Jim Forsythe of Citizens for Sound Money joins the Gold Exchange Podcast to talk about how we can opt-out of dollars and get on the path back to sound money sanity. Keith and Jim discuss the systematic failure of public schooling, Bitcoin, what makes a better monetary system and how to get there, and the different ways to make gold and silver more accessible to more people.
Ben: Welcome back to the Gold Exchange Podcast. My name is Ben Nadelstein, I’ll be hosting our conversation today. We’re joined as always, with CEO and founder of Monetary Metals, Keith Weiner. And we have our special guest today, Jim Forsythe, who is a former New Hampshire State Senator, us Air Force pilot, current chairman of Citizens for Sound Money, and a partner at Silverback Precious Metals. We’re excited to have you on the show today, Jim.
Jim: Oh, definitely. Thanks for having me. Excited to be here.
Ben: Why don’t you start by telling us a little bit about your background.
Jim: Yeah, so as a kid I took Russian in high school and went to the Soviet Union in ’84 and ’86. And seeing Communism up close and personal really made me a believer in free markets. You could see that lack of freedom and the price that people paid for that and that was what motivated me to join the military, to defend against Communism. So did ROTC, became an Air Force pilot and I guess I did such a great job that the wall came down two weeks after joining up. But then about a decade later, I met Ron Paul up in New Hampshire and he was considering a run for President. And I got very active in his campaign in 2007, to the point where he endorsed me for a run for Congress. The timing wasn’t right for that, but then in 2010 ran for state Senate in New Hampshire and got elected. And then when he ran again in 2012, I was his campaign chair in New Hampshire, not nationwide.
So I was a big believer in freedom. But he was the one that really introduced me to the fact that the monetary aspect, sound money, was really the big bulk of what a free market is all about. Without sound money, you don’t have a free market. It’s half of every transaction.
Keith: I think that is both a really important point and a really under appreciated point. So many people bandy about the word capitalism and free markets and take for granted that, well, of course, capitalism has got to be built on the foundation of a central bank and an imposed legal tender, fiat, irredeemable currency. That’s capitalism, right? Who could quibble with that? And if you quibble with that, you find that you are outside the Overton window. You’re outside the allowed spectrum of public opinion and public debate.
Jim: Yes, I absolutely agree. In fact, the word capitalism has been so distorted and polluted because people think of capitalism as what we have today, which it’s not. So I never used the word capitalism anymore. I use the word free markets. Because what we have right now is not free markets, but people think of it as capitalism.
Keith: Every productive enterprise is regulated today. Most professions require licenses. There’s a welfare state so vast we can’t pay for it even with exorbitant taxation. We have a central bank to borrow and enable the vast welfare state. There’s a huge regulatory state on top of that that interferes with everything. And we have outright government ownership of roads and harbors and trains and airports and postal delivery systems and radio spectrums and schools, of course, and a Central Bank and on and on and people still think, yeah, well, we have free market. Not really. Not anymore.
Jim: If you look at the ten planks of the Communist Manifesto, we have either fully or partially, I think it’s seven out of ten, where at least majorly implemented.
Keith: Progressive income tax… My favorite is number five, central bank.
Jim: Central bank, that’s on there. Yeah.
Keith: And number ten, public schools. And those are arguably the two most important. You control the money, you control the minds of the kids, you’ve got control over everything. But then progressive income taxation, high taxes on death and on and on. Taxes for expatriates got implemented, what, about ten years ago now? Ten or twelve years? If you want to leave, you have to add up everything. You have treated it all as if you sold it and pay the capital gains tax. Then they will consider, my Lord will consider hearing the supplicants petition to be allowed to change owners and move to another lord’s estate.
Jim: Yeah, I remember when I bought a car, I came from New Hampshire, which has no sales tax, so I thought, it would be smart, maybe buy a car outside of Maryland. But no, if you buy it somewhere else, you don’t get charged a sales tax in Maryland, but you do get charged like a transfer tax that happens to be equal to the sales tax, right. So you can’t win.
I’m glad you said that about education. That was my big campaign promise and that I was able to deliver on with the help of a lot of really good people is education tax credits in New Hampshire to get school choice. Because I do agree that if you want to look at effect into the long term future in terms of belief in liberty, it’s the kids, right? That’s where it all starts.
Keith: Today I’ll just pick on the conservatives. I like to pick on I’m an equal, equal opportunity picker on ‘er when it comes to the party. But as conservatives object that today, whether it’s Common Core or critical theory, whatever it is they say “the Communists are teaching communism in the public schools”. I’m like do you not see the irony? What is it that you would expect Communist plank number ten, the institution created by that plank, what else is it that you would expect it would be? And I hate to even say teaching, but propagandizing, indoctrinating, brainwashing, sculpting…
Jim: If people want an eye opener read the Underground History of American Education by John Taylor Gatto. He was a New York Teacher of the Year for several years running and then wrote an essay saying, I quit. I think it was the name of the title, about all the things that were wrong with the system. I always try to be careful because there’s really great people in the public school system that are really trying to do the right thing. It’s just the institution as a whole… once you put that much government control on something, it’s not going to work.
Keith: There’s a thing from Lean Manufacturing, the Toyota way, and I think it comes from there. Maybe I’m speaking on this slightly, and the saying is, bad systems beat good people.
Keith: You could have the greatest intentions in the world up against all those institutional incentives and the institutional structure, institutional management. And of course, the kids are there by force and the parents are putting their kids there by force. And the curriculum that has to be taught, selected by the government central planners, and of course, the people who are paying for it, an unrelated third party, were paying by force. The outcome of the whole thing is what it is. It can’t be anything other than that, despite the good intentions of some within the system. And of course, it tends to beat the good intentions out of most of them.
