This Week on the Bullion Marketplace

• 2008 American Eagle $5 Gold Proof One-tenth with Box – The American Eagle Gold Proof Coins are collector versions of the official United States Mint American Eagle Gold Bullion Coins and are available in limited mintages in four sizes one-tenth ounce – $399.99
• NEW Buffalo/Indian Head Nickel Art Coin 1 oz .999 Silver Bullion – This is 1 Troy Oz. coin made of .999 Pure Silver and shaped into the form of an old Buffalo nickel. Silver is an excellent investment (if it’s pure) – $20.69
• 2010 Canadian (1 oz) Silver Maple Leaf –  Straight from the Royal Canadian Mint 2010 Canadian (1 oz) Silver Maple Leaf – $22.95
• 1 oz (.999) Fine Silver Bar – Eagle Design – * 1 oz (.999) Fine Investment Grade Silver * Iconic Silver Eagle * Each Bar Sold Separately We guarantee you will receive nothing but .999 fine silver. – $22.95
• 2010 Silver American Eagle – West Point Mint – Investment Grade Silver Bullion – These gorgeous coins are minted at West Point, New York and contain one ounce of 0.999 pure silver. These are legal tender silver dollar coins authorized by the United States government. – $20.75

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The Strange Case of The Liberty Dollar

Anyone interested in creating coins for use as a medium of exchange would be well advised to become familiar with the foundations of our currency laws; namely, Article I, Section VIII of the U.S. Constitution. It states clearly that “The Congress shall have Power…To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; To provide for the Punishment of counterfeiting the Securities and current Coin of the United States.”

The Coinage Act of 1792 is the foundation of American legal tender laws. Section 10 specified the configuration of U.S. legal tender coins, establishing the standard against which the authenticity of American currency was measured thereafter:

And be it further enacted, That, upon the said coins respectively, there shall be the following devices and legends, namely: Upon one side of each of the said coins there shall be an impression emblematic of liberty, with an inscription of the word Liberty, and the year of the coinage; and upon the reverse of each of the gold and silver coins there shall be the figure or representation of an eagle, with this inscription, “United states of America” and upon the reverse of each of the copper coins, there shall be an inscription which shall express the denomination for the piece, namely, cent or half cent, as the case may require. [1] [Emphasis in original.]

A currency only functions as a medium of exchange if a society believes that it truly represents value. The reason why gold and silver have been desirable as money throughout history is because they are highly portable, easily divisible substances which are universally recognized as scarce, which makes them a store of value. The United States utilized gold and silver in some manner or form as the basis for its economy until 1971, when U.S. President Richard Nixon terminated the Bretton Woods agreement of 1944. Under Bretton Woods, which fixed international exchange rates against a gold-pegged dollar, the world’s largest economies had a functional relationship within which to trade currencies, and for the purposes of international settlements. Some argued that the gold basis for this system did not allow for enough elasticity in the money supply, and that argument eventually prevailed. In August of 1971, the American currency lost what remained of its direct commodity backing, raising grave concerns about the advent of greater monetary abuse.

In response to what he perceived to be the forced, hidden confiscation of the purchasing power of the American currency by the United States government, self-described monetary architect Bernard Von Nothaus embarked upon a mission to establish a commodity-backed, voluntary barter currency composed of gold and silver. Von Nothaus claims to be the mint master of Royal Hawaiian Mint, (RHM). There is no indication that this is an official state entity. No information exists on RHM other than a few references associated with the Von Nothaus name. RHM is very likely a private entity run by Von Nothaus himself. Regardless of the opaque nature of his resume, Von Nothaus claims over 25 years experience in minting.

Von Nothaus recognized the grave economic threat that is an unrestrained government with the ability to monetize debt indiscriminately. His  solution was to create a voluntary barter currency redeemable in silver, issued under the umbrella of a nonprofit entity called the National Organization for the Repeal of the Federal Reserve Act and Internal Revenue Code, or NORFED, where Von Nothaus has been mentioned in several articles as being its “Senior Economist.” [2] In 1998, NORFED introduced the Liberty Dollar, and marketed it as an alternative to Federal
Reserve Notes. The project began with the circulation of warehouse receipts representing a specified quantity of silver held in storage at a private mint. Merchants or consumers who held similar concerns about the longevity of the Federal Reserve Note’s purchasing power could circulate these Liberty Dollar receipts amongst themselves as a medium of exchange for goods and services. So long as it was voluntary, and both parties understood what they were doing, the system was untouchable.

According to an article by John Christian Ryter, NORFED was investigated in 1999 by the Secret Service regarding their warehouse receipts but did not file charges, finding that the receipts did not constitute counterfeit currency because they did not contain the language “legal tender”, and that there was a sufficient amount of warehoused silver to represent the value indicated on the Liberty Dollar receipts. [3] It was not until the coins themselves began widely circulating that the U.S. Government decided to take legal action. In November of 2007, the U.S. Department of Justice conducted a raid, seizing the assets of NORFED held in a private office in Evansville, Indiana. [4] A concurrent raid was also conducted at the private mint in Idaho where the coins and warehouse receipts were manufactured and stored. [5] In the Justice Department’s own affidavit, it cites Von Nothaus’ statements to the effect that the Liberty Dollar was intended to be in direct competition with the Federal Reserve Note. [6] This seems to contradict and nullify the counterfeit claim. In spite of this, the Affidavit cited U.S.C. 18 § 492 as justification for claiming probable cause. This section of the U.S. code deals with forfeiture of counterfeit coins, material and apparatus. [7]

To directly compete for consumer market share with a distinctive good or service is one thing. To undermine the legitimate market share of a firm by emitting false or erroneous versions of that firm’s distinctive products constitutes the crime of counterfeiting. Von Nothaus made no attempt to overtly counterfeit Federal Reserve Notes or other official U.S. coinage. All of his marketing literature explicitly distinguishes the fundamental philosophical and economic differences between what the U.S. government forces the market to accept as official U.S. currency and what  NORFED was offering with the Liberty Dollar. The problem was that Von Nothaus did not make his products physically distinctive enough to avoid confusion.

In fact, knowing full well that the ability for a currency to succeed is incumbent on its acceptability, Von Nothaus encouraged his associates to directly introduce the silver coins into general circulation, trusting that once vendors could physically inspect these coins, that their intrinsic value would be understood. Von Nothaus had faith that his product would indeed be seen as a legitimate medium of exchange and in no way different in function from Federal Reserve Notes. Regardless of their legitimacy, without an explicit understanding that a merchant was undertaking a  voluntary barter transaction, any such transaction with Liberty Dollars was fraudulent. No contract between two parties is valid if the terms are not clearly and explicitly articulated.

