Ep 33 – Legal Tender, Alternative Currencies, and the Federal Reserve with Larry Hilton

In this episode, Monetary Metals’ CEO Keith Weiner interviews President of United Precious Metals Association (UPMA) Larry Hilton. Larry was instrumental in passing various legal tender laws across the country and is an expert on using alternative currencies. Together with UPMA, he is working on getting sound money to become a viable and profitable alternative to continuously debased fiat money.

In this episode Keith and Larry discuss:

• Currency alternatives
• Passing legal tender laws
• UPMA and the Goldback
• How to get a return on money in a zero and negative interest rate world
• Hyperinflation and Yield Purchasing Power

Transcript: 

Keith: So, Larry, tell me a bit about your background. How did you get into or why did you get into the idea of sound money and gold?

Larry: Well, let’s see. We could do the long version of the short version or maybe the medium, the just right version.

Keith: Let’s do the Goldilocks version.

Larry: Yeah, the Goldilocks version. So I became concerned about our current monetary system. I really started looking at it probably back in the 2008 time frame. I was following the presidential race at that time, and Ron Paul kind of introduced this idea of the inflation tax into the discussion, talking about monetary policy. And I know we’ve had discussions about inflation and what the real impact of that is, but that was kind of the trigger for me. And I was thinking it would be nice to have some alternatives. And as I started thinking about it looking, I said, you know, really, we’ve got a number of different currency alternatives existing right now for US citizens. You’ve got the Federal Reserve note, you’ve got base metal coinage, which is pegged to the Federal Reserve note, but you also have a number.

Keith: I just have to interject my technical term for those things. I call them slugs.

Larry: Slugs. Yeah. Okay, so you got the slugs. But then also back in 85, during the Reagan administration, they reintroduced legal tender, precious metal coin. And I thought, well, that’s good. If we could just popularize the use of that, maybe that would become a real alternative that people could use. And I thought maybe the next best step would be to talk to my local representative, because I think under the Constitution where it says no state shall make anything but gold or silver coin a tender and payment of debt, it occurred to me, hey, that’s a reserved power to the States, even though it sounds like “thou shalt not” there’s actually embedded within that a recognition that gold and silver coin can be recognized as.

Keith: Legal tenderness, more broadly, that the state can make something, a tender payment. And then within that mandate, that the state is going to make something that tender payment, it can only be gold or silver.

Larry: Exactly right. And so from that, that was kind of the genesis of the idea. I remember I was sitting in my easy chair on a Sunday afternoon, just kind of rocking back and forth, thinking about things that pulled out my smartphone. Forget what I had back in 2008. I think it was an iPhone. Not sure how long they’ve been out, but I had the Constitution on there and I went and I reminded myself of that provision and the very next week, I set up a meeting with our local representative in the state legislature, who is now our state auditor and has been for the last several years. And so we had a little meeting in my office, invited a few representatives. I drafted what I call the species legal tender act. It was a 20 page masterpiece. And by the time the legislative Council got done with it, it was down to about two pages or less. So that was in 2009, actually, I think that occurred. And we actually went up, got a hearing with some of the members of the legislature, was put on for review over the summer. And the very next year, Utah became the first state in more than 100 years to recognize gold, silver, coincidence, legal tender.

Larry: And since that time, we’ve had a number of other States step in and take similar action. So I think we’re up to that was in 2012. We had some amendments in 2014, Oklahoma.

Keith: How long was the process from the time that you drafted that to the time?

Larry: Yeah. So it was in 2009 that I had that initial conversation, but it was the 2010 session when I went up and spoke with some of the members of the legislature, and then it was reviewed by committee while the legislature was not in session. So it was the very next general session, 2011 that we got that through the legislature. And it was interesting, our sponsor was stopped in the hall by the legislative media kind of correspondent and says, what are you doing with this legal tender bill? I’ll tell you, nothing has gotten the kind of attention that this has for anything that we’ve done in the time that I’ve been on this job. We’ve got inquiries coming from all around the globe. In fact, we had a couple of different documentary film crews come out. I remember one from China. They were interviewing and putting together, is this going to be the new money? And so there seemed to be a lot of excitement about it at the time we held. I believe you may have attended this. Do you remember the sound money summit that we held up at the University of Utah in the summer of 2011?

