{"id":1203027,"date":"2020-08-21T11:28:07","date_gmt":"2020-08-21T16:28:07","guid":{"rendered":"http:\/\/www.kereport.com\/?p=72756"},"modified":"2020-08-21T11:28:07","modified_gmt":"2020-08-21T16:28:07","slug":"thoughts-from-trader-vic-sperandeo-fri-21-aug-2020","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1203027","title":{"rendered":"Thoughts from Trader Vic Sperandeo &#8211; Fri 21 Aug, 2020"},"content":{"rendered":"<p>A Historical Synopsis of Money in the U.S.<\/p>\n<p>Trader Vic recently send me this article that he wrote. I will be chatting with Trader Vic next week to get some more market thoughts but I wanted to post this in the meantime. I hope you all enjoy. <\/p>\n<p>With gold at all-time highs against the<br \/>\nU.S. Dollar \u2013 as well as against all fiat currencies &#8211; and silver finally<br \/>\nbreaking out to the high $20\u2019s per ounce, a recap of this history of \u201cmoney\u201d in<br \/>\nthe U.S. seems like a worthwhile discussion.<\/p>\n<p>The U.S. was on a bimetallic standard for its<br \/>\nfirst hundred years (meaning the currency was tied to both gold and silver).&nbsp; With the ratification of the U.S.<br \/>\nConstitution in 1791 and the passage of the Mint Act of 1792, the ratio of the<br \/>\nprice of gold to silver was set at 15:1.&nbsp;<br \/>\nThe 1834 Coinage Act moved the ratio to 16:1.&nbsp; During the Civil War inflation rose to over<br \/>\n40%, which pushed the price of silver to $2.94 an ounce.<\/p>\n<p>Then came the 1873 Coinage Act, which has<br \/>\nalso been referred to as the Crime of 1873.&nbsp;<br \/>\nSigned by President U.S. Grant, the act was ostensibly passed to change<br \/>\nthe U.S. Mint\u2019s structure.&nbsp; But the main<br \/>\npurpose was to remove the U.S. Dollar from bimetallism, adopting the Gold<br \/>\nStandard.&nbsp; As a consequence, the standard<br \/>\nsilver dollar would no longer be minted. &nbsp;<\/p>\n<p>Then in 1884, we come to the Supreme Court<br \/>\ncase \u201cJuilliard v Greenman.\u201d&nbsp; In this<br \/>\ncase, in an 8-1 ruling, the Legal Tender acts of the 1860\u2019s were found to be<br \/>\nconstitutional.&nbsp; The legal ramifications<br \/>\nwere that it was now accepted precedent that the U.S. Federal government had<br \/>\nthe power to borrow money and establish a national currency, and establishing<br \/>\nthat paper money was now legal tender and must be accepted for payment of<br \/>\npublic and private debt.&nbsp; Under these<br \/>\nguidelines, the government was free to print paper currency in any amount and<br \/>\nfor any reason.<\/p>\n<p>This begs the question: why doesn\u2019t the<br \/>\nU.S. Treasury simply print paper (a.k.a. fiat) money without issuing debt (and<br \/>\nbeing liable for the resulting interest payments)?&nbsp; Instead, the debt is issued and the paper<br \/>\nmoney is used to buy the debt (mainly by the banks and the Federal Reserve).&nbsp; Could it be that eliminating the debt would<br \/>\ndeprive the banking cartels of their immoral gains?&nbsp; <\/p>\n<p>The first central bank after the<br \/>\nratification of the Constitution was commonly called the First Bank of the<br \/>\nUnited States.&nbsp; It was chartered in 1791<br \/>\nfor twenty years and was promoted heavily by Alexander Hamilton when he was<br \/>\nSecretary of the Treasury.&nbsp;&nbsp; Its charter<br \/>\nexpired in 1811.&nbsp; The Second Bank was<br \/>\nformed in 1816, and again chartered for twenty years.&nbsp; Its charter ended in 1836 (when it became<br \/>\nprivately owned), but by 1833 it was effectively shut down by President Andrew<br \/>\nJackson, who had the Federal deposits moved to state and private banks. <\/p>\n<p>Fast forward to 1913, when the Federal<br \/>\nReserve Act created another central bank to create fiat currency, set interest<br \/>\nrates, and manufacture the money supply by buying government debt. &nbsp;Understand that except for minted coins, all<br \/>\nmoney is now \u201cloaned\u201d into existence. The phrase \u201cFederal Reserve\u201c was used to<br \/>\nconfuse the public into believing it was a government institution instead of a<br \/>\nprivate bankers\u2019 cabal.