Jim: Yeah, that’s why this guy quit, right? He got fed up.
Keith: I’m sure if you plot a graph of good intentions as a percentage of the teacher population at age 22, when they finish their year of student teaching and get their first job as a teacher, I’m sure the good intentions percentage has got to be pretty high, like 90s, right? But I’m sure that over time, that graph is going to be as they encounter all the perversities of it, as they’re ill treated by the system. And teachers are not well served by this either. We’re are focused on what it does for the kids. It’s not good for the teachers either. And then bit by bit, all the goodwill is beaten out of them, and then some of them quiet and move on, and some of them just become numb.
Jim: That was another bill that I was the prime sponsor on, is eliminating teacher tenure. That may be quite popular with the local teachers.
Keith: Oh, I bet. Did you hire bodyguards?
Jim: I remember going into my son’s school. I got invited in as a senator to talk to him and answer their questions, and I politely agreed and came in and they had, like, paintings up on the wall: Foresythe Fails Our Future and stuff like that. It was brutal, but I patiently answered their questions for an hour now.
Ben: Jim, you should see if you can get those posters. Put them up on your wall.
Ben: So let’s talk about New Hampshire a little bit. So as the state senator, what did you find was the hardest thing to get done? It seems like a lot of the incentives are to push only in one direction, which is print more money, offer free goodies. What was it like in, let’s say the state government versus what we think is going on? Keith, the federal government. Do people know more? Do people know less?
Jim: Yeah. It was really eye opening because like I said, I started to run for Congress but then backed out and I made a conscious decision to run for state Senate instead of Congress. And that’s because I’ve known people that go to the US congress with all good intentions and they just get beaten up by everybody else. I kind of feel like it’s somewhat hopeless. The states, on the other hand, we were really fortunate. We had 24 senators, 19 of us were Republican, five were business owners that just ran because they were fed up and they wanted to make a change. And I was one of those. And then at the end, I think four or five of us left. We were done. After two years we had enough. I had some personal issues on my end, but New Hampshire is a really unique state. There are 400 state representatives. That’s the third largest legislative body in the world. And because of that it’s one Representative for 3,000 people. Forget about trying to make campaign contributions to affect one of those House Reps. He’s going to get elected without spending a dollar because people in town know him.
And then there’s the Free State Movement. And then I always thought the Free State Movement is reinforcements versus like some invasion because New Hampshire has been loved liberty for a long time. They have Live Free or Die as their state motto. And so we were able to get a lot of great things done. I look at my campaign promises and usually you’re lucky if they get anything on their campaign promises. But I did everything on there. So education tax credits, which they’ve been trying to pass for 30 years, we got passed and then we lowered the state budget by, I think it was 11%. It was the largest decrease in 100 years.
Keith: State budgets, or all government budgets seem to be a ratchet. There may be years where they pause and don’t increase, but they only go in one direction generally.
Keith: So 10% or 11% cutback is huge.
Jim: Yeah. I was prime sponsor on medical marijuana and we started with two Republican senators supporting it to winding up with twelve. And we passed it. It’s the only Republican controlled state legislative body that has passed it. And the Democratic governor vetoed it. And then the Democratic senators flipped their votes. They had all voted for it and then they flipped their votes to support the veto. However, it didn’t go into law. But then the next year with a new governor and a lot of the centers I had convinced that we’re still there. That passed into law, thankfully. So that was another thing I was particularly proud of. We did some medical malpractice reform. Not a prime sponsor on that, but I was very active in that. So very effective couple of years. I’m looking at what’s going on in New Hampshire now and they’ve gone from those education tax credits. Now they’ve added these educational freedom accounts which basically beefs it up even more. Our tax credit was, I think $2,400 was available. This makes like $5,400 available, I think, on top of the tax credits and broadens it out more. So really great things going on in New Hampshire.
I look at what Jp Cortez with Sound Money Defense League is doing around the states and I think that’s the solution. Let’s work things at the state level because if the dollar runs into problems, collapses depending on how you look at it, the federal government is going to be broke kind of thing and it’s going to be the states that are going to be hopefully there to pick up the pieces. They don’t have skin in the game. They don’t benefit from the money printing. It’s the federal government that does.
Keith: Right. Your story about the veto and how the politics will just perverse… my experience in Arizona is that every year for five years this bill would come out. It started out as gold legal tender, which included repealing the capital gains tax on gold and silver at the state level. And then it kept getting vetoed. One year didn’t make it out of committee, but three other years it made it out of committee, got vetoed three times, by two different Republican governors. The thing that was so bizarre about it to me, and I was there, I was on the side of trying to get this passed. I was meeting with legislators, I was testifying, whatever committees came up. The thing that was just bizarre to me was the veto. The bill always passed on strict party lines. Every Republican voting aye and every Democrat voting nay and Republican governor vetoing something that passed by his party on strict party lines. Maybe I’m just stupid or naive, I just couldn’t get my head around that. Like, what is the bizarre politics of it? And then one thing that occurred to me is that a lot of the Republicans who voted for it voted for it knowing it wouldn’t pass.
They were actually for the idea of honest money. I brought this up in a meeting with the lead sponsors of this, to use the term honest money rather than sound money. A lot of people think sound money means a dollar where there’s 0% inflation. And I said, but gold is honest money. And even if you have 0% inflation in the dollar, there’s a dishonesty to it anyways, which is the root of the issue. So let’s call it honest money. So a lot of these Republicans here, and not to mention all the Democrats, were not for honest money, they’re for something else. When you think about that, it becomes very daunting.