It was just right after that. We had people from about a dozen different States and half a dozen countries all converge. And we talked about what are the implications of this? And so I thought, everything is just going to change overnight. We’ll be buying our groceries with silver Eagles. It takes a while, but we are seeing changes in behavior. And I think back then. Right. We were just coming out of the big recession, kind of that financial institution reset 2008, 2009. And so that seemed to be kind of a prime time for people to really consider the role of money in their lives. Right. And then just recently, with everything going on in the world, we’ve seen gold reach an all time high after really a relatively quiet period. Right. I think once we got past 2011 or so, gold did what it normally does. If the economy is chugging along, gold is going to kind of stay pretty even keel. And it’s really at times of turbulence and change when gold steps in and performs its function, which is to be that safe harbor. And I think we’re seeing that now.

Keith: Yeah, I was going to say so after 2011 price of gold came down gradually. It wasn’t a crash.

Larry: It settled down to a very kind of base state that it remained at. And if you look at gold prices, that’s what it does. Right. It goes on these stair steps.

Keith: The interesting thing about that base state is the absolute floor in the gold price post 2011 was the ceiling of the gold price pre 2008. So there was a step up and then you can get jitter above that new floor, but not below.

And now price, obviously, again being near its all time high. The other thing I was going to say about these crises is that every time something like this happens, a whole bunch of new people discover gold for the first time. I don’t think the old people who discovered it like undiscovered and go back to sleep. I think there’s a whole new crowd of people that for whatever reason become concerned or take several losses or something happens, and then they’re like, wait, let me understand this monetary thing. And then it’s a giant rabbit hole that you can go down as steep as you want, but they come to gold, and then they start to think when you’re talking about the inflation tax and Ron Paul, the first thought that came to my mind is it’s incredible that in any other field of endeavor, let’s say it’s engineering. We’re talking about lengths and the meter, or if we’re talking about mass, you’re building a car and you understand the rotational mass of the wheel or whatever, and all other fields. You want a unit of measure that’s consistent and predictable and the same for everybody and doesn’t change. But for some reason, in money, it seems to be more better, as in more better Comrade, to have a unit that keeps changing and it’s relentlessly losing 2% every year.

Larry: I think if there was some kind of an entity that was in charge of managing the inch, like let’s call it Inch Inc, then you might see something similar because there might be some kind of financial incentive for them to shrink or expand the inch over time. Thankfully, that doesn’t exist with most of our measures, but kind of really absurdly in the monetary field. We have this thing where people feel like they have to manage what has worked for centuries.

Keith: And then they have an Orwellian component to it, which is they have a mandate by Congress under the legislation to have price stability, which is defined Orwell would be looking down on this and saying, guys, this one’s supposed to be that book was supposed to be a warning, not a recipe. Price stability is defined as relentless 2% inflation forever.

Larry: Right.

Keith: Price stability, which is just truly Orwellian. And everybody just takes us. It’s like this is normal, this is fine. This gives us a better economy somehow. And you have more employment and more GDP and more whatever. Imagine if the inch was shrinking. And then we’d say, yeah, our cities are getting taller and taller and taller. We only used to build 50 or 60 stories. We now have these 1800 story buildings.

Larry: And look at human beings themselves.

Keith: I’m not six foot one. I’m 60ft, ten inches in the new inch. Right. Which is now short. Right. And it’s like an Emperors New Clothes kind of world. Like everyone standing around going, “those clothes are so beautiful” and nobody willing to admit, wait a minute. No, this is nuts. We just go along to get along, right?

Larry: No, you’re absolutely right. And you had mentioned earlier about every time there’s one of these kind of shocks to the economy, you have a new group that discovers gold. But there is something about that. We’ve been working recently at UPMA and some of the associated organizations with coin dealers. And there does seem to be this feeling that the kind of the gold stackers is kind of a generational thing and that maybe the rising generation is not really as kind of plugged in to the idea of sound money as maybe some have been in the past.

I don’t know how accurate that is. But one thing that seems interesting is we’ve been experimenting with not only us minted coin, but also with some alternatives. And the one thing in this entire period, the introduction of the Goldback has this note that has gold embedded in it really seems to have captured the imagination of the younger generation as, oh, I see how I could actually use this as money. I could actually go in into the hardware store and buy some nuts and bolts with this or get a haircut or whatever. So I think that one thing that’s kind of interesting is understanding how the form of gold or the form of currency actually drives its adoption.

