Just before the global financial crisis erupted, Monetary Metals® founder Keith Weiner sold his previous company, DiamondWare, which developed 3D voice technology. On August 19, 2008, Nortel Networks acquired DiamondWare in a $10 million deal.
The acquisition was a humbling experience. After many years of hard work, building a great team, developing a massively scalable voice operating system, and proving the value, success came down to timing. Keith didn’t realize it until later, but Nortel would not close any more acquisitions. DiamondWare was the last. Any additional delay would have been fatal.
The crisis hit the markets hard, and Nortel even harder. At first, life felt surreal to Keith. He just sold his business to a company that was collapsing. His wealth was entirely in cash. Stocks and real estate seemed to be going on sale.
However, Keith soon realized that this was not a normal market correction. It was a crisis. There was not only a major market crash, but at the root was a debt problem. Seeking to find safety for his newfound wealth, Keith began to study economics and markets. With his math and science background, he wanted a deeper level of understanding. He wanted to know what might come next.
His studies led him to a radical conclusion: the monetary system has a flawed design. The flaw is that it lacks any extinguisher of debt. Debts are paid in dollars, but the dollar itself is credit, because it’s an I.O.U.—it’s the liability of the Federal Reserve (the Fed). When you pay a debt in dollars, you merely shift the debt. The debt does not go out of existence. So debt just goes on increasing (exponentially). However, we cannot accumulate debt indefinitely. A crisis is inevitable. One occurred in 2008, and another will occur again.
This understanding would change Keith’s career. Keith began to think of his next venture, and realized it had to be in the gold space. He did not want to replicate any of the standard gold industry business models such as dealer, vault, broker, refiner, or mint. These markets were all well-served by existing companies.
He wanted to help people adopt gold, to use it for something important. As money.
He considered building an Internet-based gold payments system. This is a business model that could make money, and in 2012 when he founded Monetary Metals®, there was little competition. However, the problem is that people may be happy to be paid in gold, but they don’t want to pay out gold. Such a business may make money, but it cannot change the world.
The reason is simple. People have income in dollars. So, to spend gold, they must first buy the metal. And the recipient most likely needs to sell gold to get cash. Buying and selling has a cost, which is a loss. Few will go through this process, except as a speculation that the price of gold will rise by a greater amount than the cost.
Keith had a business insight informed by these economic views.
This leads us to the Monetary Metals® Mission.
Monetary Metals® founder and CEO Keith Weiner started the company for a purpose. His economics view led to a business insight: how the world will return to the use of gold as money.
The path to gold is not paved with buying and selling. When gold was money people did not buy and sell gold, as we do not buy and sell dollars today. Nor is the path built on web shopping cart payment buttons. The fact is that people are not spending their gold. It’s not that they cannot spend it, but that they don’t want to.
Monetary Metals® does not sell gold, preferring to partner with good companies when our clients need this service. Keith wants to change the world for good, and selling gold has little effect on the financial system. The gold price may go up or down, but it has zero influence on the interest rate or the burden of debt.
The path to gold is paved with interest. Everyone needs to earn interest, which occurs when those who loan out money charge for the borrower’s use of the lender’s money during an agreed-upon time period. Young wage-earners will never accumulate enough money for retirement without compounded interest. Retirees fear they may outlive their money. Insurance companies, pension funds, and annuities all depend on interest to function.
Unfortunately, the interest rate on paper currencies is collapsing to zero and beyond (with corrections along the way). This trend has been going on since 1981, and it cannot now be reversed. Monetary policy is politicized, with powerful interest groups pressuring the Fed to stay the course. Worse yet, the Fed cannot raise rates without triggering mass insolvencies, a repeat of 2008.
With paper currencies not offering interest, gold is the only possible alternative.
Interest is a universal human need. The development of interest on money was an essential factor that allowed Europe to emerge from the dark ages. Without interest, no one will lend money. No businesses larger than a workshop or family farm is possible, because it cannot raise capital. So savers were stuck, would-be entrepreneurs were stuck, and society stagnated.
Without interest, everyone is worse off. In order to buy groceries and pay the rent, they are forced to consume their savings. No longer can they pass something on to the next generation. Instead, they risk running out of money and being a burden on their children. The destruction of interest by central banks worldwide will drive humanity back, if we don’t change course.
Everyone needs a reasonable yield. Monetary Metals’ vision is to provide a Yield on Gold, Paid in Gold®.