What we’re really up against politically, what I saw here, it’s very simple. It just wasn’t a lot of constituency in favor. So every time it would come before the House Financial Services Committee or the Senate Banking Committee or whatever, there was an open hearing and anybody can come and testify. And I always did. And there would always be like half a dozen to a dozen citizens who came to testify. They’re always in favor of it.
There wasn’t any citizen I ever saw against it. The only people that were against it that were testifying were like either the legislative, what do you call the legislative Committee, that had some narrow technical objection in some way or the state Treasurer’s office. One year the bill said that the state is obligated to accept payments of taxes in gold coins and the State Treasurer sent somebody to basically say, we don’t have the personnel, the equipment, the training, the process. Like if someone’s going to pass a gold coin over the counter, we don’t have a way of dealing with that. From figuring out fakes and counterfeits to storing it and appropriate security procedures, we don’t have any of that. So we need a budget of whatever, a couple of hundred thousand dollars to staff up and buy some stuff. And that was the only real objection. But there was half a dozen to a dozen people were in favor of it. But if you’re a politician looking at this, there really is no other… you could vote against it. It’s not like anybody would be ringing the phone off the hook. Nobody cared. Right? People, the voters that didn’t really care.
So at the end of the day, yeah, finally we want something. It was a very narrow little thing. We just said, okay, gold and silver are now immune from capital gains tax in Arizona. Basically great, that’s a step forward. But it took five years to get that and I kind of felt like I beat my brain against a brick wall for five years.
Jim: Yeah. Now there’s definitely games that happen. Like you said, they might be against it, but they voted for it knowing it was going to die. That stuff definitely happens, especially with roll call votes. There’s a certain vote that you don’t want it on your record one way or the other, but if you know it’s going to get killed, you can vote the way it’s going to be popular for your constituency and yet be comfortable that it’s not getting killed. We’ve had that go the other way of people voting against the bill, knowing that we have the votes to pass it. And if we didn’t have the votes to pass it, they would have voted for it, but they were in a liberal district.
Keith: There was one representative who was there for the whole debate and all the testimony and everything about the bill. And then when the secretary of the committee called role, she literally slammed her laptop shut, slammed her folder shut and ran out the back door. It was the chair of the committee. Yeah…
Jim: I never missed a roll call vote. We were actually in the Senate. President was very big on for every roll call vote. Let’s try to have everybody there. And we did. That being said, there were times I was like, please don’t roll call this. It’s kind of weird, this day and age with electronics and stuff. I mean, every vote could be roll called, but to a certain extent, some votes, it’s really hard to define what their meaning is. You look at the bill and a vote may not really mean that much on certain bills. And so you don’t want to roll call everything, but there are certain bills you want to make sure to roll call and get your name on there for next election kind of thing because you know they’re going to be scored.
Ben: Well, I have a question about what we think about the government’s involvement in sound money. Do we think that the government needs to be involved to get us back to sound money? Or I know that Keith and I have some ideas on how to have a free market solution, but Jim, what do you think about that? I mean, there’s definitely ways to help and there’s definitely ways government can hurt.
Jim: Yeah. Let me explain the goals of Citizens for Some Money, which is to encourage people to use sound money and to protect the right to do so. Now, you notice that the goal isn’t to go advocate for backing of the dollar by gold, it’s to get people to use sound money. And we don’t believe the government is required for that. You can start using sound money today, especially with the advance of blockchain and companies like yours. There’s really good ways to do it these days, even if it’s just saving in physical gold and silver. And so that’s what we believe is the government didn’t make gold and silver money. People made gold and silver money thousands of years ago. It arose naturally. Government winds up getting involved and then messing it up like the Romans clipping the coins and then the creation of the Federal Reserve which has led to a steady erosion of the dollar. So we don’t want a government sound money solution. We want a free market sound money solution. And the rise of the Federal Reserve Central Bank, that was something that was fought by our founding fathers. Jefferson versus Hamilton, with Jefferson coming out against the Central Bank and then Andrew Jackson shutting down the Central bank.
They understood that monopolizing, that banking power was a very dangerous thing. And before then, gold was money. You could go deposit into your local bank, get a certificate maybe specific to that bank, versus a state issued currency, and trade that paper. And the competition between those banks to hold your gold kept people relatively honest. Sometimes leverage ratios would increase and some banks would go bankrupt. It’s common for people to hold their money in a couple of different banks for that reason. And I think that’s where we should be heading. Back to a system that’s decentralized. You have multiple different companies or services to hold your gold custody and your gold for you and create a way to make it spendable like your company and there are other companies and not get the government involved because they will mess it up for sure.
Keith: One of the things that blows my mind, if you meet a flat earth who truly seems in earnest to think that the earth is square or flat or something like that, really, how could you possibly have never been on an airplane before anyway? When you meet somebody who thinks that, oh, yeah, it’s the state that declares money and legitimizes money, and then if you didn’t have the state doing that, you wouldn’t have money, and therefore you couldn’t have an economy because everything would be border or something like that. And on Twitter today, I’m not going to name the name, but he’s one of the folks that I call the otherwise free marketers. So people that can tell you exactly how a minimum wage law will harm the workers and exactly how rent control or now we may have price control on gasoline, cause shortages and all these things, but when it comes to money, somehow they are advocates of the Fed and the central planning regime. The Fed should hike interest rates according to this formula, the Taylor rule, or whatever is in favor at the moment.