<\/p>\n<p>From 1792 to 1833, gold was priced at<br \/>\n$19.39.&nbsp; Not including a price spike<br \/>\nduring the Civil War, from 1834 through 1933 it was priced at $20.67.&nbsp; So, during this period, inflation (as<br \/>\nmeasured by the price of gold) was 0.04% annually, an infinitesimal amount.<\/p>\n<p>All of this changed in 1933.&nbsp; That\u2019s when F.D.R. (via an Executive Order,<br \/>\nlater backed by the Gold Confiscation Act \u2013 for once a piece of legislation<br \/>\naccurately named) ordered citizens to turn in their gold to the Federal<br \/>\ngovernment (with some minor exclusions for business use, and a small personal exception),<br \/>\nin exchange for $20.67 in paper money.&nbsp;<br \/>\nHistorians call this \u201cvoluntary surrender\u201d despite the threat of fines<br \/>\nand prison for anyone caught hoarding gold.&nbsp;<br \/>\nImmediately following the surrender period, the price of gold was reset<br \/>\nto $35 an ounce, resulting in a \u201cprofit\u201d of 70% on all the gold the government<br \/>\nhad forcibly collected.&nbsp; More to the<br \/>\npoint, that was a profit denied to the rightful owners of the gold.<\/p>\n<p>In my view, both the Executive Order and<br \/>\nthe Congressional legislation were both unconstitutional.&nbsp; It wasn\u2019t simply the illegal confiscation of<br \/>\nthe gold, but also the entire position that the government can print paper fiat<br \/>\ncurrency.&nbsp; Refer to the U.S. Constitution<br \/>\nitself.&nbsp; Article 1, Section 8, Clause 5<br \/>\nstates: \u201cTo coin Money, regulate the Value thereof, and of foreign Coin, and<br \/>\nfix the Standard of Weights and Measures.\u201d&nbsp;<br \/>\n(For example, fixing the value of an ounce of gold at $20.67).&nbsp;&nbsp; Also see Article 1 Section 10: &nbsp;\u201cNo state shall enter into any treaty,<br \/>\nalliance, or confederation; grant letters of marque and reprisal; coin money;<br \/>\nemit bills of credit; make anything but gold and silver coin a tender in<br \/>\npayment of debts; pass any bill of attainder, ex post facto law, or law<br \/>\nimpairing the obligation of contracts, or grant any title of nobility.\u201d<\/p>\n<p>So where did FDR get the power to crown<br \/>\nhimself a king, with Congress his willing and obedient nobles?&nbsp; The government made itself into a criminal<br \/>\nenterprise, colluding to take people\u2019s wealth (in the form of gold).&nbsp; All three branches of government played a<br \/>\npart in the scheme, as the Supreme Court refused to hear any of the<br \/>\nlawsuits.&nbsp; So much for the laughable<br \/>\nnotion of \u201cseparation of powers.\u201d&nbsp;<br \/>\nDespite the constitutional restrictions on government \u201cimpairing the<br \/>\nobligation of contracts,\u201d the Gold Confiscation Act effectively resulted in all<br \/>\nof the \u201cGold Clause Contracts\u201d outstanding to become null and void.&nbsp; A \u201cGold Clause\u201d agreement was a contract<br \/>\nbetween parties to borrow and repay in gold rather than in fiat currency.&nbsp; The only legal way to have enacted these laws<br \/>\nand orders was through a constitutional amendment.&nbsp; Instead, the Supreme Court refused to enforce<br \/>\nthe restrictions of the Constitution, and consequently what should have been<br \/>\nillegal decrees became the new law of the land.<\/p>\n<p>The<br \/>\nUnited States &#8211; as it was founded &#8211; basically ended in 1913 under Woodrow<br \/>\nWilson.&nbsp; &nbsp;That was when the nation implemented the<br \/>\nSecond Plank of the Communist Manifesto: \u201cA heavy progressive or graduated<br \/>\nincome tax.\u201d&nbsp; This was exacerbated in<br \/>\n1933 when the Fifth Plank was instituted: \u201cCentralization of Credit in the<br \/>\nHands of the State, by Means of a National Bank with State Capital and an<br \/>\nExclusive Monopoly.