News Note Update: State of Nevada Introduces Bill to Allow Issuance of Gold & Silver Bonds

Recently, we published a news note regarding the potential for a government to issue a gold bond based on an article from Keith Weiner. It appears that the State of Nevada is the government involved in this legislation. 

Nevada has a lot of gold and silver mining activity, so it makes sense for that state to look at issuing gold bonds like Keith Weiner talked about. Also of note is that this bill also allows for the issuance of silver bonds. Below is the press release on this news. I added the bolded type for emphasis.

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CARSON CITY, Nev., July 2, 2018 /PRNewswire/ 

"Assemblyman Jim Marchant announces the Nevada Gold and Silver Enabling Act. This legislation provides the state and its municipalities the framework to issue gold and silver bonds. These bonds will reduce the state's debt, shore up the pension fund, increase mining employment and profitability, and attract capital to Nevada. A paper describing the benefits of issuing gold bonds has been published by Monetary Metals.

"This non-partisan legislation does not force us to use gold and silver," said bill sponsor Jim Marchant, Assembly District 37. He added that, "it simply highlights this option for the state and municipal treasurers, who are empowered to decide for themselves."

"It makes sense to replace dollar-denominated debt with gold bonds, so the obligation is matched to the source of income," said Keith Weiner, an economist and CEO of Monetary Metals.

The bill also allows miners to pay tax in gold or silver. That tax is currently in the hundreds of millions of dollars, or several tons of gold. By paying directly in metal, mining companies can save money.

The Act builds on precedents set over the past several years by related legislation adopted in the states of Utah, Oklahoma, Texas, Arizona, and Wyoming. Under existing federal law, gold and silver coins issued by the US Mint are legal tender. Anyone has the right to tender them in payment of debt or taxes."

Please click here to read the original news release

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My added comments: At first glance this news may seem a bit anti-climatic since it is a state government involved rather than a national government. However, when you realize that Nevada has a mining industry ranking in the top ten in the world, it could be significant as a next step type of experiment. Keith points out that the State of Nevada gets royalties from gold and silver production which they can use for these bonds. He believes the state can issue the gold and silver bonds at a bit of premium to paper bonds they would exchange them for and benefit in that way. This is because of the 2% inflation targeting done by the Federal Reserve.

If gold and silver bonds are issued successfully in the state of Nevada, it could lead to broader adoption of the concept over time in other states and eventually in other nations. As this news release notes, a number of states in the US are passing legislation favorable to gold and silver so this might be viewed as the next step in an ongoing process. Also, a thank you to Keith Weiner for alerting us to this news. It appears this is a project he has worked on for some time.

Keith has just done this audio interview in which he explains his concept for a gold bond in detail. You can also view it just below.

Robert Pringle - The Necessary Illusionists

Whenever Robert Pringle offers up a new article on his blog, The Money Trap, I try to feature it here. Mr. Pringle has decades of experience in central bank policymaking and is well known to central bankers from around the world. He is a former Executive Director of the Group of 30. 

Because of his extensive background and contacts, he offers us somewhat of an inside perspective on these issues I don't find in either mainstream or alternative media that I monitor. Below are a couple of excerpts from his new article and then a followup quote he provided by email. 

Robert Pringle

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From The Necessary Illusionists

"Funny thing about money. It is supposed to be a bedrock of stability but it feeds on illusions. So much monetary policy relies on trickery.  The elite know things that the unwashed masses do not. Such as money illusion. The success of devaluation rests on tricking the masses. But tell a central banker he or she is in the business of peddling illusions and risk a smack in the eye.

. . . . . . 

We have seen why money has to be for ever. But it is equally true that money has to change every now and then, or else it could never adjust to basic changes in society.

The upshot is this: a central bank obeys two imperatives. The first is that whatever is now must be for all time. Second, it must be ready at any time completely to change its practices,  its model, its ideology, its communications and its soul. Moreover, this must be done with an illusionists’ skill, all the time pretending that nothing has changed."

