Secession: Timing Is Everything

October 31, 2009

by Russell Longcore

Not so long ago, secession was a taboo subject for discussion in polite society. It was almost un-American to thoughtfully consider a state leaving the Union for any reason. Everyone thought that Lincoln’s War settled that issue. But today’s America is a seething cauldron of resentment toward Washington and the “Mobocracy Looter Minions” that populate the District of Columbia and its suburbs.

If you watch any news service for seven days, you’ll learn that the dollar is weak and growing weaker. You’ll learn that other nations are preparing to disconnect from the dollar as the world’s reserve currency. And you’ll learn that America is in big trouble, at home and around the world. (wonder why Chicago didn’t get the Olympics? What countries like the USA right now?)

Over half of the American states have passed legislative resolutions exerting their rights under the Tenth Amendment. That’s nice, and symbolic…and somewhat unusual for slaves to stand up to the plantation owner. But it’s not really necessary.

So when is the best time to actually pull the trigger and secede from the United States?

I believe that states should be making concrete plans right now for secession. States already have intricate plans in place in case of natural disasters and such. Should not a state have a plan in place in case of political disaster?

The United States Federal Government is a dying monster. But is still possesses political might, military might and potency. Dying monsters quite often thrash about and injure those that are too nearby. So at this point in time, while Washington still APPEARS viable, state secession would not seem to be a wise move.

After all, why would a state willingly take the chance of incurring the wrath of Washington? It would be like in the Tolkien movie “Return of the King,” when the good guys presented themselves at the Black Gate to divert the gaze of Sauron’s all-seeing eye. Washington might turn its fury on a seceding state to make an example of it, in order to discourage any other state from trying secession.

Washington is working 24/7 to produce substantive changes in American governance and culture. And, at some point, some state might decide that enough is enough. But I believe that it will take an event that happens outside of Washington to bring about Washington’s collapse.

The most likely event is the worldwide rejection of the US Dollar as reserve currency, and the worldwide use of any other currency as reserve. Even the change of the dollar as the currency of choice of any major petroleum bourse¹ will spell disaster for the dollar.

Iran has already formed an oil bourse, which uses the Euro, the Iranian Rial and a basket of other currencies as the settlement currency for petro transactions. Its first day of trading was Monday, October 26, 2009, on the Free Trade Zone Iranian island of Kish. Iran, having the world’s second largest gas reserves and third largest oil reserves, is trying to play a more active role in oil and petrochemical transactions in international markets.

Between the rejection of the dollar worldwide, and the selloff of US Government securities by nations like China, combined with runaway money printing by Washington and the hyperinflation that MUST follow, the dollar has nowhere to go but down…and precipitously.

The value of the dollar will tumble against other currencies….very soon. It will happen as other nations scramble to get rid of American currency and securities holdings and protect the very survival of their own nations. Washington has been passing bad checks for too long, and the nations are stepping to the pay window.

It is at this moment in time, when the dollar freefalls, that the states will have a golden opportunity to secede. States must do what it takes to assure their own survival, and not as a slave state to Washington. But a secession alone won’t solve anything. The heavy lifting just begins when a state secedes.

First there would have to be a Provisional Government installed until the formal government could be designed and brought into being as a legal entity.

The very next thing that MUST be settled is the issue of money. If a new nation adopts the very same banking environment that America has right now, the new nation will be doomed to fail. The new nation MUST have a 100% gold/silver standard. It must also prohibit by law fractional reserve banking. Both government monopoly on monetary policy and fractional reserve banking are counterfeiting by another name. It must be prevented before it starts.

Monetary policy and banking worldwide is failing. A new nation needs to go another way, and that way is to return to sound money. Most of the other challenges that a new nation would face will be easier if the new nation has money backed with precious metals at 100% reserve. But you cannot counterfeit your way to liberty and prosperity.

Timing is everything. If states secede at the time that Washington is drowning in worldwide debt and the financial markets worldwide cause the collapse of the dollar, Washington may be powerless to stop secession. Ask Moscow how well they stopped the secession of the Western Soviet republics in 1989.

I know I’m getting to be “Johnny One-Note” about monetary policy, but that should tell you how crucial it is. Remember that no nation in the history of the world has survived that counterfeited its money. Not one. Ever.

But also remember that the Byzantine empire, on a gold standard, lasted over a thousand years…until it debased its own money.

1. A bourse is a commodities exchange in oil, petroleum and natural gas.

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Non-Aggression Principle and Vice: Where’s The Crime?

October 28, 2009

by Russell Longcore

One of the tenets of individual liberty is the Non-Aggression Principle (NAP), which states that no person has the right to initiate force or fraud against any other person for any reason. When the NAP comes up against criminal law as it relates to vices, both should be tested honestly.

Societies have had an ongoing debate about Crime and Vice over centuries. Much of this perpetual conflict comes from the organized Church, which has formulated moral positions on various human behaviors. If you read Old Testament law, you’ll find a lot of human acts listed with penalties for committing those acts. But you’ll also find that Scriptural penalties are restorative, meaning that they require the perpetrator to make restitution, not incarceration for punishment.

So, in the times in which we live, how does this affect us? Should vices be crimes?

The dictionary defines “vice” as “an immoral or evil habit or practice.” It defines “crime” as “an action or an instance of negligence that is deemed injurious to the public welfare or to the interests of the state and that is legally prohibited.”

The first challenge is in the definition of “vice.” Who makes the determination that any human action is immoral or evil? One man’s vice could be another man’s living. Each person must have the liberty to test every alleged vice to determine of his own judgment and conscience what may be good and what may be evil.

Some folks have a knee-jerk reaction to vices, and believe that they should be prosecuted by law enforcement and the courts. But is this belief founded in law, old traditions, habits or any desire for liberty?