Strangely absent at the time of the seizures was the issuance of a criminal complaint against Von Nothaus. The U.S. Justice Department did eventually file a criminal complaint against Von Nothaus and three of his colleagues in June of 2009.8 The indictment cited several violations, including U.S.C. 18 § 486, dealing with uttering coins. It states the following:

Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title [1] or imprisoned not more than five years, or both. [9] [Emphasis added.]

U.S.C. 18 § 486 does appear to create criminal liability for the simple reason that the Von Nothaus product was put directly into circulation without the clear understanding by merchants that they were entering into a voluntary transaction with a medium of exchange not officially recognized by the U.S. government. It was common practice for Von Nothaus and his associates to present Liberty Dollars to merchants  unfamiliar with his product without offering the explanation that they were not U.S. legal tender currency, but rather, a voluntary barter currency,
one which could not be redeemed at face value for Federal Reserve Notes in any U.S. commercial bank. A video exposé posted originally on the Liberty Dollar website – a short clip from The Learning Channel’s show Super Structures – features Von Nothaus personally buying sandwiches
with a $10 Liberty Dollar coin, declaring it to be a “new ten dollar silver piece” as he handed it to the bewildered vendor. [10]

However compelling Von Nothaus’ philosophical and constitutional arguments may be, this unfortunate, deceptive practice does not lend credibility to the legitimate criticism of the U.S. government’s fiscal policy of inflation, nor to the legitimate practice of entering into private
voluntary barter using gold and silver as a medium of exchange. Although it can be argued persuasively that the Liberty Dollars are not technically counterfeit, the engagement in the practice of infiltrating the currency market in such a way seems to be tantamount to a kind of economic insurrection, inviting the reprisal of government force. Furthermore, if Von Nothaus wanted his competitive product to be able to vie for market share of exchange media, the coins should not have been made to so closely resemble U.S. legal tender coins.

The Liberty Dollar coins which were seized by the F.B.I. and the Secret Service contain “impressions emblematic of liberty”, namely, the word “Liberty” in bold lettering, appearing in the same manner as on U.S. legal tender coins; the phrase “Trust In God” in a location similar to that of the inscription “In God We Trust”, as found on U.S. legal tender coins since the Coinage Act of 1873 [11] ; a profile of a woman’s head wearing a crown, similar to that of the Statue of Liberty on the obverse; and what appears to be the torch of the Statue of Liberty on the reverse. The Von Nothaus coins also have the year of mintage featured prominently and similarly as on U.S. legal tender coins. The coins also utilize the “$” symbol to denominate their purchasing power, even though they represent purchasing power from a different philosophical perspective-value which is not in direct correlation with that suggested by the denominations on Federal Reserve Notes.

The best way to convince the American people to accept an alternative medium of exchange is to make sure the terms of use are clearly  understood. There is no reason for a monetary architect to obscure his motives, the circumstances of exchange, or the philosophy he espouses.  Restoring sound money is an honorable objective considering the widely shared concerns about inflation, and the idea of creating wealth as an alternative to debt is a noble philosophy. The quiet resestablishment of commodity based currencies, including the careful retasking of our nation’s old silver coinage, would go far to address the same problems which Von Nothaus and his associates have failed to accomplish due to their lack of clear and explicit articulation of voluntarism.

1. A Century of Lawmaking for a New Nation: U.S. Congressional Documents and Debates, 1774-1875, Library ofCongress Website. Accessed Feb 20th, 2010. http://memory.loc.gov/cgi-bin/ampage?collId=llsl&fileName=001/llsl001.db&recNum=371

2. “Y2K Buck Stops Here” by Will Hoover, December 7th 1998. The Honolulu Advertiser. http://www.libertydollar.org/news-stories/pdfs/1164902770.pdf

3. “FBI Raids Liberty Dollar” by Jon Christian Ryter. November 17th 2007, NewsWithViews.com. http://www.newswithviews.com/Ryter/jon201.htm

4. “Liberty Dollar Office Raided” by Gary Lesnick. November 15th 2007, Evansville Courier & Press. http://www.courierpress.com/news/2007/nov/15/liberty-dollar-office-raided/

5. Verified Complaint for Forfeiture In Rem, United States District Court Western District of North CarolinaAsheville Division, June 26th, 2008, pg. 3.

6. Verified Complaint for Forfeiture In Rem, United States District Court Western District of North Carolina Asheville Division, June 26th, 2008, pg. 6.

7. Cornell University Law School, Legal Information Institute. http://www.law.cornell.edu/uscode/18/492.html

8. United States of America v. Bernard Von Nothaus, others. Bill of Indictment, May 19th 2009. United States District Court for the Western District of North Carolina Statesville Division. http://www.libertydollar.org/legal/pdf/05192009_indictment.pdf

9. Cornell University Law School, Legal Information Institute. http://www.law.cornell.edu/uscode/18/486.html

10. “Fiat Currency versus The Liberty Dollar” exerpt from Super Structures, The Learning Channel, January 8th, 2004. YouTube video posted October 22nd 2007. http://www.youtube.com/watch?v=1VaBX7A9FqA

11. United States Department of the Treasury: Fact Sheets: Currency & Coins: History of ‘In God We Trust’. http://www.treas.gov/education/fact-sheets/currency/in-god-we-trust.shtml

Why Did Silver Coinage End in the United States?

“If we had not done so, we would have risked chronic coin shortages in the very near future.” President Lyndon Johnson commented before Congress just prior to his signing the Coinage Act of 1965, the law which fundamentally changed the composition of America’s coinage. The new Act set the stage for the complete abandonment of the use of silver for U.S. legal tender coins – the custom which Americans had been used to since the original Coinage Act of 1792, signed by President Washington. Thereafter, with the temporary exception of the Kennedy half-dollars, all U.S. legal tender coins would be composed of a mixture of copper and nickel, also known as cupronickel, thus ending a one-hundred and seventy-three year tradition of silver coinage.

Johnson stated:
Our uses of silver are growing as our population and our economy grows. The hard fact is that silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins. [1]

The comments made by President Johnson before Congress assembled on that historic day implied that the reasoning for making the change was the increasing scarcity of silver as a result of increasing industrial usage of silver and stagnant mining output. This was an incomplete picture. President Johnson did not discuss this matter in terms of the effects of inflation on silver prices. In order to properly understand the decision without political bias, some key historical information should be considered. As a result of the Silver Purchase Act of 1934, President Roosevelt issued Executive Order 6814, nationalizing the nation’s hoard of privately owned non-monetary silver, and prohibiting private ownership of quantities exceeding 500 troy ounces. [2] Any amounts greater than this limit were to be surrendered to the U.S. government in exchange for U.S. silver certificates, minus a seigniorage and manufacturing deduction of 61.32% [3].