I mean, we have really been surprised. In fact, Utah just passed a law basically recognizing the Goldback as a currency, just this last section. And then if you look at kind of the YouTube interest in it and that kind of thing, I’ve been frankly really surprised to see because it carries a higher premium than like a normal coin would or a bar for that matter. And yet there seems to be this embracing this adoption. I would be interested in your thoughts on kind of human psyche as it pertains to money and why that might be the case. But I think that we do as those working in the area of monetary reform. I think we need to kind of keep things fresh. And I know at Monetary Metals, you’re really doing that. You’re reinventing the old Anglo American monetary system by putting back in place the pieces that were necessary for a monetary system actually to work, to be able to deposit gold and get a return on it. So there’s some things that innovators like you are doing and like the Goldback folks and others that are, I think, really driving adoption by a rising generation.

Keith: The ironic contrast is what we’re doing is very old. But every once in a while I get somebody who tries to catch me and I got you. It’s not a new idea, Keith. It’s been around for 100 years, and I’m like actually a couple of thousand years.

Larry: Yeah.

Keith: And it’s not new, but we’ve obviously made it relevant for today. The Goldback, by the way, I wouldn’t call it note because note is an archaic word for credit. Yeah. I think you got to come up with, coin, a really good word for because it’s self containing. It’s not a promise to it’s actually.

Larry: A negotiable instrument is what it is, where the collateral to fulfill is in the note itself.

Keith: Right. It’s self contained. It has the gold. No one is promising to pay you the gold. That is the gold right here.

Larry: It is the gold. Yeah.

Keith: Which is very new and very high tech because historically and there’s several reasons for silver being also a monetary metal. But clearly one of them is that gold is too big for small amounts and the Goldback allows small amounts to be very convenient. And I was going to say so today we have the technology to mill a little chip or a little wafer of gold as small as you want. However, it would be like if you put it in your pocket, you’d lose it in the lint inner corner of the pocket. So in other places in the world, I don’t know if they’re really popular here, but in Southeast Asia, they have things like 1 gram or even a 10th of a gram. And it’s a tiny little chip of gold that floats. Basically, there’s a credit card size piece of plastic called a certificate. And then there’s a little clear plastic window that’s embedded in that. And then inside, floating in that little clear plastic thing is this chip of gold. So you can hold it up and look at it, shake it around. You can see there’s gold in there. It’s too small to touch.

I mean, you would stick your finger and then if you drop them on the floor, you’d never find it. And so the goal back is something that’s big enough to be handheld and convenient, and it’s not going to disappear in a puff of breeze. You’re not going to lose it in the lint. If you dropped it on the floor, you’d be able to find it. That’s obviously possible because of some high tech wizardry of how you manufacture that. They couldn’t have dreamed of doing that 100 years ago.

Larry: Yeah, I think that it’s just fascinating to see as people look at this like you see the big interest in crypto.

So you have all these alternative currencies saying, hey, we can do a better job than the government has done, which is kind of a low bar, but still, you have that inertia, you have that of what is it’s interesting to me that the gold dollar was removed from circulation for a period of two decades, 20 years? That’s it. And when it came back, the idea that the Reagan administration had was that, hey, we’re going to make this legal tender available again. And they even built into the law that whenever anybody acquired gold from the treasury gold coin, that the national debt was supposed to be paid down, because the problem with the existing system is that if you pay down the debt, I think this happened under Clinton. He was moving along and he was getting the debt paid down. And somebody whispered in his ear, if you pay all the debt, there’s no money left. The full faith and credit of the United States is what actually backs… So you can’t do that anyway. But the concept under the Reagan administration was that as you put gold into inflation, you can remove that. So it’s just kind of a swap.

Now, neither the treasury nor Congress, I think, has ever done that. But one of our members of the UPMA board actually had a personal conversation with Donald Regan, who was the Secretary of the treasury under Ronald Reagan, kind of a funny Donald Regan and Reagan, and he explained, no, that’s exactly how they designed it. So the idea was we’re putting the gold out there for people to use as money, and if they’ll just use it as money, it can actually replace our existing system. So they essentially gave us Dorothy’s silver slippers. They weren’t Ruby slippers. They were silver in the original. In other words, the solution has been with us ever since 1985. We just have to figure out, hey, how do we start using it? So it’s kind of fun. Now, I carry Goldbacks around in my wallet. I can go down to the local hardware store and actually transact in it. The other day I went out to lunch and paid for my lunch with Goldbacks. I really see it happening. And I think that because gold is such a tactile thing, there’s been a lot of Goldback crypto efforts that have kind of had mixed success.