\u201d&nbsp; With the surrender<br \/>\nof gold by the public, the official money of the nation was now in the hands of<br \/>\nthe government.<\/p>\n<p>In<br \/>\n1963, President Kennedy made the only modern move away from the Federal Reserve<br \/>\nsystem when he signed Executive Order 11110.&nbsp;<br \/>\nThis order decreed that the U.S. Treasury would be solely permitted to<br \/>\nissue Silver Certificates as currency, backed by the silver held by the U.S.<br \/>\ngovernment.&nbsp; These United States Notes<br \/>\nwere very similar in appearance to the fiat Federal Reserve Notes and were<br \/>\nissued in $2 and $5 denominations ($10 and $20 denominations were printed but<br \/>\nhad not been distributed by the time JFK was assassinated less than six months<br \/>\nlater).&nbsp; While Executive Order 11110 has<br \/>\nnever been repealed, the Silver Certificates were taken out of circulation and<br \/>\nhave never again been issued.<\/p>\n<p>Instead,<br \/>\nLBJ became President and soon increased the war efforts in Vietnam while<br \/>\nasserting his \u201cguns and butter\u201d policies.&nbsp;<br \/>\nInflation accelerated, and silver coins began to be hoarded as paper<br \/>\nmoney declined in value.&nbsp; In response,<br \/>\nthe Coinage Act of 1965 was passed and signed.&nbsp;<br \/>\nThis eliminated silver entirely from dimes and quarters and cut the<br \/>\nsilver content of half-dollars to 40% (before silver was eliminated from those<br \/>\nas well in 1970).&nbsp; With this one act, the<br \/>\ncomposition of coins in the U.S. was forever changed from the silver standards<br \/>\nset in 1792.&nbsp; <\/p>\n<p>In<br \/>\n1971, Richard Nixon enacted internationally what FDR had enacted domestically:<br \/>\ntaking the U.S. currency off the gold standard.&nbsp;<br \/>\nThis began the exponential increase in government debt, as the entire<br \/>\nmonetary system was now a fiat paper-based concoction. &nbsp;From June 1971, to an estimated September<br \/>\n2020, total stated U.S. Federal debt (not including unfunded liabilities and \u201coff-balance<br \/>\nsheet items\u201d) will have grown at a 9.02% compounded annual rate.&nbsp; Compare that to Real GDP growth between June<br \/>\n1970 to June 2020 of only 2.54% compounded annually.&nbsp; Debt has grown at 3.6 times the rate of real<br \/>\ngrowth.&nbsp; If this rate of debt increase<br \/>\ncontinues, by September 2030 the U.S. Federal debt will be $68.8 trillion.<\/p>\n<p>When you start to talk about such vast sums of money it is difficult to understand exactly what it means.\u00a0 Let me try to put a trillion into perspective.\u00a0 If you counted back just one trillion seconds from today, you would be in the Paleolithic period, around the year 29,690 B.C.\u00a0 We\u2019ve had a major ice age more recently than that!\u00a0 <\/p>\n<p style=\"text-align:center\">Historic Gold and Silver Prices in key years <\/p>\n<\/p>\n<table class=\"wp-block-table aligncenter\">\n<tbody>\n<tr>\n<td><strong>Year<\/strong><\/td>\n<td><strong>Gold<\/strong><\/td>\n<td><strong>Silver<\/strong><\/td>\n<\/tr>\n<tr>\n<td>1792<\/td>\n<td>$19.39<\/td>\n<td>$1.29<\/td>\n<\/tr>\n<tr>\n<td>1913<\/td>\n<td>$20.67<\/td>\n<td>$0.58<\/td>\n<\/tr>\n<tr>\n<td>1971<\/td>\n<td>$40.80<\/td>\n<td>$1.39<\/td>\n<\/tr>\n<tr>\n<td>7\/31\/2020<\/td>\n<td>$1962.80<\/td>\n<td>$24.21<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"http:\/\/www.kereport.com\/2020\/08\/21\/a-historical-synopsis-of-money-in-the-u-s\/\" alt=\"\"\/><\/figure>\n<p>The official CPI rate from December 1913 to<br \/>\nJune 2020 shows a 3.1% compounded annual rate of increase.&nbsp; Over that same period, gold has increased in<br \/>\nvalue at a 4.28% compounded annual rate (using the June 30<sup>th<\/sup> close<br \/>\nof $1,800.50).&nbsp; Gold has beaten the<br \/>\nofficial inflation rate by 38% per year over this 106\u00bd-year period.<\/p>\n<p>The question remains, what will the \u201cend<br \/>\ngame\u201d look like in the U.S.?