Punishing crime is meant to guarantee to every person the fullest liberty he can realize that is also consistent with the full liberty of others. Government should exist only to protect the liberty of the individual, and protect his life and property from force and fraud. An individual must be free in the “pursuit of happiness,” even to practice vices that others detest. An individual must be free to use his own judgment, his own body and his own property without restriction so far as the use does not interfere with another individual’s quiet enjoyment of his own person and property.

Everyone wants to be protected against violations from other men. But no one wants to be “protected” from himself, since someone else is determining what “protection” is.

So the punishment of crimes can be justified, but the punishment of vices deprives every individual of his natural right to pursue his own happiness, the full use of his body and his own property. These two actions are polar opposites, directly opposed to one another. Criminalizing vice is absurd and a crime of itself. Governments should not be instituted and maintained that commit crimes and prosecute crimes simultaneously.

As the philosopher Sallust said in ancient Rome, “Most men do not desire liberty. Most only wish for a just master.” But masters make the rules that their property live by. Living under such rules and regulations does not cause people to be more virtuous or more free. It makes them small-minded and vicious and eager to make their fellow man suffer. The minds of men are not elevated by such stupidity, but whipped into shape by superstition and the exercise of raw power.

Here is a list of various vices. You may argue that each is a sin, but you cannot argue successfully that any one of these vices should be a crime. That is, unless you are capable of Cognitive Dissonance, which is holding two opposing viewpoints in your mind at once.

Gambling: This is to risk money, or anything of value, on the outcome of something involving chance. There is no force in a wager. If fraud is determined, then prosecution for that fraud is indicated. But gambling has no victim, and therefore should not be criminal acts. Do not be misled into thinking that those who gamble excessively are victims. They should have the liberty to use their resources in any manner they choose, including wasting the resources. Anything less that this level of individual liberty is tyranny. It is the State attempting to protect individuals from themselves. It is massively hypocritical that many States run gambling operations, but criminalize individuals who do the same.

Prostitution: a voluntary exchange of sexual activity for valuable consideration between two or more individuals. There is no force. If the parties begin their exchange, and either one says “No,” further sex would be considered force. If one party infected any other party with a disease, that would be a tortious injury. If one party accepted valuable consideration and did not perform the desired sex act, it would be fraud. So absent intent, force or fraud, prostitution should be entirely legal.

Sex acts in general: Sex acts between two or more consenting adults have no victims. There is no intent to harm, commit force or fraud. If some physical harm were to befall any party, they could seek damages in the courts. So, there is no crime in consentual sex acts.

Marriage: The Bible is full of men with multiple wives, and most are the pillars of the Christian and Jewish faiths. There should exist no law that prohibits polygamy. The laws against assault, battery, force or fraud are in existence to deal with any criminal issues. The civil courts are available to deal with divorce, child custody and support, and the division of assets. Marriage is basically an issue of contract law. But the State has no standing or vested interest in any marriage other than to tax and license it.

Homosexual individuals are free under law to enter into contracts regarding cohabitation and all it entails. If a homosexual can locate a religious leader that will perform a “marriage” ceremony, nothing should prevent that. But the “marriage” should not gain a special legal status, since the State has no standing or vested interest in any marriage other than to tax and license it.

Pornography is sexually explicit pictures, writing, or other material whose primary purpose is to cause sexual arousal. If there is a free exchange of valuable consideration for the pornographic material, then no force or fraud has been committed. If the pornographer uses children, defined as individuals below the age of legal adulthood, who cannot contract for themselves, then there are victims of injury, force or fraud. Those torts should be prosecuted and restoration should be required.

Recreational drug and alcohol use: The use of any substance by a human being to alter his own consciousness is an act without a victim. The user is entirely within his individual liberty to use as little or as much of the substance as he chooses, even to the point of his own death. Mere possession of a substance shows no intent. Private use shows no fraud or force. Recreational drug use should be legal.

Recreational drug /alcohol manufacture and sales: If a manufacturer or grower of any product should manufacture a defective product, there would be fraud and product liability torts could be subject to legal remedy. There is no force in a free exchange of valuable consideration for the manufactured product. So the manufacture and sale by any individual or company of recreational drugs and alcohol should be legal.

Drunk Driving: The mere ingestion of alcoholic beverages should not ever constitute a crime. A person driving a vehicle under the influence of alcohol who causes no harm or damage to another individual or his property commits no crime. There must be a victim for there to be a crime. This person under the influence has not committed force or fraud either. So drunk driving laws are not compatible with personal liberty and should be rescinded.

Counterfeiting is creation of an imitation intended to be passed off fraudulently or deceptively as genuine. The US Federal Government, through the Federal Reserve, prints paper currency that has no redemption value. Genuine currency issued by a 100% gold/silver reserve bank would have 100% redeemability. Fractional reserve banking is also counterfeiting since it creates credit with no underlying value. So counterfeiting is fraud, and should be illegal…even when a nation does it.

Cheating in any form is fraud, which has penalties under criminal law.

Lying in any form is fraud. Perjury is lying under oath in a legal proceeding. So, lying may be subject to criminal penalties and restitution of some form. The trick is how to determine how much lying is criminal and how little is legal.

Stealing is depriving another individual of his property…or even his life… by force or fraud. Restitution should be made, but should incarceration be part of the penalty? What purpose does incarceration serve other than punishment? The prisons are full of prisoners who stole things. Were the victims made whole again?

Gun laws: Many gun laws across America make the very possession of a firearm a criminal act. Some outlaw possession in certain locations, Some outlaw concealed carry of a firearm. But the only determinants of criminality should be intent, force or fraud against another individual. Therefore, the criminality of gun possession is itself criminal.

Conclusion

This author holds the hope that the Framers of a new nation, born of a secession by a sovereign US State, will throw off the shackles of old superstitions and traditions and embrace individual liberty once again.