I mean, because by definition, a Goldback crypto should be a stable coin. Right. And it seems like people are drawn to crypto because they say we need something else to replace our current system. But really, it’s just gambling. They’re just rolling the dice. They’re going in as speculators because they see the wild gyrations in crypto values. So it’s not really a currency in that sense. Bitcoin. And plus, it takes 20 minutes to settle a transaction. So that’s not going to work as a currency.

Keith: There’s a saying amongst us crypto skeptics. I think somebody produced a video of the title number go up. That’s the attraction to Bitcoin and other cryptos.

Larry: Right.

Keith: If I want $10,000, I put in $10, and it’s just a matter of time before I have $10,000.

Larry: Then you do have to get it out. So that can be a problem.

Keith: Yes, that’s a problem. So every time somebody’s telling me on Twitter, which is ten times a day, that Bitcoin is better than gold, I’ll always try to tweet back and I’ll say Bitcoin is obviously superior to gold at Skyrocketing (and crashing). So if your goal as a speculator is to multiply your wealth by $1,000, gold doesn’t do that. Obviously, that’s not what gold does. But Bitcoin, right. And of course, it also might crash and it might turn your $1,000 into one dollars. But hey, that’s live by the dice, die by the dice, I guess, right?

Larry: Yeah. I mean, really, what you want, you mentioned it right at the outset of this conversation is you want a standard that is going to remain a standard for the long haul. In other words, you want a medium of exchange that is going to be predictably exchangeable for a certain amount of goods over time. So if you ask anybody who shops for groceries, if you just say, hey, do you remember a few years ago how much, $100, how much could you fill up your shopping cart with $100? Anybody will tell you it has just shrunk and shrunk and shrunk. So that now it’s just like a little corner of your shopping cart. So now they’ve introduced smaller shopping carts. Have you seen that? So a lot of stores have smaller shopping carts.

Keith: Yeah, but it’s sad and it’s a lot of pain behind that.

Larry: No, it absolutely is.

Keith: But it’s funny because the only thing that’s funny about it, I guess, is it’s kind of like the guy who’s 90% bald but has the comb over. And what makes it funny is if you really think he’s fooling anybody with those three hairs that are artfully spiraled on the top of his head and stuck there with Hairspray, or is he ready to give up and to shave the whole thing shiny? It’s like they’re fooling. Who are they fooling? And then, of course, on a more serious note, was it Solzhenitsyn who wrote something like “They know they’re lying. We know they’re lying. They know that we know they’re lying. They know that we know that they know that we know they’re lying. And yet the lies continue.”

Larry: Yeah.

Keith: It’s like everybody is playing along with the pretense. Nobody really believes in it. And yet it goes on anyway.

Larry: Yeah.

Keith: Because there’s inertia and because everybody is bought into the system and there’s something out of that system that they get or think they get and perpetuate it.

Larry: Don’t you think it’s gotten to the point that it’s gotten to the point that it’s just a joke, exactly like you said. We know that everybody knows. And there’s so many people that are in on the joke that it’s kind of like I think it is creating a bit of a sea change in kind of the public consciousness. And people are thinking, you know, the institutions that I have relied upon my entire life, I have doubts regarding the efficacy of these institutions. I’ve got to look for incorruptible alternatives. And it’s in every facet of life. I mean, I was talking with a guy just yesterday, and that’s exactly. I just stole his line. That’s what he said. He said all the institutions that I had unquestioning faith in five years ago, every single one of them, that my life revolved around. I’ve lost faith in these institutions. So I’m looking for options.

One, where we go from here. I don’t think a great reset is the solution. Just to pile more lies on top of what let’s create more of the same. But I think gold is part of the solution.

Keith: You want to gold.

Larry: Gold is inherently honest when you hold it in your hands. And that’s why I think the Goldback, for example, has had the uptake that it has because it’s physical. It’s in your hand. It’s something you can actually hold, unlike crypto or where money is going, money is going electronic. Now, of course, there is a place for electronic exchange. You have to have it. But having that physical option.

Keith: Right. Nobody wants to have to put on sackcloth robes and tie it at the waist with a rope belt and have off the rope belt jingling this little leather purse. And inside the leather purse, those little coins you’re going to pay for your Starbucks coffee. Nobody wants to go back to the 18th century where that’s how life was.

Larry: Did you watch the Colbert episode? That’s exactly how he described the Specie Legal Tender Act when it was passed in 2011. Exactly. The skit that you you had had a guy come in.