I guess, some of the Modern Monetary Theory people have attacked him. And their big curse word, they don’t call people Nazis, they call them neoliberal, which is like the biggest curse in the MMT lexicon. And they’re really going after him. So he’s like, MMT goes back to chartalism, which is what Keynes started with, and then transmogrified it a bit. And charatalism goes back essentially to this medieval notion that money is the sovereign prerogative. Anyway, he’s railing about this in his tweet, and it’s like, yes, right on. And then it goes up suddenly in the middle of his tweet, so horribly wrong as he’s saying that this idea that the sovereign has a prerogative to declare money is a medieval notion and that we don’t have the divine right of kings anymore. And I’m like, Yeah. And only a democracy has that prerogative. It’s when the people vote for it. It’s explicitly then it takes them legitimacy that it’s just one king. How did this go so bad? What started out so good.
Whether it’s a democracy that votes to put that boot on your neck or whether it’s an individual king that decides to put that boot on your neck, you still have a boot on your neck. And that’s the problem. It’s the boot on the neck, not who directed the boot to be there.
Jim: Yeah. When people say things like that, I like to remind them that Hitler was elected. Democracy doesn’t make everything okay. It’s you’re supposed to have a bill of rights, majority rules, but minority rights, where there are certain things that doesn’t matter how you vote, you can’t do according to the constitution.
Keith: You ever seen patriot with Mel Gibson?
Jim: Oh, yeah.
Keith: There’s a great line in there where he says, why would I want to trade one tyrant 3,000 miles away for 3000 tyrants 1 mile away?
Jim: Yeah, exactly.
Keith: He starts out with not really on board the revolution because of that concern. Like what are you all going to build here? Is it really going to be any better? And then eventually he gets involved in the plot of the movie. Even the belief that there would be no such thing as money. Like we wouldn’t be able to transact with each other unless the state gives us official blessing or decree. We give you irredeemable pieces of paper with green ink on them. Oooh Ahhh.
Jim: Yeah, it’s interesting because for our nonprofit we use dollars for very little. We use gold and silver for everything, digital forms. And people will ask us like, is that legal? There is this big conception that spending anything other than dollars is somehow illegal. It’s not just if you’re a merchant, legal tender says you must accept dollars if offered, but it doesn’t said you have to.
Keith: No, not as a merchant. I wrote an article in Forbes about this. Legal tender says that if you are a creditor and the debtor tenders dollars… Nobody’s going to force you to take it. But the court is going to say he offers you the dollars, take it or leave it, it’s up to you. But if you leave it, you don’t get any further recourse out of courts. That’s what legal tender says. So it gives the debtor a privilege to force the creditor to take that. But if you’re a merchant and you just post a bunch of prices and you say price of this TV is 1oz of gold and the price of this is quarter ounce of gold, whatever. That is your right. But you’re right not staying in business very long. I don’t think there’s a lot of people that want to pay gold, for a lot of other reasons, but you have the legal right to do that. They’re not going to shut you down.
Jim: Well, it’s good. I forgot that nuance. I’ve always interpreted it as like merchants, but it’s creditors got it.
Keith: And they are not really forced in the sense of like any penalty. It’s just that the courts won’t give them any other recourse. I want to get paid in gold, they’re going to say, no, we assess this as a $2,000 credit. So when Roosevelt broke the gold standard and made it illegal to own, also voided all the gold clauses with another presidential evict, I think it was a separate 1975, congress relagalizes gold to be possessed by Americans. It was shortly after congress had another act that they passed that repealed the prohibition on gold clauses in contracts. So you can, and of course at Monetary Metals we do, have contracts that specify payment in gold and have a specific performance language, which is direction to the court that says no, I don’t mean this in a vague general way that the court can helpfully reinterpret and say “Well, they said an ounce of gold, but they probably met about $2,000.” And then of course, ten years later, when ounce of gold was $10,000 or whatever. No, you can say specific performance matters, which means, no, it’s actually that ounce, not some other equivalent. The court may deem and of course this all legally works.
Jim: Yeah, that was a fight. Many of us well, mostly in the house, but some in the senate. Some of us in the senate, because our pay was $100 a year or $200 per term. Right. Because it was written in the constitution, and nobody’s going to try to amend that to raise their rates. But I always insist that I want was it 5oz of gold a year? That’s what I should be paid, because that’s what that means.
Keith: I’m going to take it that you didn’t win that fight.
Jim: No, I didn’t win that fight.
Keith: I know neither of us are necessarily big fans of bitcoin, but one aspect of I find interesting, I tweet about this every once in a long while, and I kinda feel like I probably should tweet about this again soon. To be able to use this episode of the opportunity to do that, which is a bitcoin has sparked what used to be called the currency debate 100 plus years ago. And millions and millions of people, maybe they’ve gone all in betting on this number go up. But maybe more interesting than that is I’ve become aware of the evils of the concentration of power in the Fed and what it means and what they’re doing to our money. And they’re probably reading all sorts of things from Ron Paul and Murray Rothbard and others about the government and what they’re doing for the money. And of course, they’re all going to bitcoin at the moment. Got any thoughts on that?
Jim: Yeah, a lot of thoughts on that. Yeah. I wouldn’t say that I’m not a fan of bitcoin. I’m not a holder, let me put it that way, or at least not in any significant way. But I agree. Bitcoin really awakened a great discussion, and I think it was something trying to solve that problem. My campaign manager and a number of people that I worked with back then were big into it. And I understood it, and I thought it was genius, a way around the banking system and an alternative currency that can’t be inflated. But even back in that day, I figured, really, for this to work, it’s going to have to be backed by something tangible, gold or silver. And so I kind of thought that blockchain gold and silver. It’s taken a long time to get there because it’s more challenging. But I do see that as kind of the end solution. But I’m really grateful for bitcoin to have woken so many people up to this whole discussion. I do think blockchain gold and silver is the 21st century solution to the problems we have with paper currency because it can’t be modified and you can see if it’s become fractionalized.