Writing the New Texas Constitution: Avoiding Inherent Flaws

October 21, 2009

I hear a lot these days about the constitutionality of secession. In this article, I will prove that the Constitution is without authority and that the subject of secession related to the Constitution is entirely irrelevant, and that any states need not concern themselves with the constitutionality of secession.

A constitution, or any document organizing a government, must have authority and validity. But the US Constitution has no inherent authority or validity and has never had either. If we can learn what the US Constitution is and what it is not, we can understand the flaws in the old constitution and then craft a new Texas constitution with authority and validity.

I believe that one of the major reasons that Washington is able to operate as it does, outside the strictures of the Constitution, is because those persons in power know that the Constitution is not legally enforceable. Absent a restraining legal document, they do exactly what they wish and what they can get away with.

The US Constitution has the following words in its Preamble, showing the intent of the Framers:

We, the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the united States of America.

So what exactly is this Constitution?

I think it could only be called a “loose agreement” between certain people at the time that it was written and ratified. It is not a treaty ratified between sovereign states, which would have the weight of law. It cannot be considered a legal contract, since legal contracts have characteristics that the old constitution does not have.

It was ratified by votes in the several states. But ratification in any form didn’t turn it into a legal document with enforceability and authority.

The old constitution’s sentiment seeks to secure blessings to themselves and their posterity, meaning future generation of citizens. But a loose agreement cannot by law or reason bind any future person to its details. Contracts cannot obligate persons who will live in the future, either. They can only obligate persons who are living presently and who sign and receive the contract.

The old constitution is not a legal contract. The Constitution never bound any two or more parties in a legal way, nor did it ever purport to bind anyone. A timeless principle in contract law is that the contract is not valid until the contract is signed by all parties and delivered to the parties, or the representative of any signatory party. Any party may refuse to sign or deliver a written instrument and thus invalidate the contract. The US Constitution was not signed by anyone or anyone’s legal representative. It was not delivered to anyone or their representative. No one in the USA, either alive or dead, has ever signed the Constitution as a legal contract between parties. So how could it be a legal document with binding authority or validity?

Contracts are also voluntary. The parties come together for a purpose, but are free to dissolve the contract based upon the terms of the contract. Even if they leave contrary to the contract terms, there can be consequences, but they can still leave.

Lincoln was completely right in this matter. His position was that, once in the Union, no state can ever leave. And if the US Constitution was an enforceable contract between parties, his position would have been rejected instantly and laughed out of any court in the land. But in light of the unenforceable nature of the Constitution, Lincoln was free to do what he pleased as it related to the Confederate States of America and war. But the Confederate states were also right to secede from a Union that could not bind them. Constitutionality was irrelevant.

Even though the old constitution wishes to bestow blessings and liberty on their posterity, it has no power whatsoever to achieve this goal. Further, it never showed any intention toward future generations other than to offer useful recommendations to their posterity toward the blessings of liberty. If they were in some way able to bind future generations to the Constitution, they would not have bestowed liberty but slavery upon their posterity, since their children would be bound to it from birth, like it or not.

The Constitution is not a perpetual corporation. The perpetuity of a corporation would require that new members voluntarily assent to its laws and by-laws as old members die off. New members must sign on because without their legal signatures, they would not be members and could not vote on corporate issues. There is no evidence whatsoever that the Framers intended the US Constitution to be a corporation’s organizational document.

So we can see that the Constitution is not a contract. It binds no one, and never did bind any persons. We see that all those who pretend to operate under its perceived authority act without any legal and legitimate authority.

Those who support the Constitution fall into three classes:

1. Parasites who see the government as an instrument they can use to further their own desires or increase their own wealth.
2. Credulous dupes. Credulity is defined as willingness to believe, especially on slight or uncertain evidence. Dupes believe that they are “free men” living in a “democracy” in the greatest country on earth. Dupes vote for the very agents who enslave, rob and murder themselves and their fellow citizens.
3. Bystanders who are aware of the evils of the government but are unwilling to place their own interests at risk to work at making a change.

But we voted and elected these Representatives and Senators. They are our duly elected officials, aren’t they?

Are our elected representatives our personal agents with legal authority to bind each of us individually and collectively? No they are not. In order for you to have a legal representative, you must sign your name to a document that gives the representative the power to act in your behalf. This document is commonly known as a “power of attorney.” You must also deliver the document to the agent.

Did you ever sign a power of attorney so that any elected officeholder could make binding decisions on your behalf? Did you authorize any person to obligate you to laws, regulations or the payment of taxes to any governmental body? I know that I have not done so.

And the secret ballot makes the concept of any elected representative acting as your agent even more ridiculous. How could secret voters hire an agent? How could secret voters enter into a power of attorney agreement?

So we see that those persons acting as our elected representatives are acting unlawfully, and that we have both the right and duty to treat them as usurpers and frauds.

Then upon what authority does the Federal Government operate? Who gave them the authority to enact laws, tax, confiscate men’s property and kill other men who resist their machinations?

You could say that voters select their representatives by ballot, and so bestow authority upon them. But in matter of law and reason, this is not true. It would not be upheld in a court of common law. If you and three of your friends voted in favor of a proposal in which a fourth friend would take it upon himself to deprive me of my property or my life, he would be a robber and/or a murderer. If he presented himself at my door to do his work, he would be unable to produce any legal authority to complete his task. Absent legal authority, I should treat him as a robber and murderer and resist his efforts even unto deadly force.

In a courtroom, a judge would ask to see your representative’s written authority to act in your behalf. You would be unable to produce such written authority.

So voting is neither a contract nor a power of attorney. And secret ballots should never be considered legally binding, since no signed contract between parties ever existed. Further, if voters authorize another person to act as their agent, they should do so in an open manner so to accept responsibility for the agent’s acts. That’s called “liability,” and that’s what happens out here in “the real world.” But the US Constitution, in Article I, Sec. 6, says that “for any speech or debate (or vote) in either house, they (Senators or Representatives) shall not be questioned in any other place.” So your agent cannot be held responsible for any laws they make…and neither can you. So, if no one is responsible, who is responsible?

