Police issue warning over 'Liberty Dollars'

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Can you explain - in somewhat simple terms?

I'll explain the Gold Carry Trade (there are many others):

Central Banks like our own held/hold gold. When the gold spot prices were low, Central Banks entered into what are called "carry agreements" with 3rd parties: they "lent out" their gold (or a portion) in return for 1% "rent" on the gold per annum.

The people who pay to "rent" the gold, then sold it, and bought treasuries (returning say 2%-8% depending on currency/country). This depressed the gold price since gold flooded the market. ALSO it depresses the price since the CB "lent" it, it is still on their books as a hard holding! So the gold became 2X on paper, distorting any supply/demand equation.

Everything is/was hunky dory, until the gold price starts escalating (largely due to inflation).

The gold is gone, but since the CB "lent" it, (remember) it is still on their books as a hard holding. The carrier is on the hook for the gold, which is payable on demand to the CB, subject to the terms of their agreement with respect to the carry period.

So, you have large CBs with large gold holdings on paper (not so large in reality). You have gold that can't possibly be returned because it will bankrupt the carrier. The CBs have little choice but to extend carry periods, even as gold price increases, making the situation even more untenable. Sooner or later, those gold reserves may be needed.... they will have vanished.



Derivatives are simply investment vehicles that have no value intrinsic to them. You are trading not a commodity or stock, but a promise. Futures are a good example. You are trading the ability to buy a good at a fixed price in the future, subject to exchange policies and exigencies. So the "paper" you hold has no value, it's not corn that bought, its the ability to buy 10 truckloads of corn at $1 bushel or whatever in 90 days.

There are positions you can take with simple 1:1 leverage, and massively leveraged positions are available too (these are the norm).

Now this isn't so bad applied to corn, but it has been applied to precious metals, stocks, bonds, and even Fannie/Freddie credit of all things! You literally have people betting on the success of mortgages, highly leveraged at that! At some point, this compound leverage becomes a house of cards that whipsaws and falls under its own weight. Applied to anything but commodities, they are leveraged bets on somebody else making a bet, or not. Bad juju.
 
No, theyre not legal tender, but they contain gold or silver which makes them actually worth something. You can always just go exchange them for real dollars.
 
Actually those are federal reserve notes, what you'd exchange the silver for. And the federal reserve notes are exchangeable for real dollars.:) And a dollar is represented by a weight of silver, a tradition carried over from the Dutch/German Thaler.

Main point is that a federal reserve note isn't a dollar, it could be traded for one, but as defined by US law a dollar is something else. Prior to Breton-woods (and maybe for a while after) they wrote it right on the bills, "this bill can be traded...". The American money I have even lists which federal reserve bank the note came from, San Fransisco, etc.
 
The problem with all of these alternative coins is that the face value is way higher than it should be based on weight.
Good point . . . I'm not happy about U.S. currency being backed essentially by, well, nothing, but when some private mint starts putting out precious metal coins with face values much higher than the intrinsic value of the metal, and expects people to accept them as such, I smell a scam.
 
I'm buying!

I will gladly pay face value for Gold and Silver Eagles as marked by the
US Mint ;)

I remember years back when I tried to barter a combination of cash
and a tube of silver eagles to an FFL at their current spot metal market
price and the guy's response was "Why would I want those? I can't
buy anything with them."
 
Federal Reserve notes are not exchangeable for metal. Gold and silver certificates were theoretically exchangeable.
Silver certificates have a legend on the bill “silver certificate”, and the words “This certifies that there is on deposit in the treasury of the United States of America xx dollars in silver payable to the bearer on demand”.
The wording changed slightly over the years, with a 1923 large bill saying “…One silver dollar payable…”
Next came United States Notes, then Federal Reserve Notes.
Having gold valued at 2000 and ounce to back the volume of currency needed has no real benefit.
Since there is other market use for precious metals (many that involve consumption and incorporation into products) this adds one more problem to using them to back currency.

While the system may appear to be a house of cards (and to some extent it probably is) keeping ‘Incongruous Assembled’ at arms length from the actual money supply has had a lot of benefit long term. We are unlikely to ever see Weimar Germany inflation of our currency, though the core rate (~2%) remains.

Central banking is a lot like democracy. It may have problems, but consider the alternatives.
 
Central banking doesn't have to mean money has no backing. But anyway, you could easily see double digit, run-away inflation. Two scary words, for now, 'housing bubble', and that's just one issue ofa half dozen.

Here is what old bills said:
This one says can be traded for legal money or gold,1914
1914$100FederalReserveNoteSnF361802A.jpg

I believe that by 1934 private posession of gold had been made illegal, it was treated the same a cocaine is today, so this bill makes no mention of gold.
1934A$500FederalReserveNoteG00273192A.jpg

And here in 1976 the paper is all you get, no mention of trading the bank note for actual currency.
1976$2FederalReserveNoteSnA00000099A.jpg

I'm not judging, it's just interesting to me.
 