With the value of silver certificates fixed to the redemption price of $1.2929 per troy ounce of silver, Americans only received fifty cents per troy ounce for the non-monetary silver they surrendered! [4] At the time of the passing of the Silver Purchase Act of 1934, the actual market price for silver was approximately $.54 per troy ounce [5], so this arrangement worked to the slight advantage of the government. Inevitably, the amount of silver surrendered in this manner would have diminished, as compliance with the law was met over the long term. (The actual amount of silver surrendered to the government, and the purity therein, are beyond the scope of this examination, and shall require more research.)

The Silver Purchase Act of 1946 was then passed, establishing the U.S. government as the largest purchaser of silver in the world. The government bought silver directly from all domestic producers at a price floor set at $.905 per troy ounce, above the equilibrium silver price of $.87 at the time. [6] (Under this act, the U.S. government also sold silver at $.91, with a $.005 spread.) Silver producers benefited from receiving above-market price from the government for their product, while the U.S. taxpayer was forced to buy silver above the market price. For a while, the government accumulated a huge silver stockpile as a result of this legislation. [7] (Again, the quantity shall require more research.)

By the early 1960’s, the actual market price of silver breached this artificial price threshold. The U.S. government ceased to be a net purchaser of the metal. It immediately became profitable to purchase silver from the government. Since the Act of 1946 forced the government to sell at a fixed price, any spot price above $.91 would present the opportunity to acquire silver from the U.S. government at a discount. The government became a net seller of silver, and the hoard accumulated as a result of the Silver Purchase Act of 1946 began to shrink. By the mid-1960’s, the U.S. government had a problem. With the nation’s silver reserves decreasing due to the growing discount on silver afforded by the $.91 per troy ounce price obligation, the government could no longer afford to affix the dollar to silver prices. Additionally, once the market price of silver reached $1.29 per troy ounce, the price floor for the redemption of silver certificates established by the Silver Purchase Act of 1934 would be breached. At prices above this level, consumers could begin to purchase the certificates at face value, redeem them for silver, and sell the silver at a profit.

With its seigniorage erased, and facing both the net monetary losses from the legal obligation to sell silver at below-market prices as well as the continued honoring of silver certificates, the prospects that the nation’s silver supply would be exhausted became a threat to national security. The Treasury repealed the function of the original Silver Purchase Act of 1934 through a series of legislation between 1961 and 1963, and began pulling U.S. silver certificates from circulation. [8] By 1968, no more silver certificates could be redeemed. In 1966, the market price of silver reached the magic number of $1.38 per troy ounce. With a 90% silver quarter containing .1808 troy ounces, the U.S. government would be losing money, not only in the continued manufacturing but also through a shrinkage of the money supply due to speculators melting down the coins for profit. As illegal as this would have been for Americans to do, it would have been very difficult for the government to locate offenders, particularly if they were foreigners on vacation who intended to sell or melt the coins outside of the jurisdiction of the United States!

The effects of inflation, coupled with the strong incentives for private collection of the silver coinage which had now been demonetized, caused silver coins to quickly disappear from circulation. By 1970, strictly cupronickel coinage was manufactured and circulated by the U.S. government. The underlying circumstance which made the Coinage Act of 1965 necessary was the inflation caused by increases in the money supply. True enough, the strain on the nation’s supply of silver at the time was great, due in part to the government’s interference in prices. But the overarching monetary effects of inflation inevitably made it necessary to decouple the money supply from commodity value. According to the Bureau of Labor Statistics Inflation Calculator [9], in 1965, the year of the passage of the Act, the purchasing power of the U.S. dollar was worth only 31% of what the dollar had been worth in 1913, the year the Federal Reserve System was created and CPI data began to be collected. The gradual effects of inflation in the economy, and the inevitable effects over time on silver prices cannot be ignored as a factor which contributed finally to the decision to end an American tradition with the demonetization of silver.

An Interesting Corollary: the 5¢ Jefferson Nickel

Even though the cupronickel alloy ratio for Washington quarters and Roosevelt dimes was reset to 8.33% nickel to 91.67% copper to provide for sufficient seigniorage to beat inflation, the CPI Inflation Calculator. 5¢ Jefferson Nickel continues to be manufactured at a ratio of 25% nickel to 75% copper. [10] With February 19th, 2010 market prices for nickel at $9.3546 per pound, and copper at $3.3496 per pound, the total value of a 5¢ Jefferson Nickel is 5.34¢ per coin, not including manufacturing and distribution costs! If production figures for the Jefferson Nickel continue at the 2009 rate of 86.64 million coins [11], the U.S. government will be losing $294,576 (.34¢ per coin) per annum, excluding the other associated costs, and assuming fixed metal prices. As inflation accelerates, a decision will have to be made as to whether or not the U.S. economy can afford to continue minting the Jefferson coins with the current alloy ratio. Another means of supplying the subsidiary denomination will have to be established.

1. “Lyndon B. Johnson: 380 – Remarks at the Signing of the Coinage Act.” . The American Presidency Project.
Citations by John T. Woolley and Gerhard Peters. http://www.presidency.ucsb.edu/ws/?pid=27108

2. 3. 4. “The Donnelly Collection of Presidential Executive Orders: A Project of the Conservative Caucus” http://www.conservativeusa.org/eo/1934/eo6814.htm

5. 6. http://www.goldmastersusa.com./silver_historical_prices.asp

7. “Silver” by Henry E. Hilliard. United States Geological Survey. http://minerals.usgs.gov/minerals/pubs/commodity/silver/880798.pdf

8. “Price History: 1960 to 1965” The Silver Institute. http://www.silverinstitute.org/19601965.php

9. CPI Inflation Calculator. http://www.bls.gov/data/inflation_calculator.htm

10. The United States Mint: Coin Specifications. http://www.usmint.gov/about_the_mint/?action=coin_specifications

11. The United States Mint: Coin Production. Circulating Coin Production, January through December 2009. http://www.usmint.gov/about_the_mint/coin_production/index.cfm?action=production_figures&allCoinsYear=2009#starthere

Solving the Valuation Disparities of Voluntary Barter in a Fractured Economy

A breakdown in the viability of a national currency might cause dissonance in prices for goods and services which, under normal circumstances, tend to remain relatively uniform from region to region. For example, the price of an hour of labor performed by a cabinet maker, or the price of a gallon of gasoline normally do not deviate dramatically from one region to another due to the factors which contribute to price stabilization. However, if the economy suffers from a monetary crisis like hyperinflation, those factors contributing to the relative stability of prices in a competitive market would cease to be effective.