Keith: No, I didn’t. But I should go look that up, because that’s funny. I was going to say I’m talking about trusted institutions and an incorruptible thing, which clearly isn’t men, especially not men that are given the one ring. I love to use the analogies Lord of the Rings, but just picture Dennis or Boromir saying I would only use the ring at the utmost end of need, which means whatever it’s expedient. Right. So I gave a talk last week at the Museum Institute and talking about marginal or declined, basically declined in return on capital and the death of the economic universe. Anyway, I encountered a Professor, Alex Pollock, and he was talking about a similar theme and how the Fed has basically converted itself. I’ve heard one analogy. The Fed has made itself into the biggest hedge fund. His analogy was the biggest savings in loan as in 1980s, and how they all blew up because they own mortgages. And as the interest rates goes up, the mortgage goes down in value. The Fed becomes insolvent because assets are less than liability. So he said, you know what the Fed has done? And I said, what?

And he said, they’ve changed. There’s a set of Federal Reserve accounting principles. I’m like that’s. Interesting. So you have a different set of accounting principles because you’re the Fed, while the rest of us have to use real accounting principles. Anyway, they changed Federal Reserve accounting principles to say that if you take a loss on your portfolio of mortgages, you don’t actually have to take the loss. If I write whatever I want in my piece of paper, then that makes it true because I wrote it right. And there’s a decay. Forget the purchasing power of the money. There’s a decay in the honesty of the institutions and therefore the soundness of the credit. It’s increasingly a counterfeit credit that isn’t going to be made good on. And the people that are perving this crap, for lack of a better word, just glibly gloss over that. But that’s a real problem when the very basis of every financial transaction has at its center something that’s a fraud, something that’s a lie, and the people that are behind it are liars.

Larry: So that’s very interesting about their accounting rules. Of course, we always suspected that, and it makes sense. How could you possibly run a program like that without some kind of accommodation? But are they beholden to the interest rates? Because I know we’ve had discussion where we said we don’t think that ever really raise interest rates. So now, after quite a few years of threatening, we saw a slight little uptick just recently. Do they have to live by the rule of interest against them, or do their new accounting rules somehow accommodate suppose.

Keith: Imagine you didn’t have a regulator and you didn’t have an auditor and you can write anything in your books you felt like writing. Reality still gets you in the end, which I don’t think would be debatable in the gold community or in the honest money community. The only real question, the only real debate is, okay, what does reality mean? What does it mean to get the fat in the end? And I have a theory which is basically a lot of people in the sound money movement has been, have predicted a hyperinflation for many decades now, and it hasn’t happened. And people use the term printing. I’ll just go with that for a moment. As long as the Fed is printing to buy assets that are money good and treasury bonds have been up until now, as long as it’s buying assets that are money good, and as long as it maintains a positive spread between the interest it has to pay its depositors, which are the banks that’s the bank reserves and the interest that it gets on its portfolio, which used to be treasury bonds, but now certainly includes quite a lot of mortgages. As long as there’s a positive spread there, and as long as assets are greater than liabilities, then you haven’t had a hyperinflation.

That’s been fine. But should the Fed have a negative cash flow that is borrowing short to lend long. So when the interest rates hikes interest rates and go up on all those mortgages, it doesn’t go up on all the treasury bonds, but the interest rates that the Fed has to pay goes up. That’s what it means when the Fed hikes and hikes the Fed funds rate. So the Fed is suddenly paying more. If the Fed is paying more than out an interest and it takes in an interest, then it has a negative cash flow. If the Fed starts printing money to subsidize that negative cash flow, then that is the death spiral that will, if it’s not corrected, trigger the hyperinflation that everybody’s predicted for so long. And so I don’t think that’s going to happen yet. I’m going to say the same. I’ve been saying the same thing now as I said in 2016, which is interesting, they’re not going to go up. Not very much. Already you’re seeing yield curve getting close to inverted depending on which yield curve. Look, if you’re looking at OIS versus treasury bonds, you already see inversion, the technical differences between those two things.

But this is the million and one reason why I don’t think they can hike. And if they persist in this hiking path, they will cause great calamity, I should say precipitate. The cause has been baked in for years of proficiency. Now they’ll precipitate it, which they don’t want to do. And of course, everyone will think they were the cause, and they won’t want to be blamed for it because there will be a new Fed chair. There’ll be a new President if that happens.

Larry: Yeah.

Keith: They’ll come back with their tail between their legs and say, we’re not going to keep hiking. We’ll go back to zero.