When I was a boy in the late 1950s and early 1960s, one of my favorite things to do was to save enough money to get a dollar silver certificate, then take that to the local bank. I'd slide it across the marble-topped counter and the teller would hand me a nice shiny silver dollar. I still have a small box full of those silver dollars I accumulated as a boy. No chance of swapping the current paper for real money though.

"Note" what the text on this bill says.

All that changed in 1964, when a flap- eared varmint from Texas proclaimed that silver was to valuable to use in coins. A thousand- dollar face value bag of those coins will set you back $7,373 in Federal Reserve "Notes" right now, and a thousand dollars worth of silver dollars (if you can find them) will likely cost you close to $10,000 or more.

Yet in 1963 you could swap all you could carry, dollar for dollar. Remember that next time some DC gasbag blows off about controlling inflation, 'K?

lpl/nc
 

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Depends on your definition of money.

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http://economics.about.com/library/glossary/bldef-money.htm?iam=metaresults&terms=money
Definition of Money: Money is a good that acts as a medium of exchange in transactions. Classically it is said that money acts as a unit of account, a store of value, and a medium of exchange. Most authors find that the first two are nonessential properties that follow from the third. In fact, other goods are often better than money at being intertemporal stores of value, since most monies degrade in value over time through inflation or the overthrow of governments. (Econterms)
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I happen to prefer the classical definition, of which a key tenet is a store of value. That means that if it is worth X today, it is still worth X 100 years from now. You seem to look at money only as a means of exchange, which is of course perfectly acceptable to all modern central bankers.

Check back with me in 100 years and see if you still feel the same way.

lpl/nc (we are all Keynesians now on THR)
 
That's only half the quote. The whole quote by Keynes says (paraphrase), 'Yea yea we are all dead in the long run, but that doesn't mean we should act like the short-run doesn't matter.'

And, like Lee Laplin says, economists are very fond of putting their life savings in real things, cars, real estate, etc. I suspect firearms would count too, except that they are unstable as registries mean firearms could be confiscated due to some future law, at a moment's notice.

(we are no longer off-topic, it was just a really circuitous route to the firearms part)
 
I really think that money or non-productive assets (including precious metals) are really a poor store of value.

Which scenario would be more valuable today?

Buying $100,000 in 1906 $ of Gold and selling it today

or

Having a diversified stock portfolio bought in 1906 and sold today?

Well, in 1906 Gold was $50 an ounce I think and well 100,000 divided by 50 is 2000 ounces of Gold.

Well 2000 ounces of Gold at todays prices(approx 565.80) equals $1,131,600.

Not bad.

Well lets see what returns on the stock market would have produced.

100,000 times an average of 10% returns nets 1,378,061,233.

Looks like stocks were 725% better investment than gold.

Looks like you could buy alot more guns with stocks than with gold. (see on topic)
 
"Well lets see what returns on the stock market would have produced.

100,000 times an average of 10% returns nets 1,378,061,233."

It seems too simplified, I'd argue against it. For one thing, when you lose most of your money you basically re-start at that point in time. So you don't have a continuous period of growth.

The beauty of precious metals is that they survive inflation so well, they're like a hedge against unstable economies. And that's what I believe the economies now are. (the Economist says it over and over, month after month).
 
History lesson: In 1906, a $20 gold coin (Double Eagle) was worth $20.00 at the gold price of $20 and change per ounce. $20.sixty-something? Silver was $1.22/oz.

Roosevelt devalued the dollar to $35 an ounce in 1933, maybe 1934, I'm rusty.

What you could not have done in 1906 was to buy stocks and pitch them back in the closet and then expect any notable return today. The companies mostly no longer exist.

So if you had the 1906 gold and sold it in 1980 for $800/oz and then bought back at $264 a few years back, you'd be doing okay--which parallels what is done with equities: Buy, hold and sell and buy back in with other equities.

Apples and oranges applies to investment behaviors as well as arguments. :)

Art
 
Back to the original topic, there are several business owners in my area who accept and trade in these things.

My opinion is they're pretty neato. I have a couple. Haven't spent many of them yet.

The Liberty Dollar organization aren't out to defraud anybody (I forget their official name - I'll look it up later) but they haven't adjusted the face value of their coinage to keep up with spot prices of gold and silver. Back when they were first issued they actually were worth about that much.

They're just barter tokens. The pamphlet that one of the stores gives out about it is actually pretty informative and well written, and explains the motive and the mechanics (and, interestingly, without all the 'rah, rah, your dollars are going to devalue next week and where will you be?' rhetoric). I should nab one next time I go by and post it.

Seems to me that officials that have to make a point of getting all hot under the collar about it should really be seeking something better to do. Nobody starts trading in Liberty Dollars without knowing exactly what they're getting into and why - Unless they just want one for the novelty value.
 
"Back when they were first issued they actually were worth about that much."

Absolutely not. At the time of issue, the price of silver was in the vicinity of $4 or $5 an ounce. Or at the time of minting, the silver had been bought at some $4 or $5 an ounce, which is a nice profit for Herr Bernard von NottHaus.

Silver is now at $10. It would have to double again before these coins have a face denomination = the intrinsic value.