NO ONE.

And let’s return to the subject of legal authority. The Constitution has no legal authority to bind any two or more persons. If it did, you would possess a copy upon which you would find your own signature and at least one other person’s signature. But that document does not exist in any form and has not existed in over 235 years. So, absent that authority, voting is only theater. It is an exercise in making the citizen feel that he is participating in a legitimate government.

The Federal Government in Washington has been illegitimate from its origin. There is no enforceable law to restrain it from any act. It was only the morality and ethics of the earliest founders that restrained them from tyranny. Unfortunately for Americans, that morality and ethical restraint are a quaint memory.

OK. Convinced that the old Constitution is a cruel joke? Then, how can the new constitution be crafted to guarantee legitimacy and legality? If the framers of the new constitution just write one like the old one, it will suffer the same illegitimacy issues as the old one.

Here’s a suggestion on how to write a new Texas Constitution.

Form the new Texas as a Non-Profit Corporation…Texas, Inc. The Constitution can be its laws and by-laws. Each person will be given the option to subscribe to Texas, Inc. and become a citizen. That person would have to be presented with a copy of the Constitution. Each person would have the choice to accept the Constitution in writing. Once accepted, each citizen would be, in essence, a shareholder in the corporation, since a person could not be a citizen/shareholder without signed consent. Each citizen would be issued one share of common stock. That would also mean that those rejecting the constitution could not be Texas citizens. Minors could not be Texas citizens until they were of legal age to enter into a contract, usually eighteen years of age.

Texas Inc. might instead choose a for-profit corporation as its charter entity. In that situation, the general public might be issued one share of common stock when they sign their Constitution. The shareholder/citizens could actually invest their own money in preferred stock. This would provide the new nation with capital. Shareholders holding preferred stock might receive dividends if Texas Inc. makes a profit.

As either corporate structure would be closely-held private corporations, the charter could specify that the stock could not be sold to non-citizens. Only Texas citizens would be eligible to be investors.

The founders of Texas, Inc. would have the right to present the offer of citizenship to anyone anywhere on the planet. They could cherry pick the world for the best and brightest talent! It would be a component of immigration policy.

Voting could be done by proxies, and the citizen could designate his elected representative as his proxy in writing. Or he could vote himself on any issue.

Think this is unworkable? The largest corporations on the planet have been running this way for over a hundred years. GM (pre-nationization), Exxon, Standard Oil, all of the Dow Jones top 30…they all work this way just fine. Many have millions of shareholders, just like Texas Inc. would have.

There are many details that must be worked out that are not listed in this article. But this article was not written to form a new government. It was written to get you thinking about constitutions and how they directly affect YOU.

Thomas Jefferson’s shining jewel, the Declaration of Independence, states that when a government shows a long train of abuses meant to reduce the people under absolute despotism, it is the people’s right and duty to throw off such government and provide new guards for their future security. Texas Incorporated could be that new guard that secures the future of a New Texas nation.

Texas, Incorporated. An idea whose time is come.

© Copyright 2009, Russell D. Longcore. All rights reserved.

Thanks and honor go to Michael S. Rozeff, retired Professor of Finance, for his wise counsel and comment. You can read his brilliance at http://www.LewRockwell.com in the Archives.

For a wider analysis of this constitutional issue, read “No Treason,” by Lysander Spooner, 1870.


The Zero Discount Value of Gold and Dethroning the Dollar

October 20, 2009

by Michael Rozeff

(Editor’s note: I include articles on the gold standard and monetary policy at DumpDC because monetary policy is the first and most important decision any seceding state will make. If they get this wrong, it will mean economic failure for the new nation.)

A truly major change in the global monetary system is beginning to materialize. The dollar is starting to be dethroned. Foreign governments and central banks are going to do the dethroning.

I have no prediction as to how slowly or quickly this process will take. The major dethroners, the Chinese, are on record as favoring a slow process. The transition is already occurring, however. Now that attitudes have shifted among the dethroners, they are likely to keep at it.

The transition will be away from the dollar’s use in international exchange and toward the use of stronger and/or more stable currencies. International deals are being made already in non-dollar currencies or through barter.

The catalyst for reducing the dollar’s role is the insolvent U.S. banking system combined with the massive government and FED efforts to reflate the system. The weakness of the emperor has been fully revealed. Foreign players are going to press their advantages.

The U.S. monetary system has failed. This is not just another stumble. The world is not going to be led forward by a country with problems as large as have surfaced in America.

There may not be any viable heir to the throne, and the present king may remain seated for quite some time. There will be many intervening ups and downs of currencies and gold. But the nobles and court are going to be busy forming new coalitions and jockeying for becoming #1.

This movement is going to be BIG. Entire economies are going to restructure. But my focus here is on one part of the financial side of things, namely, central banking and gold.

Many foreign central banks have supplied credit to the U.S. government. As they move away from that policy, U.S. interest rates will rise and the dollar decline.

The dollar price of gold depends on two factors: the dollar exchange rate against other currencies and the world price of gold in those currencies. A dollar decline raises the price of gold in dollar terms. An increase in the world price of gold, other things equal, increases the dollar price of gold. The world price of gold rises or falls with the extent of inflation of all the world’s currencies.

The world price of gold has risen in the last few years, but gold investors should realize that it is not a one-way street. If the most important dethroning central banks add gold to their reserves while stemming their production of their own currencies, the world price of gold will stabilize and fall. The dollar price of gold reflects both exchange rates and the world gold price.

I believe and argue below that the foreign governments and central banks have intentionally pursued dollar policies for decades that were exactly the opposite of what you or I as rational profit-maximizers lacking in political power would have done. WHY? Apparently they were rational from the point of view of those who did possess political power and certain of their supporters that included exporters.

