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How to start a parallel currency of real money

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  • GATA Committee
    2p EDT Sunday, December 24, 2000 Dear Friend of GATA and Gold: The Mexican businessman and student of economics Hugo Salinas Price, a great friend to GATA, has
    Message 1 of 2 , Dec 24, 2000
      2p EDT Sunday, December 24, 2000

      Dear Friend of GATA and Gold:

      The Mexican businessman and student of economics
      Hugo Salinas Price, a great friend to GATA, has
      written, in the form of an open letter to the
      economic analyst J.N. Tlaga, a meditation on the
      future of money and the international economic
      system. While its advocacy goes well beyond GATA's
      charter, the letter is compelling reading, so I
      share it with you below.

      CHRIS POWELL, Secretary/Treasurer
      Gold Anti-Trust Action Committee Inc.

      * * *

      By Hugo Salinas Price

      An open letter to J.N. Tlaga.

      Dear Sir:

      I have continued to give thought to your proposals in
      Part II of "Euro and Gold Price Manipulation."

      You proposed a 5-Euro coin containing 5 grams of
      silver. The idea is lovely, but I can perceive
      difficulties.

      Such a coin might circulate as long as the market price
      of silver remained below 31.1 Euros per ounce; but if
      the ECB is going to be the buyer of each and every gram
      of silver offered to it, the ECB is then -- am I right?
      -- going to be setting the world market price of
      silver. The ECB would begin bidding up the price of
      silver, up to a theoretical limit of Euro 31.1/oz. or a
      little less.

      Then the 5-Euro coin you visualize would no longer
      circulate; it would be hoarded, under Gresham's Law. A
      legal tender coin with a precious metal content equal
      to or even less than the face value of the coin is
      going to be retained by the owner, and payments (that
      is, circulation) will be made in paper equivalents, the
      currency of inferior quality.

      A concrete case: in Mexico, during the presidency of
      Salinas de Gortari, 1988-1994, coins containing silver
      were put into circulation. They immediately
      disappeared, as even a minute quantity of silver in the
      coins made the holders wish to hold on to them, and use
      other coins for payment, rather than hand over coins
      containing even a small quantity of silver.

      Further thoughts: If a large purchaser of silver such
      as the European Central Bank came into the market with
      such a plan, the price of silver would not rise to Euro
      31.1/oz. The purchases by the ECB would set off a war
      between the industrial users of the metal and the ECB.
      The price might rise to who knows what levels -- more
      than $100 per ounce, perhaps much higher.

      It seems to me that as in the case of gold, trying to
      find ways to introduce silver into an existing monetary
      system -- any monetary system -- leads only to
      "puzzlement" and innumerable obstacles. This is telling
      me something.

      What it is telling me is what I believe I came to
      understand about the Mexican monetary system back in
      the throes of the 1995 crisis.

      Robert Mundell asked me how I came to what I am about
      to outline to you. I answered, "It was an epiphany."
      Here is what I arrived at in that epiphany:

      Any and all monetary systems in the world today are in
      an irreversible downward spiral into destruction,
      including that of Mexico, to which I directed my
      thought.

      This process, a sort of monetary cancer, has its roots
      centuries back, but for practical purposes we can
      identify the moment it became apparent: when Britain
      went off gold in September 1931, followed by the rest
      of the world in the next three years.

      Since then the economic structure of the entire world
      has been so distorted by the lack of real money that
      the cancerous-like growth cannot be extirpated or even
      modestly contained without killing the world economy as
      we know it.

      There are no remedies. The eventual destruction of the
      monetary system prevailing in the world, and the
      economy built on it, is inevitable.

      All that the most sensible people can do is try to
      delay the terminal point. It is a valid endeavor, I
      must say. Like a good doctor who knows his patient is
      dying, these economists are thinking of ways to prolong
      the life of the patient, which they know they can't
      save. They offer palliatives to the pain, medicines to
      sustain life. They resort to ever-more-complicated
      apparatus to keep the economy of the world turning
      over. The Euro is one of the medicines offered to the
      world. It may delay death, but it will not produce
      health.

      These economist-doctors know that the amount of
      precious metals is insufficient to carry out a kind of
      transfusion, supplanting gold and/or silver in place of
      fiat money. They cannot do the transfusion, because the
      structure of debt in the world, having been ever-
      expanding in disorderly fashion since September 1931,
      requires servicing, and the servicing can be done only
      with a monetary system that can produce the additional
      liquidity (inflation) requisite to service the debt.

      A monetary system based on precious metals presupposes
      a healthy economic body, not one cancer-ridden with
      debt and uneconomic productive structure. A precious
      metals monetary system will simply kill a world economy
      based on fiat.

      The debt is the question -- the debt that has been
      growing since the '30s and has produced disorderly,
      uneconomic investment that cannot service the
      corresponding debt.