Price stability in an economy arrives by the influence of several different factors; expectations for the future, the market’s ability to connect coincident needs, the predictability of behavior, the availability of accurate market information, and the minimization of government controls. First, the expectation that overall circumstances are not going to change in the immediate future establishes confidence for both households and firms, such that prices will not incur a risk premium. Without reasonable certainty about the future of the economy, firms who deliver goods to the point-of-sale might charge higher rates for their services, which would increase prices faster than inflation. The application of risk premiums is arbitrary, and would not occur uniformly. This would further undermine consumer confidence as markets begin to fracture.

The reliability of delivery systems, the modes of transportation for goods and services, allows firms to replenish their inventories incident to consumer demand in an efficient manner. The more efficient the delivery systems are, the better the market will be able to respond to the problems associated with unusual shortages or adverse supply shocks due to a crisis. Hyperinflation might eliminate the incentive for firms to attempt to restock their inventories because the uncertainty in the economy reduces the opportunity cost of shutting down and riding out the event. In such a case, the firms which provide transportation and delivery of resources might also curtail their services, thus inhibiting the firms which do want to remain open from replenishing their inventories. This too would not occur uniformly, and it places even greater upward pressure on prices as commodities become even more scarce.

Even with persistent inflation over long periods, people tend to behave predictably, provided there is relative certainty about future events. In the absence of a crisis, and with no articulable, ubiquitous reason for a dramatic price increase, consumers would predictably reject the decision by a firm to overcharge. There would be no greater perception of need, nor would people forego rational economic decision-making if there were no desperate circumstances to negotiate. Even though it is rational for a firm to dramatically raise prices in response to dramatic increases in  demand, during hyperinflation, firms may abandon rational behavior and make decisions based upon fear. They may raise prices independent of demand-pull inflation, or they may restrict sales, simply because they don’t know how to respond to such extraordinary circumstances. This behavior might fracture the relative uniformity of prices from region to region.

Being able to accurately survey price trends can lend support to the decisions that firms make when deciding how much to charge for their goods and services. The availability of accurate and up-to-date economic data facilitates this process. During hyperinflation, with the loss of the other factors which help maintain price uniformity across different markets, no reliable information would exist for firms to use in determining how they would adapt to the circumstances.

Additionally, absent the excessive government regulations and command-and-control measures used during times of national crisis, business firms are able to effectively respond to incentives. This allows a natural fluctuation of prices that doesn’t jar individual expectations with respect to value, or derail the natural process of economic decision-making. Hyperinflation might trigger government intervention in the form of price controls, or other punitive actions against business firms. In such a case, there would be no occasion for allowing the market to function based upon the laws of supply and demand, and no rational price-setting could occur anywhere.

The occurrence of hyperinflation may well remove these factors which insulate prices from rapid, unpredictable changes. If it became the mission of a few entrepreneurs to attempt to achieve price stability at the local level for basic necessities, they would likely consider the use of intrinsically valuable coins. Once a community is committed to this endeavor, the question of how those coins will function becomes critically important.

Depending on the severity of the economic crisis, there may be hundreds or thousands of individual markets in which improvisational currencies are being used. It would not be the first time in American history that such monetary improvisation occurred. In her book, The Forgotten Man, Author Amity Shlaes discusses the spontaneous use of improvisational barter as a solution to the monetary problems the nation was facing during the winter of 1932-33. Due to the death of large quantities of the money supply, Americans in thirty states stoically established autonomous barter systems as a means of subsisting:

The notion of scrip seemed enormously satisfying. Holding one of the slips of paper, one could feel the pleasure of people who, lacking a basic thing once supplied by a faraway bank, had now crafted it for themselves on a small scale. There was also the pleasure of establishing value where there had been only paper before. Citizens liked the idea of reverting to pioneer mode, of confronting economic problems and working them out themselves. [1]

In the case of scrip, paper was substituted for paper. But because there was a need in the regional markets for a medium of exchange that people trusted, they were willing to instill in the scrip the faith that it represented value. But what amount of purchasing power did the individual units of scrip represent, and how was that determined?

Americans who do not believe that they would be better off under the command and control of the government during a crisis, who feel that they are better suited to take care of themselves, could mutually agree at the local level that silver indeed represents genuine value for their labor and wares, as well as a reasonable chance of retaining their independence. The same principles of faith governing the acceptance of scrip during the Great Depression would apply to the acceptance of all the pre-’64 U.S. silver coins, (or any other commodity based coin system.) Before these coins could be brought out of private collections and recirculated, all the local participants would have to agree that they could functionally represent value.

Once that leap of faith is made, the matter of determining market prices denominated in silver would first depend on the quantum of silver available to be circulated. It would be important to survey which types of coins were available; Roosevelt Dimes, Washington Quarters, Franklin Half-dollars, and Kennedy Half-dollars would be the most common of the pre-’64 remnant. The monetary architects would then have to determine a threshold for the minimum number of coins needed in order to create a provisional economy. A regional conference would have to be convened, composed of the firms and households capable and willing to participate. The site of a previously established swap-meet or farmer’s market would be the most suitable location. An open invitation would go out to the extent that available communication would allow, asking everyone with pre-’64 silver coins to participate.

In this scenario, we would have a gathering of hardy individuals and families willing to tough out the instability who were also smart enough not to have sold their old coinage. An accurate account of the available silver would have to be taken. The monetary architects would have to establish a clear understanding between firms and households, first and foremost, that what they were about to engage in was purely voluntary, and that all agreements should be honored in the interests of mutual benefit. Then, all the participants would have to be briefed on exactly which coins are qualified for circulation, how to identify them, and provided a careful certification that each private possession of coins conforms to this standard. Every coin owner would have to have his collection inspected.

A directory of available labor would have to be compiled, detailing the specific skills of the workers willing to accept silver, as well as a separate directory of vendors, and the goods and services they were offering. Only if there is a diverse enough pool of available firms and labor to trade for their goods will this endeavor have a reasonable chance of success. The alternative to government dependency would serve as a great incentive and the word would surely spread fast, quickly bringing together larger and larger numbers of individuals with marketable skills, increasing both economic diversity and the quantum of tradable silver.

At this point, the natural forces of the free market could go to work. Coincident wants and needs could be met through the exchange of silver coins. Under these circumstances, there would be the greatest need for subsistence goods, namely, food, water and clothing. Beyond this, firms requiring intermediate goods to manufacture their finished products would likely find the combination of an extremely adverse supply shock in their industry, and the breakdown of modes of delivery of materials to be insurmountable. They would have to modulate their business models according to the new market parameters, finding new ways to utilize their expertise, or they would have to fold.

