Ep 38 – Jp Cortez: Fighting for Sound Money
Jp Cortez of the Sound Money Defense League joins Keith and Ben on the Gold Exchange Podcast to talk about problems with central planning, the morality of sound money, which states are topping the Sound Money Index and why, and what you can do to support grass roots initiatives in the fight for sound money.
To connect with Jp and the Sound Money Defense League click here.
Connect with Jp on Twitter: @JpCortez27
Connect with Keith Weiner and Monetary Metals on Twitter:
Mises Theory of Money and Credit
Stephanie Kelton and the People’s Economy
01:03-1:57 Jp Cortez and the Sound Money Defense League
01:57-04:46 Removing friction from gold and silver
04:46-10:40 Separation of Government and Money
10:40-14:00 Government Creates Moneyness?
14:00 -20:04 The Sound Money Index
20:04-27:45 Gold Bonds vs State Debt
27:45-31:57 Grass Roots Success Rates
31:57-39:55 Powell, Gold and Speculation
39:55-51:06 Central Bankers and Gold
51:06-55:15 The Immorality of Unsound Money
55:15-57:12 The Sound Money Scholarship Essay Contest
Ben: All right, welcome back to the Gold Exchange podcast. My name is Benjamin Nadelstein. I’ll be hosting our conversation today. I’m joined, as always, by founder and CEO of Monetary Metals, Keith Weiner. And today we have a special guest, Jp Cortez policy director at Sound Money Defense League. Jp, how are you doing today?
Jp Cortez: Hey, Ben. Thank you guys for having me on. I’m a listener. It’s great to be on with you guys.
Ben: Yeah, we’re really excited to have you. So, JP, what is the Sound Money Defense League. What do you guys do? Tell us everything we need to know.
Jp Cortez: Yeah. So it is a nonpartisan public policy group. It started back in 2016 when Stefan Gleason, the President and Owner of Money Metals Exchange, and I teamed up to start a Sound Money public policy advocacy group. We found that there are a lot of laws across municipalities, across states, across the country that introduced disincentives to getting into and out of gold and silver. And we decided to be a group to address some of these really onerous really draconian laws in some cases. And so we have since been writing legislation and introducing it across various states and on the federal level to remove the friction of going into and out of the US. Dollar, of going into and out of gold and silver, America’s only constitutional money.
Keith: I think just to jump in here a little bit, the concept of friction is a really good analogy. I think people kind of understand if you have a cinder block and it’s on your driveway, which is asphalt can be a bit rough, you think how hard it is to push that. And then if it wasn’t one cinder block, but like a whole stack of cinder blocks, it’s just an enormous effort. Yes, you can do it if you really, really want to. You get out there and you prepare to sweat a little bit, or you can invite a couple of guys over and offer some beers or something, you can kind of push those inner blocks. But other than just a paraphrase from Denithore and Lord of the Rings “at the utmost end of need”, you’re not really going to do that very often.
Jp Cortez: It’s almost made intentionally difficult. Right? In the case of using gold and silver as money, you’re talking about tracking a cost basis. Every time you go to a store, you spend any of these items, you’ve got to keep track of a gain or a loss. All of this is reported, it is unfeasible to use gold and silver today as money. And I don’t think that’s by accident.
Keith: No, just gold is singled out for higher capital gains tax rate than any other investment or speculation. And so, yeah, with all that friction there, then gold just disappears into private hordes. Or it’s for storing wealth or a hedge against the end of the financial system or speculation. Whatever it is, it works really well for that. Not so good for actual circulation. And if you limit the friction, instead of having a thunder block sitting on the driveway, imagine if you had it on some sort of rolling cart.
Jp Cortez: Yeah. Or ice.
Keith: Yeah, even better, right? You have it on ice and now you can just push it around with your little finger and then therefore you might be more inclined to push it twice a day. You get your car in, you get your car out. Yeah, it’s not a big deal. You’re not like going through that little mental gymnastics that you do. Is it worth it? I feel like, well, it should move it, but you’re like, okay. And it just becomes second nature to do it. And the more that you take the friction out, the more that people can do the trades that they want to do, the wealthier that we all become. So that idea of removing friction is probably one of the single most important, much broader monetary policy one of the single most important policy principles, guiding principles that any policy maker could have. I would take friction out today.
Jp Cortez; Yeah, absolutely. And I think part of it obviously is the friction of going into and out of gold and silver and into and out of different types of money. Other real difficulties in reintroducing gold and silver, for example, if you ask any random person on the street what money is, they’re going to describe this green paper that has some writings on it. It’s got an eagle on it. Most people have never seen physical gold, have no real understanding of why the things that have value actually have value. And so not only is it removing all the impediments and the incentives like a learning process, or rather an unlearning process that’s going to be required to eventually move back to a sound money standard.
Keith: It’s no coincidence that Karl Marx proposed ten planks. And I don’t think it’s arguable the two most important planks. One to have a state controlled central bank to control the money, and the other is public schools. So the kids are indoctrinated from the time they’re in school that money means pieces of paper with green ink on them. And I was going to say, if you ask Google Images what money is, you’re gonna get pages and pages and pages of individual dollar bills, people holding fistfuls of them. No gold coins.