Please click here and read the full article by Robert Pringle

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Added comments: My take from this article is that even though it may seem like a monetary system regime lasts forever, eventually major change does take place. Mr. Pringle offered me these additional thoughts by email along these lines:

"Now we are approaching an inflection point in the ideology of central bank independence -  CBI+IT (central bank independence + inflation targeting) - the mantra of CBs for years. 

In The Money Trap in 2012, I argued the model was unsustainable and dangerous, though the best available under the floating rates regime. Six years later it is still there….just about.  So was I wrong? I don't think so. 

I love it when central bankers use words like "critical" "central", "sacred" and even "sacrosanct" to describe it. Money always has picked up quasi-religious language. But until the model is officially abandoned, central bankers have to insist it will not only last for ever but is "sacred". "

This is why we should remain alert to any events that could lead to major monetary system change even in times when it does not seem like such change is likely any time soon. 
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Added news note update: For an update on our earlier news note regarding a government issuing gold bonds, go here.

News Note: Keith Weiner Says "A Government is Moving Towards Issuing Gold Bonds"

Earlier on this blog we featured a speech by Dr. Judy Shelton where she called for government issued gold backed bonds. Dr. Shelton is now working in the Trump Administration as Executive Director for the European Bank for Reconstruction and Development. 

Given this history, this new article by Keith Weiner is worth noting. Mr. Weiner is a strong advocate of precious metals. In his new article, he makes what appears to be a startling statement indicating he is aware of a government "moving towards issuing gold bonds." He does not identify the government, but does imply that this news will become public in the not too distant future. Below are a couple of brief excerpts from the article and then a few added comments. (I added bold for emphasis)

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"A gold bond is debt obligation that is denominated in gold, with interest and principal paid in gold. As I will explain below, it’s a way for the issuer to pay off its debt in full, and there are other advantages."

. . . . . .

"There has not been a gold bond in the U.S. for 85 years. Yet a government (which I will be able to talk about soon) is moving towards issuing gold bonds. I have written tens of thousands of words on the benefits of gold bonds to investors. Today, in light of this impending momentous event, I am writing about the benefits to the issuer of the bond, including government issuers. There are also benefits to mining companies within such government jurisdiction."

. . . . . .

"Let me address a common misconception up front. Many tend to think of a “gold backed” bond. That’s just a conventional dollar bond with gold as collateral. It’s a way to use gold to go deeper into debt, and I won’t address it further."

. . . . . .

"Fortunately, there is an elegant mechanism to get out of debt. Sell the gold bond, not for dollars or for gold, but for conventional bonds. Require buyers to redeem outstanding bonds in exchange for new gold bonds. It’s a way to replace existing dollar-denominated bonds with gold bonds."

Please click here and read the full article by Keith Weiner

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My added comments: Just for confirmation, I reached out to Keith Weiner by email to make sure he is talking about a specific government issuing an actual gold bond. He replied as follows for confirmation:

"Thank you for your email.

I can confirm that I am working with a specific government on issuance of a gold bond.

This article is the first in a series. More next week."

Mr. Weiner also passed along this information by email:

By the way, here is the original paper I wrote on gold bonds in 2012:

https://keithweinereconomics.com/2012/02/02/gold-bonds-to-avert-financial-armageddon/

Best Regards,

Keith

Here we may finally have some news that I would view as significant in terms of some potential disruption to the current monetary system. By no means would a single government issuing the kind of gold bonds described here be a complete uprooting of the current monetary system. 

However, if this news is accurate and a sovereign government does issue a gold bond like this, we do have some news to pay attention to. It will be interesting to see what government is involved. 

We should keep in mind that as we noted above, Dr. Judy Shelton has proposed that the US should begin to issue gold backed bonds on a trial basis. I had a brief twitter exchange with Dr. Shelton on this back in May of 2017. I am not clear on whether the gold backed bond Dr. Shelton talked about is the same as the gold bond described by Keith Weiner (a bond denominated in gold and paid off with gold as well as interest payments made in gold). 