It is highly pertinent to the price of gold to understand what has been going on and how it now appears to be changing. Why it’s changing now is, in my opinion, partly a matter of political competition. That’s a polite way of saying that other states may be starting to see their way clear to shaking off U.S. superpower dominance. They may be starting to feel their oats. They may feel that power lies in combining against the U.S. in certain ways while cooperating in others. Secretly, they may have tasted blood and be licking their chops. They may be gloating at the American difficulties. I don’t think that “statesmen” are nice guys. They don’t build up massive armies and navies with nuclear weapons because they are nice guys.

It is also partly a matter of economic necessity. Manipulations of economies have resulted in serious economic dislocations and inefficiencies.

How did foreign central banks do the opposite of what you and I, who lack power, would have done?

We will need to understand inflation to grasp that. In popular articles these days, there is massive confusion over inflation (and deflation). I will aim for utter clarity on this matter.

The Federal Reserve Bank in America has to turn its earnings on its U.S. securities back to the U.S. Treasury (in excess of its costs of running the bank.) This means that the government bonds carried as assets have no value to the FED. The present value of an asset with zero cash flows is ZERO. These bonds do NOT back the currency that the FED issues. (Foreign central banks that carry U.S. bonds as assets may be in a different situation, depending on their laws.)

Federal Reserve notes are backed, for all practical purposes, only by the GOLD that the FED carries, which is 261.5 million oz.

The following discussion is aimed at understanding the price of gold in a currency issued by a central bank. This will then illuminate the mystery of what central banks have done over the past 40 years to place the dollar on a throne and in what ways they behaved opposite to what a profit-maximizer would have done.

Suppose that we have a central bank that has a single asset: 250 oz. of gold. It has a single liability. It has issued 750 notes per oz. Each note is dubbed a “dollar.” In this scenario, the dollar is defined as the piece of paper, the note, and not as a weight in gold. The total number of notes issued is 187,500 = 750 x 250. Suppose, further, that the bank stands ready to convert any note into gold if a note holder wishes to redeem it. 1,000 notes bring 1.3333 oz. if this is done.

The price of gold in this situation, expressed in dollars, is and has to be $750 per oz. Actually, the situation is really the reverse. The value of $750 is 1 oz. , since it is the oz. of gold that gives value to the notes issued against it.

I define a new concept called the Zero Discount Value (ZDV) of gold. The ZDV of gold in a specific currency is the total number of currency notes issued divided by the total number of oz. of gold held as an asset against that note issue. Bank reserves that are fully convertible into currency notes also enter the total of bank notes

This definition will help us to define inflation with precision and it will help us to understand the pricing of gold. It will also lead to an understanding of the dollar policies of foreign central banks.

Our hypothetical central bank has187,500 notes (dollars) and 250 oz. , so that the ZDV is $750 per oz.

The ZDV of gold is the value of gold expressed in bank notes under the assumption that all outstanding notes are converted into the bank’s holdings of gold. Even if there is no convertibility, the ZDV is still the same number. It is the value of gold under the assumption that all the notes are exactly 100 percent backed by gold.

The ZDV for a bank changes through time. Why? Because the bank’s holdings of gold and its issue of notes change through time.

I define inflation as an issue of central bank money (notes and reserves) not secured by additional assets of equivalent worth.

Inflation is a note issue that is made without additional asset backing, in this case, gold. Inflation is an increase in bank notes issued relative to the gold held as backing. Let the bank issue another 12,500 notes with no change in gold holdings and no other asset entering the bank’s possession. This issue is inflation. The ZDV is now $200,000/250 oz. = $800/oz. The zero discount value of gold rises to $800 because of the inflation.

Inflation of notes, which is the inflation defined here, has many effects not discussed here such as inflation of various kinds of prices. The single effect being emphasized is that the ZDV of gold, by definition, has to go up when the bank inflates the number of notes that it issues. By the same token, deflation is a reduction in bank notes relative to gold held as backing. In this case, the ZDV declines.

There is no economics or finance in this calculation. It is all definition, but it is clear definition. The economic reasoning comes in when we try to understand how the ZDV of gold and its market price are related.

Suppose we are back to the situation where the bank has 187,500 notes outstanding and holds 250 oz. of gold. The ZDV is $750/oz. Now let us change the scenario. Let us say that the bank no longer allows note holders to convert the notes at the bank and get gold in return from the bank’s tellers. The bank is still in operation. It does not close its doors and repudiate its notes. It suspends convertibility for an indefinite period of time.

Let us suppose that private people can trade notes outside the bank, and that a market springs up on the curb outside, or that down the street is a tavern exchange.

The question is this: What is the price of bank notes? Or the same question put in another way: What is the price of gold expressed in these notes?

If people think that the bank has stopped conversion because it intends to issue more notes or even repudiate the notes altogether, then people will try to rid themselves of these notes. In other words, if they expect inflation of the notes and a rising ZDV, they may bid the price of gold up above the ZDV, which is the same as bidding down the note value by selling notes. This produces a premium for gold. Any premium that may arise will depend in a complex way on expectations and on other factors such as interest rates and other prices. I discuss this case no further.

Let us address the question of the price at which gold will sell when there is no conversion and without this inflation effect which we know raises the ZDV. In other words, let us analyze one thing at a time.

Leaving inflation aside, several factors at a given moment in time restrain the price rise of gold from rising above its ZDV.

If the notes are forced to be legal tender by government law, then such a law will tend to sustain their value even if there is no conversion. The notes will be useful to pay taxes and debts. This factor has an important implication. If the legal tender law is rescinded when a bank is not allowing conversion, the notes are likely to lose value and gold go higher.

The bank might resume convertibility, in which case all those who bought gold at greater than $750 would lose. Central banks do resume convertibility, although it can take a good many years. Buying gold at prices above ZDV near the time when the suspension ends is a losing proposition.