So I’m really grateful for bitcoin. And it seems like there was this time where it was bitcoin is digital gold and everybody’s bitcoin maxis. I think recently, over the last six months to a year, especially thanks to people like Lawrence Lepard, Willie Metalcop, who are fans of both gold, silver, and bitcoin, Luke Gromen as well, to wake people up to these are allies against fiat. They are not enemies.
And I think this whole drop gold campaign, I got to think that that was a fiat banker or somebody in the banking system that came up with that idea. Because really, if you’re going to campaign for bitcoin, do you need to go after the gold holders? Why don’t you go after the dollar holders? That’s a much bigger target. You’ve got these two small sections, and pitting them against each other is insane. They should be working together. I think it’s unwise to be a bitcoin maxi where you’re just putting everything into it, because becoming our currency is far from inevitable. There’s competing technologies, improving technologies in the crypto space, and there’s no cash equivalent of bitcoin. With an asset backed digital currency you could redeem and basically spend your cash anonymously.
So that’s the main thing. If you like bitcoin, that’s great. There is potential high upside because it’s starting so small. It’s gotten pretty big now, though. So the upside is getting more limited, but definitely diversification of sound money assets, the key in recognizing that bitcoin gold, silver or allies in the fight against fiat.
Keith: One of my challenges, I guess, with all this, and I guess I get the claim that long before I was harping on this point for bitcoin, I was harping on it for gold as well. So I guess I’m an equal opportunity picker on ‘er, as I said earlier. I think of it as a funny thing happened along the way. So people kind of read something if something happens or the Fed does something crazy or stupid, and then people wake up to the idea of gold. Okay, great. And then they start to read everything about it obsessively. I can recall when I did that. In 2008, I sold my first company, DiamondWare, August 19, 2008. As a historical footnote, it was the last acquisition North I’ll ever make and probably one of the last decent exit anybody had before the market slam shot pays maybe a few weeks later. And at first I just felt like, okay, I’m on cloud nine. And then as the world started to cascade over into the abyss, all that’s going on, I started to read obsessively. At the time, I would have said I felt like I was a moth, drawn to a flame of just trying to figure out what’s going on, how do I protect myself? I worked 14 years to build that company, sold. It was liquid. I didn’t want to lose everything in some catastrophe, not of my making.
You discover gold and then there’s a moment at which you feel like, I’ve done enough reading. I’m going to buy some. And I did. And then a funny thing happens along the way and you start to cheer for its price to rise. So something shifted. It went from this is money, this is honest money, and I want the US or the world to go back to using this in daily commerce, to cheering for its price to go up. In terms of the thing that I’ve decided is non money. It’s worth more dollars. And I certainly have made no secret of my objection to the gold cheering for the price to rise and getting angry when it doesn’t rise or falls because they want to sell their gold for more of the very dollars they just told you were going to be worthless by tomorrow morning. And I think this is just an inevitable outcome of a market where speculation is rampant. Everybody’s looking for whatever asset they can speculate on to either preserve their purchasing power, increase their purchasing power, and then that speculation and all the price action and all the articles saying yay and no, why’s and wherefores, and the Fed is going to tighten and that’s going to be bad for gold, but there’s going to be worn Ukraine, which is going to be good for gold.
It’s another one of my objections. And people there was some headline, I don’t remember who said this, but nuclear war in North Korea would be good for gold. And I just lost it right there. And I’m thinking, what the bleep are you thinking? Like, nuclear war is not good for anybody or anything. We should never be cheering on nuclear war. Even if you think that’s going to make the price of gold go to $5000, which maybe it would and maybe it wouldn’t. But do you really want gold to $5000 in a world where nukes are flying? Or would you rather have peace and prosperity in a world where gold is only $1,200? This should be a no brainer guy anyway. I make enemies every time I open my big fat mouth and say stuff like that.
Jim: 100% agree. And that’s the point I make often, is like, people talk about their price targets for silver. They’ll say, what price are you going to sell your silver at? I said, well, when it’s 30 to 1 gold silver ratio, I’ll sell it for gold. Pick a dollar price, target. It could get there, who knows? I don’t care what the dollar price is. I want to know what’s the S&P to gold ratio? What’s the Dow to gold ratio when that gets low enough that I can buy some stocks again after fleeing from them? What’s oil, the gold, those kinds of things? That’s what matters, not the dollar price of any of these things. I’m a mathematician, airspace engineer, and the dollar is in the denominator. The dollar, if you believe like I am, is going to zero. So you’ve got to get that out of the denominator. Gold needs to be in the denominator.
Keith: Yeah. I talked about the idea of Copernicus, and even before Copernicus was the geocentric model of the universe, that everything revolves around the Earth. And when you hold that belief, number one, you can’t explain the retrograde motion of the planets. Why is that the planets are going forward and then backwards a little bit before they go forward again and then backwards again? There’s no explanation for that. And then even the math, forget explaining it. The math to describe it is pretty complicated. When you realize that actually the Earth and the other planets are going around the sun, everything simplifies. It becomes much more elegant. And I think the same thing is true. If you think that gold has gone up and down and you’re using the dollar as if that was a stable reference point, then everything’s complicated. You have all these durations to explain. When you realize that gold is actually the center and the dollar is going up and down and mostly down, it just becomes conceptually simpler.