Regardless of the details of how a government issued gold bond might work, if a sovereign government is about to issue one it could lead to a shakeup in the monetary system if the bonds are successful. Keith Weiner explains why this is the case in his article and he confirms to me by email that we should know more soon.

I would encourage readers to read through this information. I plan to monitor this to see what happens and will report that here.

Added note 6-29-18: So how important does Keith Weiner believe this news is regarding a government issued gold bond? Apparently, pretty important per this new twitter comment.

News note update 7-2-18: It appears from this news release that it is the state of Nevada that is introducing a bill to allow both gold and silver bonds to be issues. I will publish the full news release and some followup later this month. While some were probably expecting that the government involved with this would be a country rather than a state, it should be noted that Nevada has a huge world class gold and silver mining industry larger than many nations around the world. So it makes sense for this experiment to be tested out in Nevada.

Rickards and Rogoff on Emerging Market Debt

Recently, Jim Rickards and Kenneth Rogoff have both written articles warning about US dollar debt building up in emerging markets. When we have two very different analysts both talking about the same potential problem, it is probably worth a mention. In my recent mid year review I mentioned that global debt remains a potential systemic risk even though I have no information suggesting a crisis related to that is on the near term horizon.

Jim Rickards appears to disagree with me in his new article (he says a new global debt crisis has begun). You can read it and decide for yourself. 

One interesting note. Both Jim Rickards and Kenneth Rogoff talk about the IMF stepping in as a lender of last resort in their articles on emerging market debt, but Jim is more negative about the outcome than Kenneth Rogoff. Below is an excerpt from each article on that issue. (I added the underline for emphasis).

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Kenneth Rogoff on the IMF:


"The International Monetary Fund, moreover, has sufficient resources to handle a first wave of crises, even if it includes, say, Brazil. The main concern is not that the IMF will fail to deliver funds, but that it will make the same mistake it did in Greece, by not imposing a realistic deal on debtors and creditors."

. . . . .

"Even if the best bet is that any emerging-market bond meltdown would remain contained, today’s jitters ought to be a wake-up call, even for advanced economies. After all, no country, however rich, should bet its future on the prospect that today’s ultra-benign interest-rate environment will last forever."

Please click here for the full article by Kenneth Rogoff on Project Syndicate

Jim Rickards on the IMF:

"A full-blown EM debt crisis is coming soon. It is likely to start in Turkey, Argentina or Venezuela, but it won’t end there.

The panic will quickly affect Ukraine, Chile, Poland, South Africa and the other weak links in the chain.

The IMF will soon run out of lending resources and will have to pass the hat among the richer members. But the Europeans will have their own problems, and the U.S. under President Trump is likely to reply, “America First,” and decline to participate in bailing out the EMs with U.S. taxpayer funds.

At that point, the IMF may have to resort to printing trillions of dollars in special drawing rights (SDRs) to reliquify a panicked world. . . . . ."

Please click here for the full article by Jim Rickards on Daily Reckoning

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Added note: Normally I would try to reach out to Jim Rickards for any further comment on this kind of article, but he is currently part of an expedition that is climbing Mt. Denali until the end of June. My guess is that this is an article Jim actually wrote before leaving on the expedition that he dated to be posted on 6-21-18 while he is gone on the expedition.

2018 Mid Year Review - Little Significant Monetary System Change So Far

Mid year of 2018 means this blog has now been online for about 4 1/2 years now. The blog started out attempting to watch for any signs that the monetary system we have had for some time now based on the US dollar as global reserve currency might be headed for major change or even a full monetary system reset. 

Literally thousands of hours of time have been spent here reading relevant news articles from both mainstream and alternative media sources. Official publications from organizations like the IMF, BIS and major central banks have been reviewed and monitored for signs of potential major change. In addition, extensive effort was made to document a list of systemic risk warnings that have been issued during these past few years by various credible sources (see that list here). 