Let gold’s price be $1,000, which is above its ZDV of $750. The bank itself has the incentive to sell out enough of its gold at a rate of 1,000 notes per oz. to absorb all the notes outstanding. Since 187,500/1,000 = 187.5, that will take 187.5 oz. The bank can then own the remaining 62.5 oz. free and clear with no liabilities against them. The bank can put a lid on the price of gold by selling gold, and that will be profitable for the bank but only when gold’s price exceeds the ZDV.

In reality, ZDV serves as an effective moving ceiling on the price of gold. It certainly rises with inflation, but market prices rarely get above the ceiling at any given time. Going above the ZDV is not impossible. Gold did just that in 1980 for a brief time. It appears that when this happened, there was an incentive for arbitrageurs to borrow and sell gold (or simply to sell gold they owned) to receive more dollars than the hypothetical conversion price (the ZDV) warranted.

How does this work? Suppose gold has a price of $1,000/oz. when the ZDV is $750 and the bank owns 250 oz. of gold as backing. By selling 1 oz. at $1,000, the speculator receives notes that are more than worth their weight in gold (if there were convertibility). He receives the equivalent of 1.33 oz. of gold for a sale of 1 oz. of gold. The speculator has a strong incentive to sell gold when its market price exceeds its ZDV.

This completes the discussion of gold selling at above the ZDV. We saw that inflation causes the ZDV to rise over time. We saw that at a given instant in time, the ZDV at that moment acts as a ceiling to the market price of gold.

Will the ZDV also act as a floor?

Let’s now consider the possibility of gold selling below its ZDV. In fact, this is what has happened to gold priced in dollars for MANY years since 1980 when gold entered its long bear market and this situation STILL prevails today even after 8 years of price increases. In U.S. dollars, gold’s ZDV today is over $7,000 an oz. and rising.

The ZDV has not provided a floor to the market price of gold, and yet there are arbitrage forces that are at work to drive market price up to the ZDV.

Suppose gold is $250 an oz. in the market but the ZDV is $750. Let us attempt an arbitrage. We borrow $250 (or use our own capital) and buy an oz. of gold. We take the gold to the bank and try to redeem it for $750. If we could do that, we could then repay the loan and keep a profit of near $500. This shows that there should be some economic incentive that prevents the gold price from falling too far below its ZDV. Is there? If so, why hasn’t it operated? There are years when gold has been 85 percent below its ZDV! What’s the impediment?

The central bank itself could borrow $250, buy an oz. of gold, and then issue 750 notes without raising the ZDV. It could then repay the loan (I neglect interest.) Its balance sheet would then have 251 oz. gold plus 500 notes as assets and 188,250 notes outstanding. Netting out the notes, it has 251 oz. gold and 187,750 notes. The ZDV falls to $748.008. Deflation occurs. The bank has a profit by this arbitrage. If it offers to redeem at $750/oz. , that will use up 250.33 oz. of gold. Its profit is the other 0.67 oz. worth $500.

The FED did not do this arbitrage, despite the fact that gold was very much below its ZDV, or conversely, that dollar notes were much above their fully convertible price in gold. There was and is a strong profit incentive to deflate that the FED spurned. The FED wanted gold dethroned and the dollar placed on the throne. Profits from the source I have outlined were not an incentive for it. It did not want deflation. It wanted inflation.

No speculator could get $750 for an oz. either, because the FED refused to redeem. That is part and parcel of an intentional policy of inflation. It is an essential part of such a policy. Otherwise, private parties will turn in the notes and seek a different money. So that avenue for profit also was blocked.

The private entrepreneur has another option. Use gold to start a competing bank. Issue a competing currency. For $750 in central bank notes, the new banker buys 3 oz. of gold in the market. He keeps 2 oz. as profit. He then issues 750 notes of his own, called the DOLAR, convertible into gold at 750 per oz. As he buys up the gold and sells the central bank notes, he drives the gold price in dollars up. He keeps doing this until the ZDV is reached.

Hence, here is another economic force that operates to make gold’s price converge to the ZDV. Obviously, this avenue has been largely but not entirely blocked. There are barriers to entry that are significant in the form of getting an entire system that uses dollars to use DOLARS. Nevertheless, people like James Turk and his GoldMoney venture are pursuing this option.

Another way is for ordinary people to buy gold and sell the dollar. To spend $250 to buy an oz. of gold when one knows that the ZDV of a note is $750 is to get something worth three times more than the weight in gold of what one has given up. Still, this is not a riskless arbitrage. It relies on the prospect that others will eventually exploit the profit potential that exists when gold is well below its ZDV.

There is another way to arbitrage the difference between the market price of gold and its ZDV when the market price is less than the ZDV. Other central banks can borrow dollars, buy gold, and then issue currencies against it. With these currencies, backed by gold, they can repay the dollar borrowings and still have a profit. They can gain the arbitrage profits in precisely the same way that the FED might have or that private entrepreneurs might have.

MANY foreign central banks have done the opposite. They sometimes have sold gold. They have usually accumulated dollars in substantial amounts in the form of dollar loans. They have not only not competed with the FED and taken advantage of this arbitrage opportunity, they have gone the other way and supported the FED and the U.S. government by their loans. This was one part of the financial side of government-run economic policies.

So when we run through the arbitrage possibilities, we find that most of them have been blocked or spurned.

Central bankers dethroned gold, never fully, by not taking advantage of the profitable opportunity to issue solid currencies that compete with the dollar by buying gold and selling the dollar when gold’s price is far below its ZDV. Instead they chose to act as satellites of the U.S. The central bankers cooperated with governments that geared a major part of their economy’s production for the American market and took dollars in exchange. They lent to the American consumer to finance his consumption of their goods. They weakened and inflated their own currencies intentionally.

This is the situation that appears to be changing. It started changing at least six years ago in Asia, for China has been accumulating gold secretly for at least six years. China recently began a campaign encouraging its citizens to hold wealth in gold and silver. But the situation began changing as early as 1979 with the European Exchange rate mechanism. The euro came into being between 1992 and 2002, and that competes with the dollar.