Jim: I think we’re heading into a period, the market has been crashing. Right. Will the Fed start to reverse course? Maybe. And if they do well, I say probably. Never mind. Not maybe. We may have a lot of people that stay in the stock market not realizing that it’s crashing, because they’re looking at the S&P in dollar terms, and they won’t see it crashing versus gold, and they’ll stay in longer than they should be. I can totally see, especially since capital gains are such a big part of tax receipts that they can provide enough liquidity. So the stock market keeps going up in nominal terms, but not in real terms and not in gold terms.
Keith: That’s right. And if you measure stocks in gold, I wrote an article talking about what does it mean, if gold outperformed stocks? The other way, stocks are going down in real terms. All these businesses, presumably are productive in processing and so forth, are going down in value. The entire world of productive business that produces everything that you want and need, like food and cars and telephones and computers is going down. Is that really a good thing? Is that something we should be cheering for? I mean, it’s inevitable and it’s happening.
So what do you think? You said the Fed will probably reverse. I’m interested to explore, obviously I’ve published my views on that, but I’m interested to hear your views on what do you think the Fed is going to do? What do you think it’s going to precipitate it? What do you think is likely timing? And I’ll give you the caveat that of course nobody can predict the future with perfect clarity. And you’re trying to get into the heads of people who are not rational and they are politicians and they lick their finger and put their finger in the air saying, which way does the wind blow?
But giving it all those caveats. What do you think?
Jim: So I’m a big fan of Luke Grumon well, Lynn Alden, too, but I subscribe to Luke’s newsletter. I think, like him, not just repeating what he’s saying, but his views aligned with mine, but he sees them as reversing it’s because you look at the GDP, to reverse that, we need negative real interest rates. Foreigners aren’t buying Treasuries hardly at all anymore. They’ve played some games to get the banks to buy Treasuries by changing the SLR ratios, I think. But at some point people keep saying, when are they going to reverse course? Based on what the stock market is, I think it’s the Fed, the bond market, when the bond market goes no bid, you’re going to have to reverse. And for 8% inflation, the bond should be 10% to provide the normal, positive, real return. Are they going to let it get the 10%? I don’t think so. I don’t know at what point they reverse. I think the catalyst would be the treasury market versus the stock market, but I think they’ll have to mathematically. And then tax receipts are going to fall with a falling stock market. So that’s motivation for them to call.
Keith: The so called wealth effect slammed into reverse. I’ve talked about this a few times, so it’s interesting. For some reason, they invited me to the Manhattan Institute, sponsors something called the Shadow Open Market Committee Meeting. So SOMC named after the FOMC, the Federal Open Market Committee Meeting. There’s a bunch of monetarists who sit there and presume to give the Fed criticism, but it’s criticism from the friendly side. They’re like, Hey, buddy, you should have raised rates 25 bps six months ago. And according to this formula, which we all agree on, the Taylor rule or whatever, you should have done that because otherwise that’s going to happen. And it’s so much rubbish. We had, as a keynote speaker at this particular time Dick Fisher, who at that time was the president of the Dallas Federal Reserve and I don’t remember what he said. It was completely forgettable. But one thing that stood out was somebody asked him about the wealth effect, so called wealth effect, which is people feel richer and spend more money when assets are going up, particularly stocks, but also real estate. And so he said, I’ll never forget. He’s a charismatic guy. It looks like he’d be a lot of fun to grab a beer with.
He asked this question, he says, well, and he has this open palm. “Let me just say the wealthy have been very affected.” This is wonderful fun. And everybody in the room is giving up a light golf clap because the room is full of one percenters. And people that are hoping to go to the revolving door. So there’s a three way revolving door between the federal treasury, investment banks and academia, universities for PhDs in monetary economics. And then the universities, they get prestige, and the governments that get power and the banks that get money, and they crave all three. And there’s a revolving door as their career ascends upwards, they sort of spiral through a couple of times. And so everybody in the room who wasn’t one percenter, was an aspiring one percenter as they’re looking at that revolving door, and they are just younger and not there yet. And everyone’s just going “oh his is wonderful”. I’m sure I was the only guy in the room sitting here thinking that son of the bitch. I didn’t clap. I was just like, this is cold fury. You think that what you’ve done is you’ve engineered a way to take some money from the poor in the middle class and transfer it to the rich.
And you’re not only okay with that. You’re telling jokes about it and never want to plot again. Now, it’s actually worse than that. If you got richer, it certainly didn’t come from the poor. The poor don’t have any money to begin with. That’s why they are the poor. If you feel billions richer, it didn’t come from the poor, it came from somewhere else. Secondly, the middle class feels richer too, to the extent that they have stocks in their 401K, to the extent they own their own homes and do all the things that middle class people do, which most of them have some assets. That’s why they’re the middle class and not the poor. They feel richer too. So you didn’t get their money. If it was a transfer from them to you, they’d be pissed. They’d be the ones with the pitchforks and the torches, and you’d be rich. But barricaded in your castle’s, eyeing the mob nervously, they feel richer too.
So what’s going on here? Well, it’s a wealth effect, not wealth. By engineering the prices of all assets to rise, made everybody feel richer. You haven’t actually printed any actual wealth. You’ve just made everybody feel richer. So then they’re consuming their capital. It’s actually worse than you think it is, but you’re sharing this.
Jim: That’s the story of the last 30, 40 years. If you get a WTF 1971. The lack of sound money, this fiat system is far worse than just inflation. Inflation is just part of it.