Jp Cortez: I’m sorry. We don’t have to spend the entire time on this. But I think that sort of beautifully highlights the importance of what Mises wrote, and I believe it was in his Theory of Money and Credit when he said gold standard and a sound money effectively plays two roles. It is affirming in that the people’s money is being chosen by the market, and it is negative in that it obstructs a government that otherwise has a propensity to meddle in questions of currency. And obviously that has giant implications from war to domestic programs to all sorts of uncontrolled spending. Thinking about sound money as not just money in and of itself, but as what should be classified as perhaps an enumerated right among the constitution that sound money is just as equally important as your right to free speech. And your right to assemble, for example.
Keith: That would have been very different had the founding fathers enumerated that, because of course, from the founding, they began to interfere and tinker with money. And I think it starts in 1790 with the creation of the bank of the United States in 1792 with a coinage act which fixes the ratio of gold to silver, fixes the price of silver in terms of gold. And at that time, it slightly overvalued silver. So silver, of course, everybody happened to turn their silver into the meant to be coined into coins. In those days, you brought your metal and at no charge to claim it for you. And because the government overvalued silver relative to the market value of it, a lot of silver came to the mint and the coinage was silver. And gold being undervalued. Gresham’s Law says it’s going to be driven in circulation, which it was 1834. They reversed that. But then the other thing is, they created this crony. They didn’t have that word as anachronistic, not contemporaneous. They created this crony, bank of the United States, which was 20% owned by the government, and the bank generously went the government the funds that needed to buy the shares.
I mean, this is classic cronyism. This is so corrupt and of course, it extends credit that’s a whole bunch of other things. And thus begins. And of course, no one else could get a charter in those days. It required an act of congress to open a bank. Like if you wanted to open a restaurant, you didn’t get any put in permission. You just opened a restaurant. You want to open a farm, you wanted to open a sawmill, you wanted to open a shipyard. You didn’t give anybody permission. You bought some land, you hired some people, and the way you went. But for a bank, you needed congress. And congress only authorizes one thing. So if the government granted monopoly and we never had a free market in money in this country ever going back to its founding, unfortunately. So if they had put that in the constitution, separation of money and state and separation of school and state, I would add, boy, things might have turned out differently.
Jp Cortez: Yeah, they might have. I have to be honest, I’m not hopeful. The same people that wrote the Constitution are the same people that passed the Alien and the Acts years later. That essentially criminalized speech. So I am not necessarily hopeful that it would have made an enormous difference. But certainly in just the process of considering what money is, I think that having that firm footing, the understanding that money is not something that’s arbitrarily assigned, it’s not something that a government institution. And now suddenly things without monetary properties yeah, things without monetary properties have them, and it’s just a simple flick of the wrist. Right. So conjurers witches and wizards, their magic pales in comparison to that of a government’s treasury. That understanding, I think, is a big part of what we’re up against here now.
Keith: I was going to say that debate rages today, except it’s not much of a debate. Virtually everybody believes that it’s government that abuse money into something that’s not monetary or otherwise be non monetary. People just sort of laugh at the idea of gold, that gold doesn’t have the backing of government. That’s what comes out on CNBC sound bites. Alleged monetary economists are slightly more nuanced view. But it’s the idea that first there’s government, then there’s the edict, and that is what creates moneyness, which is so ass backwards you just want to cry.
Jp Cortez: And that’s what we’ve been seeing. Right? So this has been the last couple of years have been an exercise in magic monetary theory. And I think over and over the Stephanie Kelton’s of the world are having to wrestle with this idea that, wait, government does not predate money. There is little that we use more than money, maybe second to language. And so the idea is that governments predate money. And so if only for a central planner, everything will be peachy keen. It requires hubris. It lacks an economic understanding of the world. Yeah, I guess my advice would be to go back to your Mises.
Keith: I just noticed yesterday and tweeted about it, that the subhead to her book subhead to her book is something, something called the People’s Economy. Because I’ve been saying for a long time that this is basically socialism as a new label, and it hasn’t been cheap for a long time for the socialists to call it the people state of whatever. Ayn Rand, famously, in Atlas Shrugged all these various People’s States that were all collapsing the way Venezuela or Cuba did or is doing, and there she is, openly touting the people’s economy. And what does that mean? I’m socialism? That means we’re going to take everything you have and then we’re going to promise you everything you need, provided you do as we say. And of course, we can’t deliver on our promises to give you everything you need because we can’t deliver anything because also socialism fails to be able to do this. Mises’ prediction in 1922 was prescient but the Union had to collapse he said. Because they can’t even calculate. They can’t even put into calculation how much subsidies the West and the United States would give the Soviets to extend the life of that thing that should have collapsed at or by or maybe slightly after World War II and instead gave it another 40 year lease on life 45 years before it finally was dived in.
But anyway, we’re not here to talk about socialism.
Jp Cortez: We can I’m open to it.
