Texas, Gold and a new transaction currency

[TWP]

I mentioned in another thread the possibility of new currencies being created as the US dollar ( FRN - Federal Reserve Note) falters.

Texas has taken the first steps in this direction:

From an article on Breitbart.com, dated 6/17/15:

http://www.breitbart.com/texas/2015/06/17/abbott-signs-law-to-bring-1-billion-in-gold-reserves-back-to-texas/

"...
The bill does much more than simply save the $1 million per year storage fee being paid to the bank. It establishes the only state run depository, payments system and safe haven for gold that cannot be confiscated by the federal government. The new payment system, according to an article on Talking Points Memo (TPM), will allow businesses, other state agencies and individuals a secure place to store gold, silver, platinum, palladium and rhodium deposits and then be able to make electronic transfers from those assets – “one that will create a metal-backed money supply intended to rival the paper currency issued by the Federal Reserve,” TPM wrote.
..."

Note the item "payment system" in the quote.  This is probably completely electronic, with no paper bills to be issued.
There are e-systems in place which might provide the level of security needed (bitcoin, biggold etc.) 

Whether this goes anywhere remains to be seen, but it a kind of "writing on the wall" for the future of fiat money.

Keep an eye on this kind of change.

A web search will reveal other discussions of these plans.  (NOT Google(r), unless you want them to record your interest in the subject...)

Opinion, I would not trust my gold / silver in the hands of a government managed facility.  I much prefer to have the physical metal in hand.  It is a needed part of prepper supplies.

The draw-back to physical metal is that there is not enough physical metal to replace the coinage and paper FRN's that are in circulation today.

Next-best would be a paper bill drawn on the gold in vault, with the trust factor being a big part of the value of such bills...  That implies an accounting system to print and track such bills, not a good route, based on what we see today.

What would be your preference, in place of the FRN?

[Clay]

There doesn't really seem to be a good answer to this. Fiat money is too easily controlled, but there is no where near enough gold and silver to create a metal backed currency. At least from the copious amounts of reading I've done on the subject, that is what we are lead to believe.

I think that the reality is that fiat isn't going away. The thing we can do about it is understand what it is and how it can get you in trouble, then take active steps to avoid problems. I also try very hard to barter as much as I possibly can, as I feel this is a better system when it works out.

I'll be interested to hear what others might think.

[TWP]

I would draw a distinction between "metal backed" and "metal based" currency.  When Goldmoney had their original transaction system in place, the metal units were measured to the nearest 0.00001 grams.    That made it possible to have currency units in small enough pieces to do "penny" transactions.  It was "metal backed" because the metal had to be in the vault and could not be created without the physical metal.  Trust in the vault was and still is the big factor.

The drawback was that to do this with physical metals (metal based currency) would result in the use of pieces of metal foil that were too thin to handle safely.   Some businesses did offer gold and silver foil "coins" but they were too easy to counterfeit and too hard to accurately weight and test.  Those businesses failed.

I can see the use of copper and nickel as a coinage metal, denominated in gold or silver units.  It would still require a system of production (coining) and accounting.  Still subject to counterfeiting and impossible to verify the supposed Gold or Silver backing.

Perhaps a secondary currency?  Backed by Copper and Nickle coin?  Real metals, more abundant than even Silver.
AND convertible to Physical Gold and Silver.

[Clay]

I'm reading a really good series of books right now called "The Bankster Chronicles" by Dave Jewett. It goes into pretty good derail about the history of Banking in a historical fiction type story that explains things real well. Have you heard of it?

Another question to answer your question. Do you remember the "liberty dollar"? More importantly, what happened to the folks who minted them? The fed doesn't like competition and that is pretty evident.

It's really too bad that there is not one currency in the whole world that isn't fiat at this point. We have nothing to compare with.

[Clay]

I was going through the news and I found this, thought I would share:

http://www.forbes.com/sites/timworstall/2014/11/14/this-will-be-fun-as-islamic-state-mints-its-own-gold-dinar/

What do you think about that?

[TWP]

I'm not familiar with the book,  I'll look for an online version if it exists.

Re the Liberty Dollar, yes, I'm very familiar with the story.  I advised at the time that issuing a coin with the symbol of the US dollar ($) on it would be a bad thing.   My comment at that time was: "Why deface a perfectly good gold coin with the symbol of the US dollar?"

You're right, the Fed. Reserve did not like the competition, especially when it was obviously more popular.

I used the gold currencies offered by e-Gold and Goldmoney until that fell apart.  Therein lies a tail for another time.  They were good for my business (website design) at that time.  Again, their transaction systems worked too well and the world banking system forced Goldmoney out of the transaction processing business.  e-Gold failed because they were a bunch of crooks and allowed their users to flaunt the various national laws.

I do see that Goldmoney Ltd. has been bought out and the new owners, Bitgold are offering a transaction processing system and are using the Goldmoney vault and "Holdings".  Not sure how that will work out and I'll be watching.

RE the new dinar,  there will be distrust of countries which allow it's use, but gold is gold and it will enter the world economy.  I can see a lot of smelting and re-casting taking place as the gold itself moves into non-islamic countries.  I foresee lots of "illegal" goods being paid for in those dinars.  It is also NOT going to be a successful currency unit in the world market because, we discussed, there isn't enough gold to make into coins for daily use.

[Clay]

I'll look into the goldmoney  thing a little later, that one is new for me.

Maybe it's changing the subject, maybe not. What do you think of bitcoin and cryptocurrency?