The arbitrage opportunity pointed out above is a manifestation of an overvalued dollar compared to gold and a world economy with serious distortions in product, labor, and capital markets. They are two sides of the same coin: the financial side and the real economy side. These distortions have built up over decades as many countries manipulated their economies while their central bankers aided and abetted the dollar. A great deal of restructuring lies ahead.

America is down. Is she out? America is capable of putting her house in order. She has great strengths lodged in her people. It is not too late to resuscitate the American economy and revive its vitality. Will the proper policies and radical system changes be instituted to accomplish that challenge? Unfortunately, there are no current signals to that effect being given off by America’s ruling elite. We are seeing the very opposite. Foreign leaders can read these negative signals as well as we can. They are acting accordingly. They are starting to dethrone the dollar.

October 20, 2009

Michael S. Rozeff [send him email at msroz@buffalo.edu] is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book “Essays on American Empire.”

Copyright © 2009 by LewRockwell.com.


Texas as a Safe Haven Nation, Magnet For Wealth Preservation

October 19, 2009

by Russell Longcore

The famous (and very accurate) trend watcher Gerald Celente has written about the concept of Safe Haven Nations (SHNs). A SHN is simply a sovereign nation that has implemented laws that protect the wealth and privacy of individuals, and is a place to which people could relocate.

Wealthy people worldwide are constant prey for rapacious predator governments. They are easy targets, since most everyone wants to be a wealthy individual, but many who are not wealthy resent them. And, with predictable regularity, governments create class warfare and class envy, so the lower class supports the government’s efforts to confiscate the assets of the wealthy class.

Wealthy people worldwide are also on the lookout for venues where they can store their wealth securely. Used to be that Switzerland was the “gold standard” of wealth preservation and privacy for the world. But recently, the US and EU governments went after the Swiss, and Swiss bank UBS agreed to disclose the identities of nearly 5,000 American citizens who have secure bank accounts in Switzerland. My understanding is that this disclosure violates Swiss banking law, but they are doing it anyway.

Wealthy people are often willing to relocate to another nation when they are forced to save their own lives. Sometimes, the wealthy have to leave mansions, bank accounts and other assets behind in a predator nation just to save their own skin. Recall Captain Georg von Trapp and the movie “The Sound of Music.” They did not actually walk out of Austria to escape the Nazis, but fled to Italy by train. But ask others from Vietnam, Iraq, Germany, South Africa and Rhodesia (Zimbabwe) about leaving with nothing but the clothes you are wearing.

In the event of a complete collapse of the dollar and the financial tsunami that will wash over the world, immigrating to a new country may be quite difficult, perhaps even impossible. Predator nations will do everything that they can do to prevent capital flight and may even prohibit emigration. Borders may seal tight and travel may be severely restricted.

Texas secession and the formation of a New Texas provides an historic opportunity for Texas to become the newest and most secure Safe Haven Nation. The people who will craft the new constitution for a New Texas should look to the banking and privacy laws of the nation of Lichtenstein for a template.

Nations like Panama, which has outstanding Safe Haven laws, are attracting wealth from all over the world. Others are:

Singapore
Hong Kong
Anguilla
The Bahamas
Bermuda
St.Kitts/Nevis
Cayman Islands

The problem with the list above is expatriation. These are islands and entities of small geographic size. Many have very restrictive immigration laws. So, they are limited on how many people they could allow to emigrate to their shores. Texas, however, is immense. And with an immigration policy based on the free market, could become a worldwide magnet for wealth…and wealthy individuals.

Immigration law will have to be enacted that offers a procedure for an expatriate to either gain dual citizenship or individual citizenship through a fee arrangement.

If a New Texas has no income tax and no inheritance tax, that will be a good start. But it will need to go further to attract wealth from all over the globe as a Safe Haven Nation. Banking law will need to protect the identity of anyone depositing assets in Texas. Texas will also have to refuse to enter into tax treaties with other nations, and then withstand the enormous pressure they bring to bear to comply.

Tax fraud is misleading a taxing entity and should be illegal. Tax evasion is the failure to declare assets, and is open to interpretation these days. Tax avoidance uses lawful means to minimize the amount of tax paid to any taxing entity. Many nations wish to blur the lines between tax evasion and tax avoidance. Texas should promote tax avoidance while offering absolute secrecy for individuals and corporations.

Texas should also create a constitutional law that provides for corporations to have bearer shares and no-par-value shares, as well as to operate with one director, who may also be the secretary, and who may reside outside of Texas. While annual meetings may be held anywhere, a registered office and agent must be in Texas, but no information concerning shareholders or directors needs to be disclosed. The minute book, resolutions, seal and shareholder register must be kept at the registered office. Most SHNs have these laws already.

If you are seeking a Safe Haven nation, you might consider moving your wealth and your family to Texas now. Texas as a US state is the leading economic engine of the USA. Very pro-business, very independent. Lots of wealth already there. If any state of the Union is going to successfully secede, my money’s on Texas.

If you see the writing on the wall in your country (or state), and know that you must expatriate to a new country, the time is NOW to begin preparations. Your plans must be in place and executed before a meltdown in your country or state occurs. After the meltdown, it might be too late. You may become an inmate of Prison Planet.

Secession is the only hope for mankind. Who will be first?

DumpDC. Six Letters That Can Change History.

© Copyright 2009, Russell D. Longcore. Permission to reprint in whole or in part is gladly granted, provided full credit is given.


Governor Rick Perry: Is He The Right Man For a New Texas?

October 18, 2009

by Russell Longcore

Back on April 15, 2009, Texas Governor Rick Perry found himself in front of a microphone at a Tea Party at Austin City Hall, and blurted out words to suggest that Texans might at some point get so fed up they would want to secede from the union, though he said he sees no reason why Texas should do that. Kind of reminds me of the old story of the politician who, upon discovering a nearby parade, ran to the front of the parade so he would appear to be leading it.