Ben: Well, Jp I see behind you that you’ve got your Sound Money Index. Can you tell us what is the Sound Money index? I think I know, but I want to know what states are on there, which ones are good, which ones are kind of bad on the Sound Money issue and other surprises, other ones, maybe, that we all think might be so hot and aren’t actually so great. And then I kind of want to get into gold bonds as well. So why don’t we start there?
Jp Cortez: Yeah. So the Sound Money Index is an index that the Sound Money Defense League has been publishing, I believe, since 2017. And this is a scorecard, it’s a ranking of all 50 states using twelve different criteria to determine which states have the best pro and the most anti Sound Money environments. So we ranked most of the criteria that our index covers is largely on the tax issue, sales tax on precious metals. When you buy, what are the levels of taxation relative to the average rates of taxation across the country, and then again on the sell side when you go to sell the asset, which states have removed capital gains taxes and then levels of taxation again. But then, of course, there are other measures that unfold here. Some of those involve whether or not states have reaffirmed that gold and silver are indeed money legislatively, whether states have introduced legislation to establish an in state depository to store individuals and goals, holdings and the state’s holdings. There are also laws. For example, one of the other categories, for example, is what we call the dealer harassment and restrictions in some states. For example, Ohio, which is a notably red state, has laws, and these are primarily based off of what are called second hand dealer laws.
But in Ohio, if your grandmother gives your little cousin, 13 year old little cousin, $30 and tells them, hey, run down to the pawn shop, please pick up silver, US eagle, and they go down there and the pawn shop sells it to them. The pawn shop has now just committed two crimes. One, they allowed cash in Ohio, no cash transactions, electronic only. There has to be a record. And number two, you’re not allowed to buy precious metals if you’re under 18. And I can’t speak to whether or not anyone has been prosecuted for these things, but these are real laws that, at least on paper, are punishable with jail time, which speaks to a bureaucracy, it speaks to overreach of control, and it again speaks to making it more and more difficult for your everyday person to get into gold and silver if they wanted to. And so those are some of the things gold clause contracts is another category that we’ve studied here. And so along all of these list of categories, the one actually that Keith and I, and Stefan and I have been in the last couple of years is the issue of gold bonds.
And we’ve included that in the most recent found money index. I think for the last two years it’s been as part of the criteria and no states have done that quite yet. But these are issues that we’re tracking and ultimately there’s a reason that Wyoming and Texas and South Dakota are at the top and that Vermont and New Jersey and Maine are at the bottom. And it’s not necessarily partisan. It’s not state is good on sound money, blue state is bad on sound money. That’s not it at all. Each state has its own perceived financial needs. But across the board, the states that are good on this issue have proactively taken steps to pass legislation like this and the ones that are down at the bottom, surprisingly, even Tennessee until recently was taxing sales of gold and silver. Florida, for example, red state has one of the most aggressive laws, what are called threshold laws. In Florida, if you buy $500 worth of precious metals, your transaction is tax free. If you buy under that $500, your sale is taxed. This is a regressive discriminatory policy that hurts those that are dollar cost investing the small purchasers.
These are laws that frankly don’t make sense. And so these are some of the laws that we’re tracking and we work to give people a holistic view on which states are the best. And having this resource I think has been really great. I have personally received emails and phone calls of people telling me that they’re using this index and this information to determine where they’re going to move their family or where they’re going to open a business. So yeah, I’m really proud of this index we put together and I think it’s a valuable resource.
Keith: I think it’s really smart to sort of codify, put it together, give people. The way our culture works is people want to hear what’s the number, what’s the score on the index for a given state? And I think it’s also really strategic to have some, I guess the concept of the headroom. Like if you’re giving an IQ test to all the kids, you definitely want to have some questions that none of the kids are going to get right. And that way, you know, you have some resolution at the top of the scale, so you include some things that nobody’s doing yet, but you’re leaving room for it. And then if you have any legislators or enlightened governor that says, what can we do? And they look at it and say, oh, wow, we can do gold bonds and we can do this and we can do that. It gives them something to aspire to.
Jp Cortez: Yeah, exactly. And the highest score on the index this year is Wyoming with a 61%. Right. There’s still so much work to do, even among the good states.
Keith: Yeah, I was going to say 61% class. That’s like a class grading on a curve.
Ben: Well, Keith, can you tell us what is actually the benefits of having a gold bond for the state?
Keith: The state, because it has different agencies, can be on both sides of the trade. So for any saver or investor, especially for long term, when I’m talking about parking your cash until tomorrow, you’re going to spend it. But we’re thinking about long term, like retirement horizons. How old is the average working age person? How many years before they even first quit working and then how many years, what do they expect to live in retirement? For those kinds of timescales, the dollar is completely unpredictable. What is the dollar going to be worth in 40 years from now, 50 years from now? Nobody has any idea. But we all know….
Jp Cortez: Less
Keith: Less, maybe worth a lot less. It may even be worth zero, that’s your spectrum is ranging from a lot less to drastically less than zero. Right. Those are your three choices. So if you have a saving instrument, have one thing to own a piece of gold, as Warren Buffett famously or infamously derides. “It’s not productive, not procreative. You buy a bump of metal, you stick it in your desk drawer, and 20 years later it’s still the same amount of metal.” To which the answer is, sir, that’s not a bug, that’s a feature.