The firms in the best position to succeed in this extreme environment would be those offering raw material goods, most notably, food, and services performed by hand. Some individuals or households might have the expertise to produce manufactured products out of available raw materials, developing new industries. Once a functional amount of money in the provisional economy is accumulated, firms and households would now have to decide what their silver is worth.

But what if one firm decides to valuate silver coinage at 1500% face value for commercial purposes, and another firm valuates at 1200%? (A 1956 25¢ silver Washington quarter would then be worth $3.75 and $3.00 in purchasing power, respectively.) Will this create an obstacle to efficient economic activity? In another hypothetical scenario, writer David M. Brown discusses the functioning of the free market during an adverse supply shock. In his article published by the Ludwig von Mises Institute [2], Brown argues that price controls serve to exacerbate an already frantic situation by destroying the incentive for firms to expend the effort to remain open for business despite the difficult circumstances.

Brown illuminates how different normative arguments are made regarding the prerogatives of firms to set prices according to opportunity and circumstance: during episodes of normal economic activity, there seems to be no moral objection to a business owner responding to incentives to raise or lower prices. However, during an adverse supply shock such as that which would occur during a hurricane or hyperinflation, it is morally unacceptable for that same business owner to raise prices sufficiently to accommodate the extraordinary demand arising as a result of the regional exigency. This duplicity in moral perspective serves as the impetus for price-fixing by government, as well as the derision by members of the local media.

Excluding the propensity for irrational behavior, the ability of firms to appropriately raise prices in response to extraordinary increases in demand means that they will have more incentive to expend the extra effort and capital to attempt to replenish their inventories, and consumers will be forced to be more economical in deciding what quantities of available supplies they can really afford. This provides those with the greatest, most urgent need with the greatest possible opportunity to find products that would otherwise have been quickly depleted from shelves due to price controls.

Brown states:
Nobody knows the local circumstances and needs of buyers and sellers better than individual buyers and sellers themselves. When allowed to respond to real demand and real supply, prices and profits communicate the information and incentives that people require to meet their needs economically given all the relevant circumstances. There is no substitute for the market. And we should not be surprised that command-and-control intervention in the market cannot duplicate what economic actors accomplish on their own if allowed to act in accordance with their own self-interest and knowledge of their own case.

Any attempt to fix the purchasing power of commodity based coinage would create a situation where firms could not acquire enough revenue to  accumulate what they needed to subsist, let alone replenish their inventories. Those businesses would be scuttled, and more people would be forced out of the system and into FEMA camps. The idea that this system is based upon voluntary barter indicates that valuation should be as flexible as is necessary to connect the coincident needs of market participants. Hypothetically, it may be possible for the equivalent market price of silver in some areas to skyrocket to $100 or $500 per troy ounce if not higher under such circumstances, simply because demand for value in the midst of great scarcity of silver coins will have been that extraordinary.

There could conceivably be dozens, if not hundreds, of regional economies concurrently utilizing silver or other commodities on a voluntary barter basis in the event of the death of the dollar. As fractured markets rebuild and grow larger and more complex, a more comprehensive inclusion of disparate systems and valuation formulae can be managed by economists, with the endorsement of the local governments, for the purposes of efficiency. The eventual reestablishment of a unified currency can and will occur as regional economies expand and annex one another.

The question of determining the purchasing power of exchange media should best be sorted out by consumers and firms. The best, most efficient monetary ideas should be allowed to gain primacy through natural competition, lest arbitrary boundaries erected by bureaucracies, however well-intended, interrupt the consonance of the components of the free market.

[1] Shlaes, Amity (2007). The Forgotten Man: A New History of the Great Depression. New York: Harper Collins. pg.139.

[2] Price Gouging Saves Lives, by David M. Brown. August 17, 2004. Ludwig von Mises Institute. http://mises.org/story/1593

Legal and Moral Considerations for Voluntary Barter

The circulation of a currency is merely a means for people to exchange value more easily. However, in the United States, it is not mandatory that the exchange of goods and services be conducted in official legal tender. Sometimes economic circumstances are not always conducive to transactions in the U.S. Dollar; private exchanges of value may become more convenient outside the monetary realm. But this can only occur if the parties involved happen to have coincident wants. This private exchange is known as barter, and those who participate in it in the United States are just as liable to the Internal Revenue Service [IRS] for gains as they would be if they used official legal tender currency.

In a publication released on the IRS website, bartering is defined as “an exchange of one taxpayer’s property or services for another taxpayer’s property or services. The fair market value of property or services received through barter is taxable income.”¹ It may be difficult, if not impossible, to accurately determine what constitutes “fair market value” in a fractured economy, where adverse supply shocks and mass uncertainty about the future create vast differences in costs for similar goods and services depending on the region (ignoring the natural differences in individual firm’s pricing decisions). Just because a cabinet maker in one economic region charges X for his expertise doesn’t mean that a cabinet maker of similar expertise in another region won’t charge X+3. Without a reliable means of establishing the fair market value of a good or service, the determination of the tax liability of individuals who engage in barter cannot be adjudicated easily or fairly, if at all.

In the event of hyperinflation, where many private individuals will spontaneously engage in asymmetric economic improvisation, the question of practical and effective enforcement of the income tax with respect to barter arises. According to IRS Agent #02209-39, who identified himself as “Devlin” in a telephone interview on January 28th, 2010, “There simply aren’t enough boots on the ground to enforce voluntary compliance.” This indicates that the IRS knows it cannot rely on a forensic approach to determining tax liability in a comprehensive way. The term “voluntary compliance” is key. It is a euphemism for fear. During more tranquil economic and political times, it is far easier for the IRS to instill the amount of palpable fear in the public necessary to induce “voluntary compliance”, particularly through the practice of deliberate bureaucratic mystification. The high-profile enforcement operations of the agency, supported by lack of transparency merely induce capitulation.

In her testimony before Congress, former IRS employee turned whistle-blower Shelley Davis stated, “Mystery breeds distrust and contempt. It also breeds fear, which compels many taxpayers to comply with the tax laws because they are afraid of the consequences, but it does not breed voluntary compliance or trust.”² Even if one believes that the taxation of personal income is a necessary fiscal tool, the fact that the use of fear as a method of application is considered appropriate by the IRS sets an unfortunate and dangerous precedent. The practice highlights a breakdown of natural law.

If an agency of the U.S. government depends upon the fear it instills in the public in order to fulfill its established mandate, then its effectiveness becomes uncertain when the general fear level of the population arising from ongoing economic turmoil subsumes that which the agency utilizes for the purposes of enforcement. Put simply, if people are more worried about where their next meal is coming from, their tax liability with the IRS will cease to be as great a priority.