      It is simply impossible to return to sound money
      without a TOTAL COLLAPSE of all of the present-day
      world economic structure. The practical economists know
      this, but they cannot advertise it. All they can do is
      try to keep things going as long as possible, as I have
      already said.

      Taking all this into account, I came up with the
      following:

      We must begin to work in preparation for the final
      demise of the world's monetary system.

      We must put as much precious metal as possible into the
      hands of humanity.

      We cannot try to put gold into the hands of a great
      many people, because gold has always been the property
      of the wealthy. Even at today's very low prices, gold
      is out of the reach of the world's masses.

      But there is a "poor man's gold": silver.

      Thus, what I have been working on in the past six years
      is to get as much silver as possible into the hands of
      Mexico's people.

      The idea is to introduce a SILVER PARALLEL CURRENCY,
      which can circulate alongside the paper peso and, of
      course, the ollar. We cannot reform any present-day
      monetary system; it is beyond reform. But we must not
      abolish any present-day fiat system: we must graft on
      to society a parallel sound system, based on silver or
      gold. (I think silver is the preferable metal. Gold
      will follow in due course.)

      We must rebuild gradually, fostering a new economic
      life based on real money. We cannot reform, but we must
      not kill the patient either. We must work our way out
      of this monetary and financial mess with a
      corresponding re-structuring of the world's productive
      system.

      This can be done only with a coinage bearing no face
      value, its exchange value determined solely by its
      silver content. Such a coin can circulate alongside the
      paper peso and the dollar, if its daily value can
      fluctuate in adjustment to a changing silver price. The
      dollar circulates in Mexico precisely because its daily
      value can fluctuate. A fixed peso value would drive it
      out of circulation and into hoarding, and into
      availability only on a "black market." We know this,
      because it has happened.

      When a substantial amount of silver has been sold to
      the Mexican public, and when the spread between bid and
      offer rates has closed, the public will begin to use
      the coin in everyday transactions, just as it can, and
      does, use dollars.

      A further development, silver banking, or the use of
      silver in transactions that involve a period of time
      between purchase and settlement (credit transactions),
      is some distance off; it cannot begin to function until
      the price of silver is released from its straitjacket
      of "paper silver" that operates in New York. When the
      "paper silver" shorts are blown away and a true market
      price arises, based on supply and demand, then it will
      be possible, on the basis of the new, higher price, to
      begin the construction of a new financial system based
      on silver.

      There is no other way, in my humble opinion, to
      conserve a civilized, industrialized world. What I
      visualized in my "epiphany" is valid for the whole
      world as well.

      We must begin to lay the foundations for a "new world
      order," but not the one visualized by the present
      powers, which is based on fiat money and a cancerous
      world economy, but rather one rebuilt from scratch on
      precious metals.

      This new precious-metals-based world order can come
      about by a gradual process of introducing a parallel
      world currency, which can be the 1-ounce pure silver
      coin, legal tender with no face value. (This coin can
      also be .900 fine, but containing 1 troy ounce of pure
      silver with some alloy, for the practical purpose of
      preventing excessive wear.) This coin could circulate
      anywhere; it would require no "passport."

      From credit transactions, including banking, as I have
      said, it will be necessary for the paper stranglehold
      imposed by the silver shorts to be destroyed, and a new
      price level arrived at, which will reconcile industrial
      use with monetary use. It may be very high, in today's
      terms.

      What I have outlined may be a very long shot, but as
      far as I can see, there is no viable alternative to it.
      If we do not lay plans for what comes after the
      inevitable collapse, the human race may be in for
      centuries of life on a primitive, barter level.

      A question arises: Is it right to support the work of
      the Gold Anti-Trust Action Committee, given the drastic
      consequences of a substantial rise in the price of
      gold?

      Fundamentally, this is a moral question we must face:
      It can never be right to support a fraud. Not even if
      exposing the fraud means worldwide chaos? No, not even
      then. And, besides, the chaos will come anyway, if we
      do nothing.

      Evidently, what we must urgently attend to is the
      creation of means of sustaining world civilization (no
      less) by taking thought and laying out the plan for the
      coming necessary alternative: the re-creation of a new,
      reality-based monetary and financial system using
      silver, and gold too, eventually; a system to be
      introduced gradually, and for which we have elaborated
      the necessary intellectual underpinnings. Precious
      metal coinage with no face value to commence
      circulating in parallel with the paper fiat, for the
      reasons given, represents the first step.

      Let us not perplex ourselves with thoughts about saving
      the present world monetary and financial system. It is
      going to die.

      Instead, let us think about a sound system that will
      come into being with fresh life.

      Fitting for this end of year, end of decade, end of
      century, and end of the second millenium:

      Ring out the old! Ring in the new! Ring in a thousand
      years of peace!

      -END-
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