That is actually desired. Because if you bought a lot of dollar bills and put that in your desk drawer, they wouldn’t pay the same thing at all. It would be something entirely different, as we just said. But now imagine if instead of just a month of battle, you had something that was actually productive and procreative and all the things that he said, gold is not generating return, then you get a very different economic outcome. Again, for the saver, for the investor. Now, for governments, some states have rainy day funds, they have pension funds. They have other longer term they may be doing providing reinsurance or super fund recovery. If there’s mining or industrial pollutions or whatever that they set aside money that they may need to use at some time in the future, all that long term money should be generating return.
On the issuer side, there’s a very interesting dynamic, and I proposed this in Nevada. I’ve had a couple of conversations with other states and a few sour governments around the world. And the idea is by issuing a gold bond so number one, you have to have a gold income. This is not about having gold in the vault. To buy a house and then have a $500,000 mortgage, you don’t have $500,000 in a safe in the basement of your house, out of which you pay the mortgage. I mean, if you have 500,000 cash sitting there, you probably just buy the house for cash. You have a dollar income, you have a salary, and you amortize the mortgage out of your salary. So in order for a government to issue a gold bond needs a gold income, which means it’s typically mining, although there are a few other industries where their taxation effectively gives them a gold income. That’s to qualify. That’s what you need.
If you do that, I propose you auction off a gold bond and you start very small for a lot of reasons. And I propose that when you conduct this option, you don’t auction it for dollars. You’re not trying to raise dollars if that was your goal. You should just sell conventional bonds. Nor do you auction it for gold. You’re not trying to raise gold like a state is not trying to collect gold from the people. That’s not the point either. The state should say in this auction you have to submit how much outstanding state debt paper you’re going to tender.
So it’s a redemption mechanism to pull its debt out of the market and replace it. Pull its paper debt out of the market and replace it with gold. Which does a couple of interesting things. First, it establishes a market exchange rate. I mean, there’s an exchange rate between the dollar and gold. Everyone knows that. And you can look it up every day on your favorite gold site. But what’s the exchange rate of gold versus dollars to be paid in ten years from now? So if I give you a choice, if I said, here’s two bonds, you could pick either one. One of them is going to pay you 100oz of gold in ten years, the other one’s going to pay you $185,000 in ten years. Same debtor, same credit risk, same everything. Which would you pick? Obvious. What is going to happen is you’re going to get a discounting mechanism that the dollar redeemable paper or dollar payable paper is going to be trading at a discount to the gold redeemable paper. So this is a mechanism for states to reduce their debt at a discount that is, for every million dollars and in debt, they might be able to replace that with, let’s say, $950,000 worth of gold denominated debt.
Ben: I want to stop on that for a second. So this is a way for them to reduce their debt, which isn’t just inflating away the debt or some kind of tricky scheme that we figured out. There’s actually a positive way to pay back and on a discount, pay back the state’s debt. Is that right?
Keith: That’s right. By giving the market the choice and allowing the market to express the preference for the superior instrument. It’s a market essentially saying, hey, we’ll discount your paper because we want this new instrument. And it’s a market mechanism ultimately for return to the gold standard. It’s not a decree. You can’t have a government central planner who says we’re going to have a gold standard and that’s going to mean that the Fed is going to somehow set the right price of gold. Whatever the right price is, the Fed is going to somehow know, and it’s going to be lobbying and cronyism. Of course that would never happen in Washington, but the government is going to know the right price and the Fed is going to somehow set the right price. It will never work. But now you have a market mechanism that says, hey, you can redeem paper bonds in exchange for gold bonds. And every day somebody is making a decision, okay, how much of that, how much gold bonds do I want and how much paper bonds am I willing to pay? And you get an exchange ratio. And my theory is that over time so initially you might expect them to trade a par before the markets really gotten smart to this.
You might expect a million dollars worth of debt to go for, what is it, 510oz of gold or something, the equivalent. But as people figure out the gold inches is superior, I’d imagine that’s going to be a rising discount. Which means as the government is issuing more gold bonds, they can retire more and more debt for the same amount of gold payable that they have to commit to. And I think it’s a mechanism that they can get out of debt. Should any state government actually care or want to do that.
Yeah, in that unlikely scenario, this would be a nice mechanism for them to do so.
Ben: Right. Well Jp, let’s talk about that for a quick second. So what is the success rate been like and what are the incentives from the federal level down to the state level? And then of course, the kind of free market mechanism level. So obviously we have a little bias here at Monetary Metals for the free market. But how has it been going on the federal level? What is positive and what is negative there? And then what about the state level?