Private voluntary barter can be a solution to shaken confidence in an official currency. In the event of hyperinflation, anyone attempting to establish enclaves of organized economic activity could do so through a barter exchange. This represents the next order of magnitude above individual exchange: such an organization would serve as a nexus for parties with coincident needs without any other means of seeking each other out. Such impromptu arrangements would provide at least a reasonable chance of salvaging some economic liberty in an environment where the failure of the monetary system would invite comprehensive government control. Strangely, the IRS liability associated with barter extends beyond the individual participants. There also exists a non-monetary aspect of compliance associated with barter exchanges. Whether or not the IRS would be willing to attempt widespread enforcement of the code among diffuse, spontaneous barter organizations is unknown. However, in the absence of certainty, it would be diligent for anyone considering a barter exchange operation to examine the law as it currently exists:

Under Regulation 1.6045-1(f)(i), barter exchanges are required to make a return of information reporting the name, address, and taxpayer identification number of each member or client providing property or services in the exchange, the property or services provided, the amount received by the member or client for such property or services, the date on which the exchange occurred and other information required on Form 1099-B.3 [See also, exemptions.]

One problem here is defining what an “amount” is: Denominated in what? What if a system of valuation is based upon different numerics, like the American Open Currency Standard [AOCS]? Much of what is considered in a barter transaction is the marginal utility received in the item(s) traded for, apart from the dollar value. This is the incentive which makes barter desirable. But utility is subjective, and not denominated in dollars. If we’re not using a dollar system, then the only consideration of the value of an item is its usefulness: its utility. Since there is no law which states that we must only consider value to be expressed in terms of dollars, then how must we account for value exchanged through barter in a manner compatible with IRS expectations? This is a serious moral question which should be pondered.

For anyone who is willing to accept the validity of the income tax, then income derived from membership fees, such as that gained by a barter exchange for access to their facility by its participants would be legitimately taxable, (ignoring the problem of value incompatibility if the fees are not denominated in dollars.) But again, in the midst of exigent circumstances, the opportunity cost of failing to keep records for the IRS’s benefit will never be as great as that of not having adequate material for basic subsistence. Since a barter exchange is merely a private intermediary forum in which transactions are made between private parties, the IRS requirement that barter exchanges themselves keep such records seems to be a means of merely enforcing a monopoly on government issued currency. The burden of this reporting requirement can grow so complex as to engender accounting errors, which the IRS could use to exact penalties and other monetary assessments. Given that the IRS itself admits that there “aren’t enough boots on the ground,” the agency’s enforcement limitations would suggest that they may employ high-profile “selective enforcement,” another tool of fear, for the political purposes of inducing mass compliance, if not merely for revenue collection.

If barter exchanges circulate their own private monetary units, like those which are endorsed and promoted by the AOCS, the IRS still considers such activity to be generating income: “Trade dollars or barter dollars are valued in U.S. currency for the purposes of information returns.”(4) So, according to the IRS, no matter what medium of exchange is used, regardless of the philosophical definition of “value,” individuals are forced to convert gains from their trade to the current value of the U.S. dollar, regardless of the dollar’s purchasing power. During a hyperinflationary episode, the whole idea of using a barter currency is to purge decaying Federal Reserve Notes out of the economy in order to maintain price stability.

Private voluntary barter may transform into the preferred medium of exchange for a region suffering from the effects of hyperinflation – particularly if a measure of macroeconomic stability can be established using commodities with intrinsic value, such as gold and silver. Whether it’s with a privately circulated currency made of gold or silver, or whether it’s with pre-’64 U.S. silver coins recirculated for their commodity value, the requirement to affix the subjective value derived from barter to a legal tender currency suffering the ravages of inflation establishes an inescapable dependency on failed economic policy. Such a policy would be far less productive than allowing free market principles to operate in the hands of the rugged individuals who are willing to take the risks on a new economic frontier. Tying tax liability to an exponentially depreciating currency further exposes the failure of the monetary system, since the U.S.  government requires its currency to retain enough of its purchasing power to utilize tax revenues to meet its requisite expenditures. Eventually, the function of the Internal Revenue Code will be nullified.

In the event of severe hyperinflation, the income tax, tied to the value of the Federal Reserve Note, will inevitably have to end. The severity and longevity of such an episode in the United States depends on how  quickly the U.S. government can create a new economic overlay. It will only function if the American people believe the new system is viable, and that depends on the philosophy upon which the new system is based. The likelihood that the American people will uniformly accept a new fiat currency in the aftermath of the failure of the old will be dim, so long as the right monetary experts step forward and articulate the circumstances that lead to the monetary breakdown, and can provide an optimistic appraisal of sound money. But the successful reestablishment of an official commodity-backed currency is contingent upon the same belief that it represents value. When deciding upon a new monetary system, it is incumbent upon Americans to be informed and to act fearlessly in their own best interests- such is the foundation of sound economic reasoning.

1. Record Keeping for Business Barter Transactions. Headliner Volume 281 November 30, 2009. IRS website. Accessed February 22nd, 2010. http://www.irs.gov/businesses/small/article/0,,id=215975,00.html

2. Internal Revenue Service Whistleblowers: Prepared Statement of Shelley L.Davis Before the Senate Finance Committee Oversight Hearing on the Internal Revenue Service. Tuesday, September 23, 1997. http://whatistaxed.com/IRSwhilstleblowers.htm#davis

3. Tax Requirements for Barter Exchanges. Updated December 16, 2009, IRS website. Accessed February 22nd, 2010. http://www.irs.gov/businesses/small/article/0,,id=188094,00.html

4. Barter Exchanges. Updated December 16, 2009. IRS website. Accessed February 22nd, 2010. http://www.irs.gov/businesses/small/article/0,,id=113437,00.html

Tags: barter

The American Open Currency Standard

In the aftermath of the U.S. government’s seizure of the Liberty Dollar assets in Evansville, Indiana, many supporters of voluntary barter who saw potential in the Liberty Dollar concept were left without a unified solution for their desire to break the government monopoly on exchange media. Even prior to the rise and fall of the Liberty Dollar, there were several attempts around the country by private organizations to establish regional currencies. [1] Much like what had occurred in the early 1930’s with the use of scrip, the results of such efforts created enclaves of local businesses who participated in the circulation of distinct monetary products. Unfortunately, for many, like the BerkShares corporation in Massachusetts [2] , their voluntary currencies were not backed by tangible commodities like silver. They were set to parity with the Federal Reserve Note, thus sealing their fate as being just as susceptible to inflation. Another interesting and early monetary experiment is the Ithaca HOUR, from New York. [3] This is purely temporal money, with the unit of purchasing power representing one hour of labor time.