&nbsp; In my view,<br \/>\nI am 100% certain it will not be bankruptcy.&nbsp;<br \/>\nIn today\u2019s world, we don\u2019t even allow junk bonds to fail. &nbsp;That kind of default would also focus the<br \/>\npublic attention \u2013 and blame \u2013 on the government, which is something it never<br \/>\nallows.&nbsp; Instead, in my view, it will be<br \/>\nthrough hyperinflation that the government fails.&nbsp; This was defined by economist Phillip D. Cagan<br \/>\nas a month in which the price level increases by 50%. At that rate, the $29<br \/>\ntrillion that is estimated to exist in September 2020 would be washed away in a<br \/>\nmere 4 months, dropping to 6.25% of its original value over that period.&nbsp; I believe that when hyperinflation hits the<br \/>\nU.S., it will happen fast and be over, which is the only way to go.<\/p>\n<p>Inflation will be pushed via the adoption<br \/>\nof Modern Monetary Theory and exacerbated by the implementation of minimum<br \/>\nbasic income (or perhaps even universal basic income).&nbsp; My guess is we\u2019ll eventually see $2,000 a<br \/>\nmonth going to everyone over 18 years old, and that money will be printed<br \/>\n(rather than borrowed).&nbsp; That amount<br \/>\nwould total $6.5 trillion a year going into the hands of pure consumers ready<br \/>\nto spend it (as opposed to the Quantitative Easing programs, which have mostly<br \/>\ngone to investors).&nbsp; <\/p>\n<p>Who will take the blame for the resulting<br \/>\ninflation?&nbsp; Probably the general<br \/>\npopulation; they will have been given what they wanted and left to deal with<br \/>\nthe consequences.&nbsp; I expect gold will<br \/>\nincrease in value to between $10,000 to $25,000 an ounce conservatively, which<br \/>\nis only between 4 and 12.5 times the current value.&nbsp; That wouldn\u2019t even keep pace with the level<br \/>\nof inflation in this example, so much higher is possible.&nbsp; If you think this sounds too high, remember<br \/>\nthat in France during the hyperinflation period between 1789 and 1797 gold went<br \/>\nup by a factor of 600.<\/p>\n<p>Why will this be the government\u2019s \u201csolution\u201d<br \/>\nto the problem?&nbsp; Let me close with the<br \/>\nwords of Ernest Hemingway:<\/p>\n<p>\u201cThe first panacea for a mismanaged<br \/>\nnation is inflation of the currency; the second is war. Both bring a temporary<br \/>\nprosperity; both bring a permanent ruin. But both are the refuge of political<br \/>\nand economic opportunists.\u201d<\/p>\n<p><em>The statements in this communication are<br \/>\nthe opinions of its author, Victor Sperandeo, and are not to be relied upon by<br \/>\nanyone as the basis for an investment decision.&nbsp; Any investments made by a<br \/>\nparty in reliance thereon are made at such party\u2019s sole risk.&nbsp; No<br \/>\nguarantee of any kind is implied or possible where opinions as to past or<br \/>\nfuture market conditions\/events is provided.&nbsp; Past performance is not<br \/>\nnecessarily indicative of future results.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A Historical Synopsis of Money in the U.S.<br \/>Trader Vic recently send me this article that he wrote. I will be chatting with Trader Vic next week to&#8230;<\/p>\n","protected":false},"author":20,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[746,362,4192],"tags":[48,136],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1203027"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/20"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1203027"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1203027\/revisions"}],"predecessor-version":[{"id":1203028,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1203027\/revisions\/1203028"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1203027"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1203027"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1203027"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}