[TWP]

Bitcoin (and it's various forks) and crypto currency in general, are still fiat money, not backed by real commodities.
So I don't trust them any more than I do our various government issue fiat money.

Their supposed advantage is that they are not controlled by the central banking system...

As far as security goes, that is a real ball of worms.  the end user is ultimately responsible for using a secure computer system and my pessimism knows no bounds for the majority of computer users.  It is just too easy to break most computer security.   For that reason, I don't use Bitcoin or it's derivatives.

When a government tells you it is safe, that is the time to walk (run) the other direction.

I see no easy solution in digital currencies.

[Jerry D Young]

I am a believer in a PM convertible currency. It would replace the current FRNs with primarily gold and silver convertible notes and coins with specific amounts of the PM (in grams of gold) marked on the note/coin. Only notes/coins could be printed/minted up to 85% - 90% of the amount of the PMs held in the treasury.

There would be circulating PM coins as well as the backed ones, in the most common denominations needed for those that did not want to use the convertible notes and coins at all. With modern technology, it is easy enough to alloy a coin with even minute amounts of gold or silver in them to cover the entire necessary spread needed for transactions, even down to decimal grams.

Pricing would be denominated in grams of gold, with the option of some large denominations being convertible to other precious metals, but denominated in grams of gold. The ratios of gold to silver and gold to the other PMs would continue to float, with everything denominated in grams of gold, with the market setting the ratios.

A side note. When e-gold first came out I investigated it thoroughly. And started a gold and silver acquisition program based on the price ratio of the two metals. I started with only $100, and I was doing quite well with it until they stopped the immediate transactions and went to delayed. I think that is when the crooks took over. As long as the transactions were immediate, I could trade physical gold and silver back and forth, increasing the holding of either from the last trade, without any additional investment. But once the transactions were delayed, I could not count on getting the deal I was trying to make. And just a few cents was enough to cause a loss rather than an increase. So I cashed out. The last few transactions I did before I realized the transactions were now delayed wiped out all the increases, so I just cashed out with FRNs and bided my time until I could pick up more PMs in hand.

I have yet to find a place where I could trade the metals back and forth on a timely basis in small amounts to make it pay because of the delayed transactions. You never really know what the price you pay will be the price you used in the calculations to make sure it was a positive transaction. The system does work with larger amounts of PMs because of economies of scale come into play.

Just my opinion.

[TWP]

...
"I am a believer in a PM convertible currency. It would replace the current FRNs with primarily gold and silver convertible notes and coins with specific amounts of the PM (in grams of gold) marked on the note/coin. Only notes/coins could be printed/minted up to 85% - 90% of the amount of the PMs held in the treasury. "
...

Jerry,
  that is even better than requiring a 1-to-1 relation between metal in vault and physical notes issued.

That is why I liked, and still do, the Goldmoney system.  Their original transaction processing system (not the new one) required that the metal be in the holders account.  They did and do use grams as the base unit of transaction, with value floating with the economy.   The metal was inter-convertible to various national fiat currencies at a premium cost to pay for the transaction processing and the fiat money banking expenses.

Another feature that I liked was the Ir-reversibility of a transaction.  Unlike the credit issuing companies, the buyer and seller were NOT guaranteed that a sale could be backed out.  It simply was not allowed.  The buyer and seller could agree to reverse the sale between themselves, but Goldmoney would not reverse it, for any reason.

All of this assumes that the transaction processing system remains in operation.  If the power, or the 'net in general, goes down, the system fails.

This is why physical metal, in your possession, is a part of prepper supplies.

[Clay]

Everything is a gamble. Even with precious medals you are gambling on not allowing them to be stolen or lost.

My current stand on money and investments is that it's best to be diverse. There is no escaping the gamble, so I would rather spread it out and try to not lose everything at one time. Hopefully if one investment goes down the others will average it out. I have IRA'S, cash, real estate, PM'S and stocks going now. In all honesty, other than some of the PM'S I bought at the peak and inflation on my cash, I haven't lost money on any of them in the last 7 years.

Smart money is not thinking that there is a one size fits all solution to a situation. While I don't feel like I am helping the situation of bankers by using their systems, I do feel like its necessary to use it to get ahead. Simply put, more money equals more preps and that means better survival rates for my family and me. It's good to not want to feed the beast, but I think some amount of personal progress is worth it.

[TWP]

I agree, basically, we do what we need to do.  I might have to hold my nose for some of it, but if it gets me through to where I want to be...   It's a good thing I have some ethics remaining.

[Jerry D Young]

Diversity almost goes without saying for me. It is an absolute requirement I do not violate.

My goal with the e-gold was to build up a stock of the metal, cash it out in gold or silver coins, as applicable, and start over again building up another stock to cash out. I was to be used only as a means to accumulate in hand PMs, using an electronic system for as long as it worked. Unfortunately, it did not work for long.

Just my opinion.

[TWP]

Clay:

In response to your question below( #7 ), about Bitcoin,  I found this post, today about a Bitcoin exploit.  I think it is serious, but time will tell.

The weak point is in the users wallet, and that can be accessed if you store in on remote servers, perhaps even if you keep your wallet on your home system.

http://arstechnica.com/security/2015/07/hacking-team-broke-bitcoin-secrecy-by-targeting-crucial-wallet-file/

Everyone, the internet is not a safe place for many things, your money is a major target for thieves...

[Clay]

IMHO cryptocurrency is the one world currency we've been looking out for all these years. I'm vehemently opposed to it.