Though the architects of these experimental local currencies saw significant participation in their respective regions, spawning their own business directories, there lacked a unifying monetary philosophy, as well as a fixed standard of valuation which could allow these disparate groups to  function in tandem. There was no way to aggregate economic power on a national scale to balance the dominance of the Federal Reserve Note. The ability for merchants and consumers from one region to effectively engage in commerce with another region required that these problems be addressed.

In an attempt to solve these unique problems, as well as to avoid the inflation issue, Rob Gray, a former Liberty Dollar currency officer, established the American Open Currency Standard [AOCS], a voluntary barter system based upon the value of silver. (Gray is currently serving as the AOCS executive director, working out of the Dallas, Texas area.) For the first time, a national database of firms interested in participating in voluntary barter could be established, because there was now a universal standard for composition and valuation of an alternative currency. [4]

Cognizant of the legal issues which befell the Liberty Dollar, and aware of the moral responsibilities of promoting a voluntary barter currency, Gray established the standards by which any private group wanting to design their own currency would have to adhere to in order to have access to the AOCS merchant database, as well as the favorable manufacturing rates for their specie. For starters, partnerships with several private mints noted for their excellence were established. All coins were required to be designed to exact specifications with specific markings; most notably, that they be .999 troy ounces of fine silver, that a uniform “trade value” be indicated by a universal typeface, and that they indicate approval as an AOCS currency. For the first time, a standard for competitive silver barter currencies was established, which allowed for different private groups to promote their regional currencies independently, yet utilize a universal valuation which provided firms and households with interchangeability. The concept of a voluntary barter currency which could legally function along side the U.S. dollar was realized at a national level. As of February, 2010, there were over 26,000 business firms conducting commerce with AOCS currency, and 22 independent currencies being privately minted which conformed to AOCS standards. [5]

There is a fundamental philosophical distinction between the purchasing power of AOCS currencies and that of the Federal Reserve Note. AOCS specie are not denominated in “dollars”, though legal tender currency is presently required to manufacture and purchase them. Since it is too cumbersome and too confusing to use a term such as “unit of purchasing power” when discussing the value basis for a barter currency, it is necessary for AOCS participants to rely upon the common vernacular term “dollar” in regular discourse. So long as the barter currencies do not utilize the symbol “$”, the likelihood of a counterfeit charge from the U.S. government is remote. This is why strict specifications for markings are required for acceptance into the AOCS by monetary architects interested in participating.

The ideas of value which the two currencies represent are different- the Federal Reserve Note does not have any substantial commodity value, nor has it since silver was demonetized in the mid-to-late 1960’s. The value of the Federal Reserve Note is enforced by mere government fiat and the public accepts this notion of value on the faith that the United States government can continue to redeem its official currency. The problem with fiat currencies is, of course, their inevitable collapse due to inflation. This is the principal difficulty facing the American Open Currency Standard and its supporters: in order that the AOCS can fulfill its function as an inflation proof alternative to the Federal Reserve Note, the valuation of AOCS currency shall also require a measure of faith on the part of barter participants, principally because the numerical markings on the individual specie themselves are higher than the price-per-unit of silver.

A marking of “50” on an AOCS barter round does not indicate fifty dollars. This would mean that consumers were spending $50 to purchase an ounce of silver worth $18 on the precious metals market (assuming April, 2010, prices). This fact is the source of the greatest amount of confusion and skepticism from critics and observers, as it appears to represent a monetary loss. The “50” does not represent the dollar value of the silver contained within the coins- it represents the current purchasing power equivalent of $50 in Federal Reserve Notes, but exclusively within the AOCS economic system. AOCS is not some obscure silver purchasing scheme which consumers lose money on. Simply put, the buy-in cost for one AOCS coin is at relative parity with value in the marketplace priced in Federal Reserve Notes. Consumers are acquiring AOCS specie for $50 in Federal Reserve Notes, and using them to trade for fifty “dollars” of value from participating business firms.

“The biggest detractors of our model come from inside the revolution, so to speak,” says Gray. [6] For strict numismatists, and others who might consider participation in AOCS, it is difficult to look past the cost basis of the coinage. Since it requires an equivalent value in Federal Reserve Notes to purchase AOCS silver, being willing to spend $50 for an ounce of silver in April, 2010, does not appear rational unless you understand the underlying philosophy. It is important for people to realize that AOCS participants are not losing value in the buy-in. Merchants and consumers participating in voluntary barter choose to have faith that the AOCS coins represent fifty “dollars”, even though they are not Federal Reserve Notes. The difference between the currencies is that Federal Reserve Notes have no backing for their purchasing power there is no representation of tangible value in government monopoly money. So in terms of commerce, AOCS users are merely purging Federal Reserve Notes from the economy in favor of a voluntary barter currency whose purchasing power is at relative parity at any given time. No matter what, AOCS specie will be intrinsically valuable- an aspect which renders them invulnerable to the effects of hyperinflation. This fact makes their use more widely appealing to anyone concerned about the effects of inflation on legal tender currency. This also creates the incentive for merchants and consumers to “keep it local”: the advantage of intrinsic value keeps AOCS coinage in circulation, and out of coin shops.

How does the AOCS keep its currencies at parity with a fiat currency whose purchasing power is eroding? The system the AOCS uses is that which was developed originally by Bernard Von Nothaus, monetary architect and developer of the Liberty Dollar. The reality of a volatile price of silver as a commodity presented a challenge to Von Nothaus as he was required to monetize his alternative currency before it could function. The Liberty Dollar was designed to maintain its purchasing power as the underlying commodity price of silver increased with inflation. Von Nothaus developed a formula whereby the Liberty Dollar was pegged to a temporal range of the thirty day moving average of the price of silver, reported independently by a subsidiary of the Bank of Nova Scotia. [7] Once the thirty day moving average for silver remained above an established price ceiling for a period of thirty days, the price of silver was considered to have become constant enough to allow the Liberty Dollar to “move up” in value. A description of Von Nothaus’ valuation formula can be found on the remnants of the Liberty Dollar website. [8]

The AOCS utilizes the same econometric foundation for the valuation of all AOCS currencies: when the market price for silver stays consistently above an established threshold, the AOCS sends out a press release to all participants that their currency has officially reset to reflect inflation. This reset manifests as an issuance by the AOCS mints of new specie with a higher valuation (typically a 100% increase.) According to Gray, all AOCS participants are then able to redeem their specie with the old valuation and exchange them for specie at the new valuation, minus the costs of shipping. This system does serve to protect the purchasing power of AOCS currencies, though the valuation formula can only work so long as silver is priced in Federal Reserve Notes.