Jp Cortez: So the federal level is not where we spend most of our time. We certainly have federal projects. We’ve been working closely with Congressman Alex Mooney from Virginia to introduce several bills, bills to audit America’s gold reserves, bills to remove capital gains on the federal level from sales of gold and silver if there is a gain experienced. But the reality is that the federal space is largely one of chest thumping and gridlock. And so we have found that a more effective strategy is to target the states themselves. And that speaks to the movement that we’ve employed here where building urgency and telling people to be an active participant in their state legislature and just removing, or rather reducing the ask to virtually zero. We’ll provide the phone numbers, we’ll provide the email addresses, we’ll provide the articles and the information, but being an active, there is no replacement for those phone calls and for those emails. So in the case of the DC switchboard is lighting up across 100 different issues, 100 different constituencies, and to them, it’s all just noise on a state level. If a state capital receives 20 phone calls, 20 emails on one given day, on any one single issue, they’re running around with their pants on fire saying, oh my god, what is happening?
Because state legislatures are not used to seeing that sort of grassroots pressure in that sort of organization. There was, I think, a famous politician in Illinois who said something to the effect of when I feel the heat, that’s when I see the light, which is to say that and that’s largely what American politics is. The squeaky wheel gets the grease. And so if you want to get things done, you have to bother these people. You have to have their phones blow up and their inboxes ring. And we’ve had a number of experiences of corn states where either I received an upset phone call from a member of a legislative committee, upset because he was unable to work, because his phone calls and his emails kept him from being able to get anything done other than hear from people.
Keith: I just have to interrupt and just say that was such a terrible shame, and the world’s smallest violins to that particular legislator.
Jp Cortez: Absolutely. I apologize, sir, that you’re having to hear from your constituents and do your job, but ostensibly you’re representing these people, and so you have to hear from them. This is entirely what you do. In Arkansas, that happened. And we were not supposed to get a hearing that year. The bill was supposed to be dead. And because of the grassroots movement, they end up scheduling an unplanned hearing. And then in Alabama and Tennessee. During committee hearings. We heard people not even on committees that we are part of. Just people that are part of the legislature saying things like. Wow. Half the state has contacted me over this piece of legislation. Or this is the most popular piece of legislation this year. Which is probably a little tongue in cheek. But it speaks to the massive amount that they’re hearing in a way that’s uncommon. And that has been largely our strategy approaching these legislative battles. And frankly, it’s been really effective.
Keith: That’s exciting to hear.
Ben: So, Keith, I have a question for you, which I wanted to know for a while. So I’m sure you’ve heard that Fed Powell had said that Bitcoin and these kind of cryptocurrencies, they’re just a speculation in the same way that Gold is a speculation. So if that is the case, why do central banks hold gold? It seems kind of contradictory. Gold is just a speculative asset, just like any other asset, like weed or stocks or anything like that, and yet central banks hold gold. So Keith, my question for you, why do central banks hold gold and what is the kind of push that we can have for these states to be like, listen, you already hold gold for some reason, so you think you should maybe earn interest on it or pass these gold bonds?
Keith: It’s an interesting question. Was it Ron Paul, I think, who asked then Chairman Bernanke why the Fed has gold? It was one of those moments where what Bernanke said was both strictly true and disingenuous as hell. He said, well, basically historical legacy. That’s true, right? So the United States is a bit different than most other countries. Gold is actually owned by the Treasury because the government confiscated, I think, I don’t know what proportion of the 8000 tons that the Fed is allegedly holding came from the confiscation of 1933, but it’s a pretty big percentage, I think. So the government confiscated it and then deposited have anywhere else to put it. Most other countries, I think it’s the central bank that actually owns the gold outright. And of course, gold was the money of the monetary system certainly until 1933 and arguably until 1971. After the time of 1971. If you read what these guys were saying at the time, Nixon said temporary. By the way, anybody who hasn’t heard the speech of Nixon talking about “I’ve directed Secretary Connolly to temporarily suspend payments and goals and other reserve assets.” It’s on YouTube. It’s like a minute and a half or something like that.
It’s really short, incredibly mendacious, and it’s interesting to watch what he said, whatever. Anyway, he said temporary. So at that time everyone assumed like, okay, there’s going to be a resumption, and nobody really got it. That temporary meant permanent. That was it. And so it took several years, everybody to kind of realize it. Finally 1975, thanks in no small part, I think to Jim Blanchard, who was a paraplegic and showed up in a wheelchair. I think it was some congressional, some sort of press conference or something. And he kind of photobombed it, as I understand the story, and he’s holding up a gold bar and he’s like, are you going to arrest a cripple? I dare you. And with a good year of blimp fly by and it was trampling something about legalize gold now. Anyways, they kind of legalized gold ownership after that. I want to say it was 77 or 78 or 79. They undid Congress, undid Roosevelt’s nullification of gold clauses. He couldn’t have a gold clause after that. And they largely forgot about it. And the Fed is sitting and holding his gold. It kind of became pointless to them, that is.
I don’t think over time, as the Fed chairman turned over. You didn’t have people that understood so Volcker, who was Fed chair allegedly curing the inflation problem. His doctoral dissertation was on Real Bills, and the gold standard at the time. But that guy would have gotten it when he went to school. But it would have been 1940s or 1960s, I think. It was still relevant at that time. Greenspan, of course, famously wrote for Ayn Rand’s book Capitalism: The Unknown Ideal, an essay about gold. That makes a pretty articulate case. And then you read what he was saying as Fed chairman and the Post-Fed chairman. It’s like you can’t say he forgot it. You have to say that he evaded it. Yeah, he evaded more about gold than most people know today. But he was the last guy that grew up in the soldier, understood it or cared about it in the slightest. Everybody who came after him, starting with Bernanke, has no historical experience with it. Their whole careers have been in the Fiat system. I truly think Bernanke, Yellen, Powell, I truly think they don’t get gold.