Jim: But that wealth transfer effect, it’s the cancel on the effect where the people that get the printed money first benefit over everyone else. And the clearest example I can give for that is Fed fund rates are at 0%, the banks are borrowing near 0%, and they’re charging you 12-18% on your credit card. I could make money doing that. I’d be rich if I could do that, but I can’t do that. I went to get a business loan and it was 9%. It’s like, Why is a small business loan 9% and these guys are getting it at zero? And then the erosion of the middle class, the erosion of our manufacturing base due to the fact that we’re the world reserve currency, so we just print the money and buy stuff from overseas. And the reckoning is coming as the system kind of falls apart. And it’s tragic that it’s gotten this bad and this far, but I don’t think people realize the price that we paid for the system. And I don’t think people realize. People always talk about doom and gloom if gold hits $5,000 or $10,000, whatever the price target, like, what a chaotic world that will be. But to me, it’ll be a better world. This world that we’ve been living in with this wealth transfer effect, the erosion of our middle class is what needs to come to end. Re adoption of gold’s money broadly will be a wonderful thing for this country.
Keith: I think the fear is, about this gold at five or $10,000. We may be a lot like Caracas, Venezuela, where there’s a few people that, in theory have a lot of wealth, but if you have a Ferrari, you’d never take it out of the garage and bring it on the street. Since the mobs will be hitting you with bricks and Molotov cocktails. Like, if everyone else is that impoverished, they’re desperate and hungry. If you show that you have wealth kill you either out of anger or out of desperation to think that maybe you have some food in your pocket.
Jim: And that’s exactly what Citizens for Sound Money is all about, is spreading the word and trying to have it so that when things fall apart, the people will own gold and silver. The people will own sound money as broadly as possible so that we can avoid that kind of thing. Don’t just help yourself, help your friends, help your family. Spread the word about it.
Keith: Yeah, absolutely. So, speaking of gold and silver, how do you perceive gold and silver, one versus the other? A gold standard. A silver standard. What are your thoughts on the hard money debate of gold versus silver?
Jim: Yeah. Well, central banks hold gold. They don’t in general hold silver. Silver traditionally because it’s lower in value, you can have a coin that you can spend more easily. So if you want to get a cup of coffee, you’re not going to be paying gold for it. You’ll be paying silver this day and age with the ability to do asset back digital currencies, where you can subdivide gold as small as you want. That lessens the kind of need for silver. But when you convert it to cash, it’s nice to have small denominations.
I always say I hold gold because central banks hold it and I hold silver because they don’t. Silver has that industrial use, so it’s got this real world anchor that is going to make sure that it’s in demand and will always have a bid behind it.
Keith: I was going to say, I think in general, people do not want to walk around having to carry any kind of physical. The trend has gone from paper cash to credit cards, from credit cards to it’s on your phone or your watch. You just go to the point of sale and you just take your watch and it just goes beep and it’s like, Thank you, Mr. Weiner. Just press on your watch. Yes, I approve the charge. And the idea that people are going to go back to carrying coins as their primary means of transacting, to me, that’s like, are we going to go back to wearing sackcloth robes tied at the waist with a rope belt and have this leather pure jingling on it? I’m not sure that the world wants that. But to your point about the electronic credits, by the way, have you seen a company called Goldback? Have you encountered any of that?
Jim: Yeah, we interviewed Jeremy from Goldback. Yeah, actually, I have a stack of them right here.
Keith: They make in New Hampshire, they don’t make every state yet. They only have like half of the states. But New Hampshire is one of them, right?
Jim: Yeah. And then here’s the difference. So it’s pretty meaty. So 51,000th of an ounce. Yeah. These are beautiful. They really are. I remember I would see them online, I was like, Eh. Yeah, I wasn’t all that excited. And then when I was in New Hampshire, liberty for them, I saw them in person and you really have to see them and feel them. Photos of them look like paper. When you see them in person, you know that it’s gold. So, yeah, really neat product.
Keith: Yeah. One of the things about gold is nothing else looks like gold. You can make some sort of paint or whatever, but it never really looks right.
Jim: Yeah, he was talking about what it would take to counterfeit one of these. Like you said, nothing looks like gold. So he’s like, if the guy had he said, first off, you need millions of dollars of equipment, then you need to at least put some gold in there. And after all that trouble, if you can really do that… you could probably get a real job. If you’re that good that you can counterfeit…
Keith: I bring it up because that is obviously denominator. You can get it one 1000 of an ounce. So in terms of buying your coffee, you can get a gold back that’s basically worth 1.80 worth of gold, plus the premium for the product, obviously. But it certainly is coffee bistro level denominations. The question is, are they really going to circulate the people and carry around physical stuff again? First, their is the redeemability, the right to withdraw, trust the depository institution for some reason you don’t like the interest rate… the right to withdraw and then people need physical stuff to withdraw. But will it really circulate? It’s an interesting theoretical question.
Jim: We will be mainly cashless, but I think cash is always going to have a role, especially if you’re not fond of the government. Being able to do a cash transaction privately and anonymously is a good thing. They supposedly have really pretty good success in circulation in Utah in the sense that there are numbers of vendors that take it. But yeah, I definitely see sound money, gold and silver. There will be a digital form to it for sure. I think the one thing there shouldn’t be is a paper certificate form. It can be a blockchain accounting of it or like Goldbacks, it could be a physical cash equivalent. But we can do better than paper now, right?
Keith: What do you call it? It’s not a gold currency. The currency is a piece of paper or digital that says you have the right to be paid the gold. The gold is actually contained in the gold back, so it’s not exactly a currency. What word do you actually call that thing by?