Excluding the fact that the U.S. government only accepts Federal Reserve Notes for settling tax liability, the greatest limitations of AOCS currencies at this stage in their existence are a result of the challenges of discovering coincident wants and needs between private parties, and the exponentially increasing complexity of relationships which occur as business firms grow. Just like any other business interested in expanding its customer base, an AOCS currency vendor must also advertise, promote and market his currency in order to establish a network of clients who share similar concerns about the continuing viability of Federal Reserve Notes.

A successful transition into AOCS silver is dependent upon a firm’s owners understanding the value that AOCS currency represents, and they must have the willingness and ability to turn around and recirculate the currency among their clientele and with the firms who supply their factors of production. An economic system utilizing the AOCS requires that all its participants grasp the philosophical basis for the alternative currency and how it represents value. An understanding of the system requires articulation by its marketers – this is the principal impedence to implementation of the AOCS system on a macroeconomic scale. Generally, the greater the number of executives in need of a tutorial, the lower the likelihood of initial acceptance and successful implementation within a firm. This is because any public company with shareholders and a board of directors has its executive function collectivized, making the decision to transition to an AOCS currency more time-consuming and problematic.

The participation between a firm, its customers, and its suppliers completes the circular flow of commerce between them, and provides for a functional microeconomy. This will help keep AOCS currency in circulation. But, the further away from home a firm must look to acquire its factors of production, the greater the number of firms they must rely on, and the more dispersed their customers base is, the less they will be able to initially utilize the AOCS: coincident needs and wants are less easily met with a voluntary currency facing barriers to acceptance due to a lack of understanding of its nature. Discovering how the AOCS economic system functions isn’t difficult- it merely requires a process of learning. But without the full endorsement of the philosophy by all parties, the circulation of AOCS specie will evaporate. So, for the purposes of implementing the AOCS, the system must be taught one person at a time.

As more and more households and firms transition into AOCS silver, and the greater the monetary value of their participation, the less exposure to fiat currency the U.S. economy will have. This is the desirable aim of the AOCS: to lawfully supplant the Federal Reserve Note. But due to the problem of increasing complexity of implementation, it seems most feasible to enter into voluntary barter on the smallest scale possible, allowing a business to expand its AOCS usage as the company grows. Attempting to retask a dynamic corporation circulating billions of U.S. dollars is not a reasonably attainable goal, at this point. For example, it is impossible to offer a fifty “dollar” AOCS silver round as payment for a dinner for four at a McDonald’s franchise and expect the management to accept it voluntarily, or to tender change to settle the transaction. McDonald’s is a multinational corporation with thousands of franchises around the world and an ornate web of commercial relationships. The logistical problems facing McDonald’s in convincing all parties to participate are monumental.

To reiterate, the implementation of an AOCS currency can only occur at the macro-economic level to the extent that all the market participants involved are willing to accept it. Business firms would run into problems of decreasing functionality in the face of increasing economic complexity. As more factors of production are required in creating a finished product, and as more participants become involved in a microeconomic system, the greater will be the task of the AOCS coordinators in establishing the willingness among all parties to participate. Everyday consumers and merchants can’t be expected to understand this right away, even if they are losing faith in the U.S. dollar at the same time.

So, there appears to be a natural limitation to growth attached to the utilization of a voluntary barter currency due to this transition difficulty. But facing the prospects of keeping up with price inflation as a result of the dependency on Federal Reserve Notes, it may be more profitable for the small firm in the long run to circulate ever larger quantities of silver as they expand, since a firm utilizing AOCS currency would not have to embed the costs of inflation into its prices. Consumers using AOCS currency would be able to trade for goods and services at prices discounted against those denominated in Federal Reserve Notes. This obviously increases demand for the AOCS currency, as well as the wares offered for trade.

Facing the prospects of hyperinflation, and the more people become aware of such an eventuality, the easier it will be to win over the American people on the idea of an alternative currency. As with the AOCS, the recirculation of demonetized U.S. silver coinage for use on a voluntary barter basis would run into the same microeconomic and macroeconomic issues. A long term observation of the AOCS system and a study of its expansion will serve as a valuable indicator for implementation, management, and growth of any similar system.

1. 2. 3. “Local Currencies in the United States”, E.F. Schumacher Society website. Accessed April 18th, 2010. http://www.schumachersociety.org/local_currencies/currency_groups.html

4. Introducing the American Open Currency Standard! AOCS website. http://www.opencurrency.com/introducing/

5. American Open Currency Standard homepage. www.opencurrency.com

6. Personal Interview with Rob Gray. Wednesday, February 3rd 2010.

7. Gold and Silver Market Watch: Daily Update. ScotiaMocatta Website.
http://www.scotiamocatta.com/scpt/scotiamocatta/prec/pm_daily.pdf

8. Inflation Proof Currency: Liberty Dollar MovesUp to the $20 Silver Base, by Bernard Von Nothaus. November,
2005. http://www.libertydollar.org/commentary/pdfs/1162882517.pdf

A Gold Trade for This Week

This stuff is somewhat time sensitive.

The August Gold is leaving little “technical” gaps all over the place. Classical technical analysis suggests that gaps on a chart will be filled. (It doesn’t specify when though.) I will not worry about the gap on the downside being filled and instead, focus on the upside.

Should the Gold attempt another high, I will tentatively focus on the 1267.0 area to initiate a short position with an initial profit objective of perhaps the 1,257.3 area. If the Gold moves up rather soon, I could imagine a $20 – $30 fall from its highs, similar to the one from 1,254.5 down to 1,223.1.

That’s why it’s so hard to buy a dip or stay on a trend- the corrections can be pretty deep.

The August Gold is leaving little “technical” gaps all over the place.

I prefer to sell to someone who wants to buy at semi-outrageous new highs and ride his ‘slap on the wrist’ down a little ways. I’m more comfortable when I’m on the other side of someone’s trade when I believe they are most likely doing the wrong thing. (In this case, chasing the market).

Long term Trading is a whole ‘nother ball game.

The 60 minute bar chart below is making an ‘upside down’ bear arm formation (thought you’d heard ‘em all, huh?). Translation: The formation is bullish.

it’s an upside down Bear Arm, we could see a move

Bear Arms can produce big moves from where the shoulder turns. In this case, since it’s an upside down Bear Arm, we could see a move (perhaps rapid) well beyond the recent highs of 1254.5

This analysis brought to you by Sean Blair of +FastMKT>>Focus. He would like to remind everyone “Futures and Options Trading is Risky and Not Suited for Everyone. Trading in Futures and Options should be done with Risk Capital Only, and Should Not Affect Overall Lifestyle should Losses Occur.”