizens incentive to keep their laws and economy more competitive. This new attitude will also reduce the excessive spending that leads to defaults.
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