I’ve had a number of discussions personally with central bankers, not at that level, but one to two levels down. If you ask them about gold, I just kind of seem surprised. Why are you asking about that if you’re asking an engineer works for General Motors today about the mechanism of the steering linkage on a horse and buggy from the 18th century. We’re talking about the 2022 Corvette. Why are you asking me about this? They don’t get it, and to them, it’s historical legacy, but it’s a political hot button. It would take an act of Congress for them to dump or sell whatever the gold. Nobody in Congress wants to touch that. There’s no upside, if you’re a congressman, to sell it or otherwise do something that’s going to anger a big chunk of the population. So you just leave it there. In other countries, there have been political movements. I know some of the folks in Germany that were involved in demanding to repatriate Germany’s goals, and they turned it into a huge political issue. So the easiest thing to do, if you’re a central bank or your legislators, don’t touch that third rail. Just leave it be.
Now, of course, anyway, that’s the true part. The disingenuous part is that gold is money. It still behaves as money today. Now, it’s not a medium of exchange. People get caught up in defining money as a medium of exchange, which defines the moneyness out of gold, and yet gold still behaves as money in all respects other than being a medium of exchange. And even then, I would say in certain contexts, gold would be very acceptable medium exchange.
So I went to a school called the New Austrian School. That was the idea and the brain child and the creation of Professor Fekete. And then at the end when he awarded me the diploma, I handed him a 1oz gold coin. Well, obviously he’s a gold guy, so you could dismiss it that way. But let me just say that gold coin was accepted without question and that suit very quickly. You don’t have to force people to accept gold. So central banks own gold because that was the core monetary asset at one time and could be again and after the irredeemable paper system fails, will be again. Although hopefully not essentially banked version of a gold standard such as existed post 1913.
Or worse yet post World War One. Or even worse yet post World War II when the whole world was supposed to treat the US dollar as if it were gold and the US was supposed to treat the dollar as if it was redeemable. But not to the people. Only to foreign central banks. But hopefully an actual circulating gold coin standard in which the need for a central bank is obligated.
Jp Cortez: Keith, I have a question for you on that. I guess so it sounds like obviously the historic relic and then it sounded like you were saying that central bankers largely don’t know what to do with it or don’t care about it. And so now that there’s obviously a completely separate tie between Federal Reserve note and any sort of standard other than a PhD standard. So I think though, and I could be wrong about this, I believe gold holdings across central banks have largely increased over the last 60 or 70 years. And I’m wondering if a central bank, if the common understanding is that gold has no real value, it’s not a real money, it’s certainly not a medium of exchange. Why do you think central over have stockpiled gold, America included over the last several decades?
Keith: Well, American government is not stockpiled in gold. I’m aware of there are certain central banks that have bought some gold, they also sold some increase. Yet I think there probably is. I think for those central bankers, if you ask them and they gave a non political answer, which is almost impossible because they’re politicians and I think Greenspan actually talked about this, the need to learn to master Fedspeak and not speak in plain language. Yeah, I think if you ask them, they say, well, it seems like a good investment is going to go up, they have some reserves and gold seems to be a good bet and they have to mine their balance sheet. One of the things that the US did to the world at this insane treaty of Bretton Woods in 1944, the US was the only standing power really. All the other powers of the world were either completely destroyed to the point of unconditional surrender or walking wounded at best. And the US government dictated to the rest of the world this is how it’s going to be and you will like it.
And everybody assumes that was to the US advantage because it was certainly to the rest of the world’s disadvantage. The guy who negotiated this on behalf of the US, Harry Dexter White was later proven to be a tool working for the Soviet Union and trying to undermine the United States, which he was very successful doing. Anyway, the point being that the balance sheets of all the other central banks, of course, denominate the local currency, their assets being certainly in those days, but largely even today, US dollars and their liabilities being local currency. When the US Dollar goes down relative to local currency, there goes the solvency of that central bank. So they’re looking for things that will counterbalance the dollar to make sure that they’re solving a nominal terms. Bad things happen to currencies when the central bank is insolvent, and they all know that. But in terms of do they understand that it’s money, do they expect that it will be treated as money once again? I don’t think so, because there’s no mainstream thought that holds that or teaches that. So all of the academics, all of the economists, and most of the ones that would nominally be of free market persuasion, there’s a lot of economists out there that can tell you exactly why and how a minimum wage law harms low skilled workers and why and how price fixing for gasoline, which is just starting to be unfortunately, conversation again, is going to result in shortages and rent control and tariffs on and on and on and regulation and so forth. But when it comes to the money issue, there’s one that just tweeted yesterday, and I retweeted them. I’m not here to single them out, but basically said, arguably the greatest good that came out of Roosevelt’s administration was the bank holiday, followed by declaring the dollar severing, the redeemability of the dollar, I call them otherwise freemarketers.
