Forbes columnist and Monetary Metals CEO Keith Weiner, writes for Glint on why he believes now is the time for Nevada to issue a gold bond
Berkshire Hathaway CEO Warren Buffett famously dismissed gold: “Gold has two significant shortcomings, being neither of much use nor procreative.”
On use: I have recently written about how a government with gold mining tax revenues can use gold. The benefits of issuing gold bonds include reducing risk, and getting out of debt at a discount. Pretty useful, eh?
As to Buffet’s second point, one should never confuse suppressed with impossible. By President Roosevelt’s edict in 1933, the government made it illegal for Americans to possess the metal—as in a go-to-prison criminal act. The US government busted every gold bond. Of course, under such conditions, gold could not be useful or procreative. If they wanted to keep their gold, people kept it well hidden.
In 1974, President Ford signed a bill legalizing gold once again. But after four decades, the damage had long been done. The world had become accustomed to the regime of irredeemable paper, which was made absolute by Nixon’s order three years prior, banishing gold from the monetary system entirely. Gold was decreed to be a mere commodity. It was now considered useless by all correct-thinking persons, some of whom predicted that its price would drop well below $35.
Heck, they listed gold on the futures exchange. In a free market, futures contracts are used for commodities, especially agricultural commodities that have seasonal production and constant consumption, as well as unpredictable production due to the weather.
Gold should trade in an interest rate market. A contract for future gold delivery is normally a bond, and the interest rate market is the bond market. But thanks to decades of government intervention, gold has been relegated to futures. At least that’s better than remaining illegal.
Buffett, observing this sad state of affairs, does not see anything to be sad about. He observes not the government’s interventions, but leaps to a hasty generalization: that this uselessness is intrinsic to gold. Thus he does not condemn government for its illicit actions, but gold itself. He is condemning gold, for not doing what the government did not allow it to do.
Anyways, let’s discuss how gold can once again be procreative.
The US state of Nevada now has legislation pending, to enable the state to issue gold bonds. Not gold backed bonds, which are a way to sink deeper into debt by borrowing more dollars and using gold as collateral. True gold bonds, which are denominated in gold, pay interest in gold, and return investors’ principal in gold.
Interest. That is what Warren Buffet declared that gold has not got. And now an AA-rated state government is close to paying interest on gold. That is an interesting development (permit me my little pun).
But there is a challenge.
Although there is no downside, and no special interest groups are harmed, the bill might not pass. The Democrat majority who controls the state legislature could perceive the gold bond as a Republican partisan measure. I can say that this assumption is totally wrong. Most mainstream Republicans are not especially fond of gold. For example, it took Arizona five years to pass its gold legislation, with three vetoes by two Republican governors.
Unfortunately, politics has become hyper-partisan. If Nevada Democrats perceive this as a Republican bill, they will vote it down. Since they are in the majority, they will kill the bill. That must not happen! The decay in our monetary system is at an advanced stage. No one can predict how much time remains, but I can say one thing with absolute certainty. We need to begin developing an alternative. We need to begin remonetizing gold, and that means gold bonds.
(If you would consider buying a gold bond, you can sign my petition. Please click here for the petition at Monetary Metals, especially if you would consider buying it. If you’d like to sign, but prefer to keep your email address private, please click here for the petition at Change.org.)
Keith Weiner is a gold commentator and CEO of Monetary Metals. He writes here in a personal capacity and his views do not represent Glint.