Keith: A very thin sliver. I know you guys are slicing silver bars on a bandsaw. You get a pretty thin but I think Goldbacks, they’ve got a way to get a lot thinner than that and they’re flexible and you can fold it and put it in your wallet. They’re cool. I’ve got a few and I’ve written about them and I haven’t interviewed Jeremy, but the company that makes that for Goldback is called Valaurum, who’s a client of Monetary Metals. I’ve interviewed the CEO, Adam Traxler and talked about this a whole bunch. And they’re building all the anti counterfeit measures. I just noticed the other day they signed another former US mint director, or high level person to their board of advisers. So they’re studying and implementing all the stuff that the US government does in terms of security of the physical currency, proof against counterfeiting and little strengths and barcodes and holograms.
I don’t know what the latest version has, but that’s what they’re trying to focus on to make this absolutely, like if that thing says it’s a thousandth of an ounce of gold, it’s got you can trust that without having to melt it down. Sticking it a crucible.
Jim: Yeah, I actually have an XRF machine, so I did scan them, but I think for the ones, the thickness is thin enough that they don’t get a good scan out of it. But the 50 came out 99, whatever. Pure gold. I didn’t have to melt it.
Keith: The scanning XRF guns. I’ve also been at places like Waltz, where they have ultrasound and other kinds of detectors, and being that sloppy and plastic, those don’t really detect the gold. But I guess for something like that, it’s so thin, XRF should be enough. You’re not worried that there’s gold around the tungsten core or something because they’re so thin that the Xray would see all the way through that.
Jim: Yeah, XRF can penetrate clear stuff, but basically my reading was enough to say, okay, this is definitely gold. I’m sure the fact that I’m reading it through whatever I’m reading through and it’s thin enough is the reason why it’s not reading as 100%. The 50 read pretty close to 100% to your point.
Keith: The fact that it says this gold there, nobody would go to the length of acquiring all that equipment. By the way, 480 volts service, electrical service, like 240 is not enough to run that appointment and the cooling and all the other things that you need, nobody would go to that length to put a gold alloy in there and get away with okay, it’s not solid gold. It’s only half gold and half copper. Aside from what looks very different, because copper gold alloy would look much redder. If there’s any gold in there at all, then it’s probably the real deal because it wouldn’t be worth your while to fake it halfway. It’s either going to be completely fake, like gold paint of aluminum, or it’s going to be real gold and your XRF gun will prove that people don’t know about all the physical side of this one is if you haven’t held a piece of 24 carat, 100%, 49 gold, you should go and hold a piece of it like a Canadian Maple or a gold bar. It is so much heavier than it has any right to be. It is astonishingly heavy. The other is just how hot, hot is.
So I’m sure you’ve been also on a refinery where you’ve seen them actually melting it, or you may have done yourself pouring into crucible. That is so impressively hot.
Jim: I’ve melted several thousand ounces at this point.
Keith: I‘ve been in these places where genuinely, I’m wearing suits as I’m in a business function, and they’re giving me a tour. And so they’re usually holding me at 3o foot or more distance away from it. And at 30ft, the heat, like, I open the little door of the furnace and they’re pulling out the crucible. The heat that comes radiating out of that is so intense, it’s actually impressive. My God, I can’t even imagine being so close that you’re pulling it with the tongue that’s, like, ferociously hot.
Jim: Sometimes I’ll have my glove off and I’ll be pouring, and I’ll be a couple of feet away from pouring within 30 seconds. It’s, like, starting to burn my hand. The radiation heat. The air is not hot. It’s just the radiation. And it’s glowing yellowish. I poured, like, 20 or 30 ten ounce rounds yesterday. I have two forges going at once. My electric was out of commission, but I got a new crucible for that, so I can pour three at a time.
Keith: You’re doing silver, right?
Keith: Relative to gold. I’ve never looked it up.
Jim: I know. Relative to gold, I think it’s pretty close, but it’s 176o for silver. It may be a little hotter than.
Keith: I would have thought for something so soft, I would have thought. Oh, like lead?
Jim: Yeah, I guess compared to lead. Yeah. But we did some brass castings for our original stamps, and that’s, like, 1950. It was the strongest thing we could find that could be melted in kind of conventional equipment. Once you get to steel, forget it. That’s really hot.
Keith: Right? I can only imagine you see these guys with steel. Obviously there’s a huge principle lifted by cranes, but there are guys that are handling or whatever. I’m like, what is that heat like? Can you imagine working in that environment for an eight hour shift?
Keith: I’m just soft and spoiled, but I can’t imagine. I’ve worked in my backyard doing landscaping here in Arizona where it’s 110 outside or something, and I’ve survived that. I’ll drink about 20oz of water every ten to 15 minutes all day, but I can’t even imagine an environment like that.
Jim: I think that’s why my face is so red today. Cast pouring.
Keith: You get a residual for a couple of days?
Jim: It’s kind of like getting sunburned.
Ben: Jim, thanks for coming on to the show. Where can people follow you and learn about your work and the Citizens for Sound Money?
Jim: So on Twitter, we’re @4SoundMoney with the number four. Then it’s Citizen4SoundMoney.org, our website again with the number four. There’s a newsletter people sign up on there. We’ve got these one fifth ounce Citizens for Sound Money coins, and we sell a couple of ounces of those at cost to people on our newsletter. We sent out a coupon code for that, although the next shipment might be a little while because we just sold out. But it’s a good way to get some low cost silver that you can hand out as tips and spread the message.
Ben: All right, well, thanks so much for coming on.
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