Jp Cortez: Who said that? I’m sorry, you don’t have to name drop.
Keith: I’m not trying to drop a name.
Jp Cortez: But this is a free marketer?!
Keith: Yeah, absolutely. Libertarian free marketer.
Ben: Okay, when this call ends, Jp, I’ll tell ya.
Jp Cortez: You, yeah, send me the tweet.
Keith: I called on the otherwise free marketers, the people that posture, and Milton Friedman is one of them. Everyone thinks Milton Friedman free to choose, free markets, blah, blah, blah, blah, blah. On the money issue, they’re absolutely almost in line with Marx. It’s absolute state control, irredeemable currency, state, central bank. Anyways, when this is the condition, when the entire spectrum of allowable thought in mainstream, and this includes even libertarians, any libertarian that wants to be taken seriously in the mainstream has to move themselves into the Overton window. And the entire Overton window this is what was it Noam Komsky who said, the way to control everything is to allow a vigorous debate, but restricted to a very narrow spectrum of what is allowed to be debatable? And that’s exactly what we have. Even the other three marketers are absolutely for a central bank and they renewable currency and inflationary policy. And the only real debate is how to target inflation. We target inflation based on CPI, we targeted based on GDP, unemployment, the Taylor rule. It shouldn’t be more discretionary and therefore more political. Should it be more based on the rule and therefore arguably less political?
That’s the debate. When that’s the debate. There’s literally nobody in academia, let alone in a central bank, who thinks otherwise. On what basis would anybody even have the thought process that says gold should be money? That money exists independent of the state. money. This is not a dictator of the state crowning you have money in because I said so by the law. There’s nobody coming up in the universities unless they rebel against it, unless they say, this guy, this professor is an idiot. I’m going to read Mises or Rothbard or Hayek or whatever. I was just reading an article published by the Cobden Center thinking of all those yesterday. It was by Richard Evelyn, I believe. I was talking about the first Mont Pelerin Society meeting 1947 in Switzerland right after World War II. The ashes aren’t even very cold yet and all of these people that were anti fascists and antisocialists got together. And I thought the article was really balanced. As you basically said, most of these people didn’t necessarily think that to be a liberal meant and liberal those days, meaning for liberty necessarily meant libertarian or being for free markets in particular.
So Mises actually stood up, pushed his chair back and said, you’re all socialists and stalked out of the room. Friedman has always quoted that as basically saying what a dogmatic idiot that Mises was, and I think Go Mises! But everyone else, Friedman stayed there, Hayek stayed there, and Hayek was not necessarily what you’d call libertarian and everyone else in the room. And that was the post World War II order was built that way. So with all of this academic intellectual backdrop, there’s almost nobody who thinks that there’s something wrong with having a central bank and irredeemable currency, central planning inflation as a deliberate good, not that, oh, inflation is an accident. Inflation is a bug with the system. Inflation is a deliberate feature of the system in order to achieve stated policy objectives. If it’s done on purpose and proudly in daylight, not sneaking in back rooms, not like bribery or something like that. In that context, how in the world can anybody possibly have the thought who gets anywhere in the mainstream that gold is money or anything like that?
I joked that I was invited to a Manhattan Institute event where they sponsor the Shadow Open Market Committee. So these are a bunch of folks that they’re monitoring and they criticize the Fed, but it’s friendly criticism like, oh yeah, you should have raised interest rates 25 basis points six months ago. Anyway, I was joking. If they for some reason they invited me into the room, because they shouldn’t have because I didn’t belong there. And I was polite and curious or whatever, but I was a disruptive force. I said the word gold, I think, twice. And I was the only guy in the room who didn’t golf clap when Dick Fisher, who was the president of the Dallas Fed at the time, gave a keynote at that event and somebody asked him about the Wealth Effect. Economists have this term, that’s when people feel richer when their stocks and houses are going up and they spend more. So it’s not wealth, it’s the wealth effect. The way cheese whiz is not cheese, right? So anyway, somebody asked about the wealth of fact and says, let me tell you, balsie have been very attractive and everybody gives that little golf clap. And I’m like, you sound like a bitch. You think it’s engineered eluding of the poor in the middle class to enrich yourselves and you’re okay with that?
All the one percenters in the room? Not everyone in room the is a one percenter. There’s a revolving door that goes academia, government, banks and academia, they get prestige and government, they get power and banks that get money. And it’s a revolving door that can go through a couple times in their career and totally end up at a Dick Fischer level rich and powerful and famous and prestigious. Right? And this is the mainstream thought. They don’t entertain it because gold, as you said earlier so eloquently, I guess I didn’t use this is a check against that sort of blind grasping ambition, right? So they don’t think about it. They don’t care about it. They think they won the battle 50 years ago was over. They don’t realize it’s coming back because the system is failing. And they don’t realize the system is failing either. They just think, well, inflation is low, we have a new system. Oh, now inflation is running hot. We have the jack, interest rates, whatever it is, they think they’ll tinker with it and they’ll continue there.