But in Lubbock in September, Perry said that Texas “needs to lead, not secede.” So clearly, Rick Perry is not going to be a leader for Texas independence.

In light of Perry’s public statements about secession, would Governor Perry become a friend of secession or an enemy? To whom can Texans turn for leadership in the planning, formation and ratification of a new Republic of Texas? Looks like Texas Nationalist Movement president Daniel Miller is the presumptive go-to guy for that leadership.

Look at some of Perry’s postings at his website about his “accomplishments.”

Agriculture: Perry has accumulated many endorsements for re-election in 2010 from agricultural (and other) special interests. But special interests want government favors, which translates into money flowing both ways. If a New Texas Constitution rejected the old political ways of cronyism, over-regulation, taxation and lobbying, special interest lobbyists would be unnecessary. What would Perry do in such an environment?

Energy Policy: Washington wants to pass Cap and Trade legislation, which would hurt Texas. Perry’s taken a stand against it. Would Perry (a) obey that law if passed, (b) nullify the law if passed, or (c) lead Texas into secession?

Government Reform: Perry and Senator Kay Bailey Hutchison trade barbs about the size of campaign contributions while each is spending money from Washington through legislative “earmarks.” What about Perry’s record as Governor would lead anyone to believe that he would forsake politics as usual and beat the drum for a small, efficient government for a New Texas?

Border issues and the War on Drugs: Perry has spearheaded the quasi-military assault on those crossing the Mexico-Texas border. Hundreds of millions of dollars have been spent by Perry and the legislature to continue a failed policy of “war” on the drug trade. It didn’t work when America tried to ban alcohol sales in the early 20th Century. Law enforcement tried the same kinds of measures to dry up both supply and demand for alcohol. The black market flourished, and organized crime became powerful and wealthy smuggling alcohol into America. The same ridiculous mistakes are being made today regarding recreational drugs. Today’s war on drugs is treating symptoms and ignoring the underlying disease. Legalization of recreational drugs is the only sensible choice for liberty and intelligent crime prevention in Texas. Could Rick Perry reverse himself and embrace this concept?

Education: Perry recently announced that Texas will invest $160 million to expand the scope of Texas Science, Technology, Engineering and Math (T-STEM) academies. Apparently Perry believes in spending lots of taxpayer money to promote public education. Could Perry be counted on to reverse course and reject tax-supported public education in a New Texas?

Higher Education: Big Government wonk Bill Bennett, former Secretary of Education, endorsed Perry for re-election in 2010. When the old guard in Mordor loves you, what does that say about your independence and anti-state stand?

Budget Reform: Governor Perry constantly criticizes Senator Kay Bailey Hutchison for her consistent efforts to “bring home the bacon” to Texas. Sure KBH is a Washington big spender. But would he criticize her if she weren’t running for Governor against him?

Rick Perry is the odds-on favorite for a third term as Governor, a feat no previous Texas governor has done. In light of the way the Texas-Washington relationship works, Perry looks like a great choice for Governor. But the nationalist movement should not look to Mr. Perry for leadership on the subject of state secession. Better to look to Daniel Miller and Congressman Ron Paul, who already share the anti-statist world view.

The big questions about Rick Perry are these: How much tyranny from Washington is too much? Will there ever be a point at which the Texas governor says that Washington has gone too far, and that Texas must now go its own way?

Only time will tell.

Secession is the only hope for mankind. Who will be first?

DumpDC. Six Letters That Can Change History.

© Copyright 2009, Russell D. Longcore. Permission to reprint in whole or in part is gladly granted, provided full credit is given.


Texas Exhales: Judge William Justice Dead at 89

October 17, 2009

by Russell Longcore

Once known and “the most hated man in Texas,” Judge William Wayne Justice has died at age 89 after a long illness. Texans can now exhale, and those who are crafting a New Texas should take the life of Judge Justice as an example of the type of justice Texas doesn’t want and won’t tolerate.

Appointed to the Federal District bench by President Lyndon Johnson in 1968, he became known as a liberal judge whose decisions radically changed law and society in Texas.

Justice did not believe that the US Constitution and the Bill of Rights were static and unchangeable. He advocated the “living constitution” viewpoint that the Constitution should evolve as the society evolved.

Consequently, he legislated from the Federal bench.

His legal decisions covered issues in prison reform, immigration, public education, public housing and voting law.

In one of his more infamous rulings in 1977, Doe v. Plyler, he ordered that undocumented immigrant children had the same rights as US citizens and must receive public education. He also ordered bilingual public education.

Once his liberalism was chronicled and well-known, reformers and social do-gooders flocked to his courtroom to file class action cases. Some of the class action cases, many of which were the largest lawsuits in America, dragged on for decades. And his court decisions changed Texas forever and influenced legal precedent nationwide.

Frank Kemerer, Justice’s biographer and university professor, said that Justice was “perhaps the single most influential agent for change in 20th-century Texas history.”

Likely, Kemerer is right. But Justice’s brand of change did violence to the US Constitution. He should have been impeached and removed from office. But in a tyrannical Federal government that snickers at state’s rights and outright ignores the US Constitution, Justice was a hero.

In the new nation of Texas, Federal judges must be chosen that are committed to strict interpretation of the new Texas Constitution. The judges should be required to sign an affidavit stating their commitment to strict interpretation, and judges should stand for re-election or re-appointment every few years…no lifetime appointments to the Bench. In instances of judicial activism, judges should be subject to removal from the bench at any time.

The New Texas deserves no less than judges who will protect liberty.

Secession is the only hope for mankind. Who will be first?

DumpDC. Six Letters That Can Change History.

© Copyright 2009, Russell D. Longcore. Permission to reprint in whole or in part is gladly granted, provided full credit is given.