Art
 
Its a hard comparison to make. I could cherry pick a stock portfolio from 1906 that would be worth trillions today or I could pick a portfolio that wouldn't be worth anything today.

On the other hand, what I was trying to illustrate was that you one is better off owning productive assets than non productive ones. If you buy and hold 2000 ounces of gold, after 100 or 200 or 200 million years all you have is 2000 ounces of gold. But if you own a an apple orchard for 100 years you still have the orchard and a large quantity of apples.
 
And that's the nice thing about capitalism, regardless of whether we're using fiat money or hard coinage. :)

Backing up to Post #1: Folks got suckered into thinking some stamped piece of coinage was legal tender at face value. That's fraud. Not only was it not legal tender, its intrinsic value was less than half the alleged value.

Art
 
What Art said -- "I ain't a Keynesian" -- goes double for me.

Metal coins, gold silver and copper especially, are objects of intrinsic worth. The metal itself has value in trade. If the issuer goes belly-up, you're not flat broke. Fiat money doesn't work that way.

If some arbitrary unit of exchange is in use -- dollars or whatever -- and it is not firmly linked to the coin metal, then you get messes like the American Eagle face marking being fictional, or Liberty dollars not trading one-to-one with FRNs (and it sound like they may be very far off at present). Note that if the Liberty Dollar people go out of business, the end-user still has silver; he's lost money but he hasn't lost all his money. That is the difference between a metal-based money system and one based on fiat. Confederate paper dollars aren't worth much at all and then only to a collector; Roman gold coins have always had worth. (Note that even fully-backed paper money won't work if you want it to still hold worth over the next thousand years; the medium of exchange must be the thing itself).

If you have multi-metal coinage and an arbitrary unit of exchange, you get more fun: the prices of the metals relative to one another have to be fixed instead of seeking their own level! (Look up the "Free Silver" movement in the U. S. for an example; "Free silver at 16 to 1!" was the rallying cry). Not really a good idea, especially since the metals are used in manufacturing. Plus clever folks will game the system by swapping one for the other in venues where the exchange rate is not fixed, in whatever direction nets them a profit.

If you've got multi-metal coinage but coins are simply marked by true weight, another problem shows up: what's silver or copper change for a quarter-ounce gold coin today isn't the same tomorrow! That would have been a huge problem not so long ago; today, with the Internet available in most of the First World and a lot of the rest, it's not too difficult to just track spot rates and crank that into the cash register automatically; but it does call for a fair amount of trust or independant verification.
Paper and electronic money under such a system works the same way, with the commodity securing the note having to be specified. As the materials are highly fungible (capable of being divided), on paper or electronically you could do all your transactions in a single metal. In the real world, gold pennies are not of a convenient size.

The worth of gold in terms of what a given weight of it would get you has been very stable over time, from about as far back as we can extract useful data, typically early Rome.

...I still favor the .22 Long Rifle cartidge as a unit of exchange: they're not fungible past the one-round mark but they're small, handy and long-lasting, plus they do have intrinsic worth and utility. :)

--Herself
 
Pafrmu said:
[...]what I was trying to illustrate was that you one is better off owning productive assets than non productive ones. If you buy and hold 2000 ounces of gold, after 100 or 200 or 200 million years all you have is 2000 ounces of gold. But if you own a an apple orchard for 100 years you still have the orchard and a large quantity of apples.
Only if the orchard has successfuly avoided fire, flood, earthquake, disease, insects, war and eminent domain! It's had to be cultivated, picked, markets, all cost of ownership issues that reduce your return on investment. And you've been pretty well stuck to it. You can't emigrate to Inner Slabsideovia and take your orchard along. 2000 ounces of gold, on the other hand, let'see, ummm, 60-odd kilos, 125 lbs... Okay, you'd need a hand truck or at least really good wheeled luggage, but you could haul it right along with you.

The thing about gold, gems, silver, platinum, even copper, is that they're pretty rugged and carry a fair amount of worth in small mass and area. As investements, oh heavens no; you can do far, far better if you have the insight for it, especially on short-term stuff; but as a long-lasting, widely-tradeable, dependable and portable store of value, conductor metals and gemstones are hard to beat.

"Money" and "wealth" are not identical. Like choosing a gun, you should critically evaluate the suitability of a particular tool for the task you intend to accomplish.

--Herself
 
someone mentioned Canada's elimination of the penny. Whether jus proposed or actually happening, what does that mean? Say your change back is $17.04. How does it work? Do they round up/down? I think the penny has its place as the smallest value coin. But I also think this is the beginning of the end for paper and coin money. I bet soon the require a national ID card, with money done electronically through it.
 
Herself said:
"Money" and "wealth" are not identical. Like choosing a gun, you should critically evaluate the suitability of a particular tool for the task you intend to accomplish.

I cannot agree more.

Gold, Silver, Wampum etc. are a bad means of exchange and store of long term value.

I would just say that if you were immigrating to Slobnicivia you would be better off bringing a commonly accepted currency there than just gold. If its not stable enough to support currency its not stable enough to prevent someone from "emptying" your handcart without your permission.
 
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