Jp Cortez: And I think that’s the hubris of the central planner what is required to believe that there’s Godlike foresight and if only we turn the knobs and flip these levers, then we will be happy, everything will be well. And so I think, like to your point and like, there is to me when I look at sound money from the perspective of economic economics and the nationalisation of money and letting free markets decide what money is and how that trickles down and produces better results than essentially planned money. Those arguments are all, I think, very powerful. And obviously I believe them, I hold them to be true. But I think there’s a morality that gets lost in this that I like to highlight that this is a stated policy of maker for poor people to live. Poor people that already can’t afford housing and food and medicine and transportation are being priced out of life. While Jen Psaki and Joe Biden are coming on stage every day first telling us that there is an inflation and then telling us that it’ll be transitory and then telling us that inflation is actually good for the middle class and now finally landing on Putin’s price hike.
It is criminal and it takes the lack of understanding as to how this affects middle class and the poorest people among us. Is there’s an inhumanity to it, which I think gets lost in all of these? What can be more esoteric arguments about capital accumulation or fractional reserve banking or things like that? And I think highlighting that everyday people are finding it more and more difficult to keep up with hyper consumerism and a debt laden economy and I think reiterating that and having people understand that these policies come with consequences. These aren’t sandboxes where, “academic philosophers” can run these little experiments without consequence.
Keith: That’s so important that as long as the debate is around either the particular wise and where force of central planning use the tailor rule to use nominal GDP, as long as the debate is about not only statistics, but I call it dancing on the head of a pin whether you’re supposed to measure M2 or M3 or some other some other measure. And this year was 7% and last year was 6.8%. Statistics are very anti septic. The academic arguments are beyond even most of the people who face it, understand it, follow it, let alone ancient people. But there’s a very simple moral issue here, which is this is about stealing. This is about taking away your right, disenfranchising the saver by saying that you have to save in government debt. MMT people trumpet and promote this, that savings is government debt. And all they’ve done is basically taken a particular perversion of the current failing system, treated as if it was God given natural law and then reverse sort of cause and effect. It said, yeah, the government has to spend more money on whatever the latest leftist causes in order to help people save, or something like that.
All of this is just a thin veneer, a facade over, just theft, graft, drift, corruption, cronyism, all of the old bad, old socialist things that the world should have already learned. It’s less than that. And if you can paint it in moral terms, then I think people can start to see
Ben: Jp And Keith, I want to end on this because it’s a perfect segue. So Jp, tell us about the Money Metal Scholarship and the essay contest, because I think this is just perfectly in line. What we’re talking about right now, the.
Jp Cortez: Sound Money Scholarship is what it’s called. It’s a scholarship that is we do it every year where we have set aside 100oz of gold. I think in 2017 we set aside 100oz of gold to help students defray the ever increasing costs of going to college. And so we hold a scholarship contest every year. It’s an essay contest. And we’ve had, I’m very pleased to say, a blue ribbon panel of judges over the last couple of years. These are big names in free market economics and libertarianism and academics. These are free market minded judges, important, influential judges that have come every year. And we’ve gotten an incredible amount of support and excitement from students excited to have their work read by this incredible group of judges and have their work published and need to win money. And so this year, I’m proud to say, actually, we have our entire panel set and ready to go. We’ll be publishing that soon. But I am happy to announce I’ll break news on the air here that Dr. Keith Wiener will be joining us this year on our panel. I’ve heard from people already about how excited they are they’re going to get their essays in this year on Moneymetals.com/scholarship you’ll find the essay, we ask you to keep it to 800 to 1200 words, give or take. It’s a soft, limit. But just answer one of those questions and we’ll go through the process. The judges will receive the finalists, and then we’ll award a winner.
Keith: I’m excited to participate, and I look forward to doing some great essays.
Jp Cortez: Yeah. Thank you. Thank you for being a part of this.
Ben: Jp, I want to thank you so much for coming on. Can you tell us where people can find you, find your work, follow up, and what’s the best way to get involved before we end here?
Jp Cortez: Yeah. So the Sound Money Defense League is the name of the organization you can find us at Soundmoneydefense.org. The scholarship can be found on moneymetals.com/scholarship. And for more information on the Sound Money Index, you can find that at Moneymetals.com-sound-money-index. And again, my name is Jp Cortez. You can find me on Twitter at JpCortez 27. And my email and stuff is on the site. So if anyone ever wants to reach out or have a talk about this or work together to pass the legislation, please feel free to reach out.
Keith: All right!
Ben: Thanks so much, JP.
Jp Cortez: Thanks, Ben. Thanks, Keith.
Additional Resources for Earning Interest on Gold
If you’d like to learn more about how to earn interest on gold with Monetary Metals, check out the following resources:
In this paper we look at how conventional gold holdings stack up to Monetary Metals Investments, which offer a Yield on Gold, Paid in Gold®. We compare retail coins, vault storage, the popular ETF – GLD, and mining stocks against Monetary Metals’ True Gold Leases.
The Case for Gold Yield in Investment Portfolios
Adding gold to a diversified portfolio of assets reduces volatility and increases returns. But how much and what about the ongoing costs? What changes when gold pays a yield? This paper answers those questions using data going back to 1972.
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