Larry: I’ve always felt that really in the current environment, which I think will, as you say, continue for the foreseeable future, gold should be used as an alternative complimentary currency. You want to use the type of dollar or currency that is best suited for the job at hand. So if you have people that are willing to accept debts repayable in paper dollars, by all means, you’re going to be indebted be indebted in paper dollars, not in gold dollars. Whereas if you want to acquire a capital asset and so you may at some point be looking at a capital gains tax, you’re going to want to set that benchmark using a dollar that’s not likely to lose purchasing power over time and therefore exaggerate or exacerbate your ultimate tax liability. So you look and say, okay, well, what’s the right tool for the job? And I think that in our current environment, we have a number of different tools. And I think that as people become more sophisticated in understanding how best to employ those in their economic life, things get good or better for them, and they also become more resilient against some kind of catastrophe that might come in future days, like some hyperinflationary event or overnight loss of purchase power, which week, which we’ve seen happen in other countries and around the world.

And we just think, okay, well, we’re in the end because we have the world reserve currency, and so we don’t have to worry about that. But when you look about, okay, what do you use money for? You use it for acquiring goods and services. You use it to hold value over time. Although we’re told, no, you shouldn’t do that. You should be investing in the stock market. That’s the best way to hold value over time or in crypto or whatever. But I think that helping people or just ourselves, understanding how best to employ these various currencies in our financial lives and spreading the word is good for individuals and good for society.

Keith: Yeah. You talk about people storing their wealth in crypto. One of the things I’ve tweeted quite a lot is even during phase one, the skyrocket, crypto is not a store of value. While numbers skyrocketing will never go up, that’s not really a store. And of course, then there’s phase two that follows. That’s definitely not a store.

Larry: Yeah. So part of it is the reliability of the market itself. Right. What’s the liquidity of the market? How can you get in and out of the currency? And there are some challenges with cryptos in that respect. But I remember once you told me, I believe, about the liquidity of gold on a global basis and how it dwarfs markets that we view as highly liquid. The number of the amount of gold that changes hands every single day is, I think, a lot higher than people.

Keith: Yeah, absolutely. And then the conspiracy theories that come with that, they point to the volume and look, they got to be cheating because that’s more than the annual mine volume. All the gold mine over the last 5000 years is all part of that supply. It isn’t just minor output because that gold was never consumed. It’s just still there. Getting back to Utah, you founded something called UPMA which I think originally stood for Utah Precious Metals Association, and then renamed it to the United Precious Metals Association. Talk about that a little bit. And what makes that different from other gold and silver? Not exactly company. It’s a nonprofit. But what’s the UPMA?

Larry: That’s a good question, because when we pass Specie Legal Tender Act passing law. I just thought that, hey, there’s just going to be organic adoption of this, especially all the press that it got. And as we discussed, that became a much harder thing. So the focus of the UPMA, and it made that switch from Utah to United when Oklahoma passed its bill, which was the next one. And since then, we’ve had Wyoming. And Arizona has adopted some aspects of that, as well as Texas, you know.

Keith: But for the listeners, I don’t recall if I’ve talked about this too much on this podcast or not, but Larry was heavily involved in helping in Arizona in a myriad of ways, including drafting things every year. But it kept getting vetoed. It was the most bizarre spectacle. It passed on strict party lines. That is, every Republican voting I and every Democrat voting nay. And then it would go to the Republican governor three times by two different Republican governors.

And the feedback that we were getting was the governor wanted a smaller bill that had left surface area, and was concerned. So every year you probably had to redraft it a bit to do a bit less and a bit less and a bit less. Five years on, finally, it was tear down so far that there was nothing less than he could object to. The governor signed it. I had a chance to meet Ron Paul. He came to the Arizona Senate here. I testified and he testified, and I got a picture shaking his hand and everything, and I had a chance to chat with him. That was unique experience. But you kind of helped create a state level movement that went from Utah to Oklahoma, Arizona to other States. So a little bit about the UPMA.

Larry: So the UPMA, its mission is to promote the use of gold and silver as money. And so we have members who can exchange with one another for gold and silver, legal tender for goods and services. We have also recently introduced lease accounts in conjunction with monetary metals so that members can take their holdings and rather than have a carrying cost for gold. That’s always been one of the arguments against gold, especially back when you could put money in the bank and it actually could earn interest. Now it’s a little different environment.

Keith: I remember those old days. I feel like Pepperidge Farm remembers. Yeah, I remember those days.