The Monetary Metals mission is to Unlock the Productivity of Gold®. To understand what this means, and to see why this is important, let’s consider what’s wrong with the world today, and where a Yield on Gold, Paid in Gold® might lead.
The dollar ill-serves everyone who uses it. It is a lousy store of value. Indeed, the central bank charged with managing it has a policy of debasement at two percent per annum. So people lose their savings, like water slowly leaking down the drain.
The dollar is also a poor unit of account. The single most important question faced by every business is: Are we creating or destroying wealth? Accountants try to answer this question. However, the books are only as good as the unit of account on which they are based. If it’s elastic, then a wealth-destroying enterprise can appear profitable. Chronic bad capital allocation decisions cause recurring boom and bust cycles in our economy.
Finally, the dollar does not pay enough interest to those who depend on it, such as retirees. Without sufficient yield, they are forced to consume their life savings. For the first time in centuries, the older generation will leave less to the next. Pension funds, insurance companies, and annuities are undermined by the trend toward zero and negative interest rates.
They are forced to turn to speculation, for lack of opportunity to earn a yield. However, betting on the price action is no substitute for interest. In speculation, people fork over their wealth to someone in exchange for an asset. The reason they do this is the hope that someone else will fork over even more wealth, when the price rises.
While everyone loves a bull market, endlessly rising asset prices in a falling-interest environment is a process of capital consumption. Normally, you must produce something before you can consume. But bull markets seemingly give everyone the power to consume, while producing nothing. What they are consuming is the capital base that makes our advanced, modern civilization possible.
So if the dollar is defective, what keeps people using it? The common belief is that a collective act of faith keeps the dollar going, and once the mirage is dispelled, the dollar will collapse. That might make a good movie plot, but it’s not accurate.
Perverse incentives prop up the dollar.
The falling interest rate—now in its fourth decade—entices businesses, governments, and individuals to borrow. At each new, lower rate more are lured by the siren song to come join the ranks of the debtors.
But it’s a trap.
The dollar is an I.O.U. It’s basically a slice of the government’s debt. This is a problem because when you pay a debt using an I.O.U., the debt does not go out of existence. It is merely shifted. The regime of the irredeemable dollar contains no way to extinguish a debt.
This means that the total debt must grow by at least the amount of accrued interest. The interest cannot be paid off, so it is added to the growing total.
More practically, debtors are put into a gladiatorial arena, fighting each other to get the dollars they need to service their debts. This competition heats up as the interest rate falls. The result is that debtors are increasingly squeezed. The value of the dollar rises, as they relentlessly bid it up to avoid insolvency and loss of their businesses and homes.
This applies not only domestically, but also internationally. Debtors in every country in the world—including sovereign governments—owe dollars. Their problem is even more severe than domestic American debtors. They have income denominated in their local currency. So their income is going down, while their dollar-denominated debt is going up.
So long as debtors struggle to raise dollar revenue to make their interest payments, the dollar is assured a strong future. These debtors keep outdoing themselves to offer more goods, services, and labor in exchange for the dollars they need to stay solvent.
There is nothing wrong—and much that is good—with borrowing to expand production and bring new products to market. A loan is a win-win deal, providing the entrepreneur with capital and the lender with income on his money. There is nothing wrong—and much that is good—with banking. Banks facilitate lending, making it easier to borrow for entrepreneurs and easier and safer to lend for savers.
The fault lies with the irredeemable paper currency that has displaced gold in our monetary system. No one benefits from unstable interest rates (other than traders and dealers), nor from unstable currency exchange rates.
Monetary Metals’ vision is to make it profitable for savers and businesses to use gold.
By offering Gold Financing, Simplified™ to businesses who use the metal, Monetary Metals begins the process of weaning the market from its dollar and debt addictions.
By matching these businesses with investors who have gold, Monetary Metals offers a Yield on Gold, Paid in Gold®.
Our vision is for people to earn interest on gold. When people can earn interest on money that is not debased by Federal Reserve policy, the relentless march toward speculation and therefore chronic bubbles is reversed.
Interest causes a paradigm shift. Whereas people now think of the value of their gold in terms of its dollar price, interest on gold encourages us to think in terms of how much gold we have. It is not about a rise in the price of gold, but a gain in the amount of gold.
Monetary Metals aims to offer new incentives, to help the world rediscover the use of gold as money, starting with finance and investment.