Larry: Yeah, exactly. But now you can earn more on your savings in a very kind of secure safe because you don’t even have the fractional reserve stuff that a bank exposes you to. And the other thing different from a bank and UPMA is kind of a vaulting service is that you own the gold, you own your own deposits when you deposit in a bank. Actually, the bank owns it, and they just kind of owe you a credit. So if there’s ever a call on it, they’re first in line in terms of your money. And then we’ve seen some of the things, like with Canada. Right. Recently, where they started closing accounts, confiscating money from people who had the wrong political views. Yeah. So I think that UPMA is not a bank, but it’s a pretty good alternative to the kinds of services people expect from a bank. It gives you the ability to transact with other people in that group. With gold and silver coins it was really hard to get physical transactions going with that, but Goldbacks has changed that. So we’re seeing more and more of our members, and even people are not in UPMA getting Goldbacks and actually using them as money.

Then we’ve got the leases, and then we’ll shortly be coming out with a program where people can draw on the power or on the purchasing power of their gold without actually selling it through a credit arrangement that is not lending. It’s actually based on pawning laws. So it’s state specific, but it’s not the opportunistic rates that you see with most pawn situations. So that will be coming out shortly. So that kind of gives you all the pieces that you need. You need to be able to spend it. You need to be able to access it. You need to be able to hold it, get a return on it, and then also the advantage. A lot of people don’t necessarily want to spend their gold, but they want to spend the value that’s embedded in the gold and then be able to replace that later so that it becomes a timing issue. And so we’ve addressed that as well. Yeah. It’s grown over time. I think we’re October 30,000 members now.

Keith: Very cool.

Larry: But it’s been a slow process.

Keith: Did you envision anything like that when you founded it back in 2011 or 2012?

Larry: You know, I didn’t know really what to expect. I really didn’t. And in all honesty, I think that it grew slower than what I anticipated. I thought people would just be all over this, and it’s just taking time because when it comes to money, people want to feel really comfortable, and so they don’t want to be the guinea pig that’s trying out a new service. So UPMA has been around for a decade now, and I think that it’s just people we have a lot of UPMA members who have just kind of tried it out, and they put just a little bit in and they just kind of watch how things work, and then they decide, hey, you know what? I’m going to make this a bigger part of my monetary life. And so they start moving things over. So, yeah, that’s been a very interesting thing. And I think along the way, there have been some real kind of key flexion points. One of those, as I mentioned, is the Goldback. I think the lease is another where people recognize that, coupled with the fact that you can’t get a return on your money in relative safety anymore.

And so the fact that your savings account at the bank pays virtually zero, and as we’ve discussed in some areas of the world, actually a negative return. There’s a carrying cost for paper, if you can believe that to now be able to get anywhere from one to 3%. That’s not one to three basis points.

That’s 1%. You’re really talking through these lease programs that we’re offering at that point. You’re saying, hey, that’s a real monetary system. That’s something that can work for me. And when you’re looking and you’re saying, well, the only other alternatives are maybe I’m going to speculate in the crypto market or maybe roll the dice on Wall Street, but being able to actually kind of safeguard the fruits of a lifetime of labor in a way that isn’t really possible anywhere else anymore, it’s so hard to find something that actually works. I think that those things that we’ve done and also where the world has moved in that time period, it’s been that combination that I think is drawn.

Keith: The bank still pays 5% on the past, but savings account, then this whole leasing your gold would be less interesting.

Larry: Right.

Keith: Unlike all the other wars that the government has waged, a war on drugs or on poverty, a war on this or that, they’ve been successful in the war on interest. That one they have succeeded on.

Larry: Yeah. And it’s all over, minus the shouting. So you refer to that as the yield on capital. What’s your phraseology for that then?

Keith: Yield purchasing power.

Larry: So not yield purchasing power. Right.

Keith: How much a dollar can buy, or how many dollars it takes to buy hamburger? But how many dollars that it takes the interest on those dollars to buy the hamburger.

Larry: Right.

Keith: And there’s been a hyperinflation in yield purchasing power.

Larry: Yeah. So the difference between earning 13 basis points annually and earning 3% annually, that’s lifestyle difference. You can take your money and earn 3% on it as opposed to a few basis points that changes your life.

Keith: And then on top of it, as we’ve been saying earlier, the Fed is promising to debase the entire principal amount of 2% per year. I don’t think it’s quite as simple as take the interest rates and minus the inflation rate. But clearly, whatever rate one might use to compute for the debasement rate, the Fed is struggling mightily to debase the dollar. So even if you got 2% on your dollar, which you can’t in the bank, even the whole thing is losing value at some rate which might be less than or greater than 2%. One hand giveth and the other one takes us away even more.

Larry: Yeah. That’s really key is the medium exchange that you’re using. What’s the basket of goods that you can buy with that? What was it a year ago? What was it ten years ago? What was it 50 years ago? Because I think we’ve talked about this back when the US had really a precious metal currency for like 150 years. Basically, a dollar had the same purchasing power. You could buy that same basket of goods in 1780 as you could in 1880, as you could in the early 20th century even, but actually went up.

Keith: You could buy more because that’s it’s a production. It improves so much, right?

Larry: But it’s just we’re just a generation not even a generation, 20 years. Just totally weaned us off the whole idea of a currency that gold, its value over time. And now it’s kind of a joke to put your money under your mattress. Right. But actually that was a legitimate strategy for 150 years in this country. You could put it there and pull it out and it gold have that same purchasing power when Rich Van Winkle woke up 100 years later. That’s what gold has delivered on quite reliably over the last centuries, millennia.

Keith: So one question to wrap up. What’s your economic outlook for 2022 and beyond?

Larry: Oh, that’s a good question. I think a lot of it kind of depends on where Ukraine kind of takes us. If we just kind of implode into this contentious global morass of warring countries, then I think gold just does more of what we have seen over the last few weeks. It breached the 2000 Mark that people have been eyeing for a long time. So I think that there is a possibility that you could have a continued run up. But I think if things kind of stabilize in that regard, depending on how this year’s elections go in terms of reining in some of the really, how would I put it? Just insane spending that are out there. And if we just come back to a more moderate kind of little more of a hands off government, and if they’ll let some of our major industries, like the energy industry, give them their head, let loose on the rains a little bit, I think that we could kind of move back into what we’ve seen over the last little bit. But I don’t know. I’m not confident that those stars are going to align. And so I think that we might.

Keith: Say if you find a party that actually is serious about cutting spending, let me know, because I’d like to cast my vote for them to be cynical right now, but I’m not sure I see any mainstream party anywhere close to that.

Larry: It seems like they’re just totally intent on just saying, hey, how far can we actually stretch this thing? How far can we carry this out before it just blows up? And it’s kind of like this morbid curiosity about how irresponsible can we actually be and get away with it? And that’s really tough to see. But the thing that I would say is I think that people are waking up more. And I think that as we saw in 2008, the power of the people financially is greater than the power of the government. When people in 2008 started deleveraging, they were deleveraging at a rate that the government gold, not that the Fed couldn’t even possibly keep up with. So if people wake up and just say, hey, you know what? We want to change the way that things are running and actually take advantage of laws that are on the books, making gold and silver, coin and platinum, for that matter, legal tender, and actually building their economic lives around that. I think that we can actually put government in its place. I think that we have that economic power as a people. I don’t know if we can all wake up and do it in a coordinated fashion, but I believe that that power economically is within us.

And the other problem that I see is that so many of the large corporations seem to be totally co opted and compromised by political interest rates. Kind of dulls my optimism a little more. But if we can wean ourselves off of the corporate feeding troughs that are out there, maybe buy locally a little more, rely a little more on our state economies, work to build sound economic principles within our localities. I think that that could have a really good effect in setting examples that people can follow and want to emulate. So anyway, I’m always the optimist. So I’m relining.

Keith: As long as you’ve got the right of freedom of speech, take that away. It’s all over. But if we can talk about ideas, if you can present something and give them an opportunity to think about and say if they agree or disagree, then there’s still hope.

Larry: Yeah, I think so far the government has at least given lip service to maintaining that. But interestingly, it’s the corporate interests that are silencing what they view as marginal voices or misinformation or whatever. So we really need to diversify our communication. So this podcast is a great example, doing something that’s not going to be filtered through this kind of group think scripted corporate media. So getting voices out there, having real conversations about actual realities on the ground. Yeah, we can go there. I think we’re going to make it.

Keith: Yeah. I like you have optimism. Instead of saying it’s bleak and depressing and we’re going to end up in hell, I look at it and say it’s daunting. I mean, there’s a lot of work. There’s certainly no guarantees. A major theme in Tolkien is hope. Without guarantees, you don’t know how it’s all going to work out, but you strive all the more because you have a chance just. And I think that I think there is a possibility. So I’m with you on that one. It’s a lot of good stuff you said a lot of good stuff that I think people need to hear and think about. And if enough people listen, enough people think, then we can change the world.

Larry: Well, I always love talking with you. So thank you for the opportunity to chat.

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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:

The New Way to Hold Gold

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.