On top of all that, efforts were made to reach out to highly qualified global experts with expertise on global payments systems and monetary systems. These efforts led to another page documenting a variety of serious proposals for possible significant monetary change for the future (see that list here).

I have been extremely blessed to get direct input from a wide variety of experts coming from a wide range of views on these issues. A group of expert economists who routinely discuss ideas for potential monetary system change sometimes copy me on email discussions which provides me with great insight into how these issues are discussed and debated. 

With all that background, I have concluded that at this time significant monetary system change is unlikely to happen soon unless some kind of new very big global financial crisis arises to disrupt the present system to the extent it cannot continue to function. Many systemic risks that could lead to such a disruption have been identified and discussed here in great detail. Some of these risks have subsided while others remain. The list of risks changes from time to time with new events popping up while others drop off the list. 

Below I will use a Q&A style format to provide a 2018 mid year update and explain why I have decided to further reduce blog articles and move into monitoring mode sometime this fall. Basically, it is because I cannot identify any systemic risk at this time likely to so disrupt the present system as to force significant changes to it.

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Q: What systemic risks exist right now that could lead to disruption of current monetary system and force major systemic changes?

A: Events related to the ongoing "slow motion civil war" in US politics and some of the global geopolitical events (North Korea, Middle East, etc) are the ones I can identify at this time. Some also suggest that a major trade war could become a systemic risk. However, none of those appear to be an imminent threat to the stability of the monetary system as of the date of this update.  (Added note 6-19-18: Trump ups the ante in Trade Battle)

Q: What about Russia and China and their obvious ongoing efforts to undermine the US dollar as the global reserve currency?

A: That process is ongoing, but moves very slowly. At the pace that these changes take place it could take several more years or even a decade before the US dollar is seriously threatened as the global reserve currency. As we have stated many times, a new major global crisis could alter the timetable, but at this time there is no indication of that on the near term horizon. One expert I hear from by email sent me a link to this article on the dollar which pretty well sums of what I see quite a bit lately. Lots of people have incentive to bypass the US dollar, but no viable alternative seems ready to do that right now.

Q: What about the massive US debt problem, the global debt problem, global derivatives, interconnected financial institutions, and so called "Shadow Banking"?

A: Those are all potential systemic risks we have documented and discussed in detail. They remain out there as risks, but have been risks for years. They could simply continue to lurk in the background as risks or something could arise suddenly to trigger them. But there is simply no way to know ahead of time when such a sudden event might arise. That is what I will continue to monitor when I move into "monitor mode" this fall. But there is no point writing endless articles about these issues that have already been covered until something actually happens. 

Q: What about central bank digital currencies? Aren't we on the verge of major historic change by central banks in this regard that could lead to major monetary system changes eventually?

A: Perhaps. There is certainly no shortage of position papers, panel discussions, and in depth studies by central banks, the IMF and the BIS on this topic. It is possible that a few smaller central banks might adopt CBDC's experimentally in the next year or so. But every indication I have from published information and also direct input from experts suggests that momentum for this has stalled quite a bit. I don't see any indications that major central banks like the Bank of England or the US Fed are close to moving in this direction at all. Also, I have no indication from any source that the IMF is in the process of moving towards a digital SDR on some kind of blockchain platform. 


Q: What about Bitcoin, cryptos, and commodity backed currencies in the private sector? Are they about to supplant the existing monetary system or at least force it into major changes?

A: This is an area that I have explored in depth and attempted to follow quite a bit. There are certainly a wide variety of would be alternative monetary systems out there now that would aspire to disrupt the official monetary system and/or force it to make some major changes. However, I do not see any that are anywhere close to having that kind of impact at this time. Bitcoin is the most well known crypto, but it is still miniscule in terms of public adoption. There are several gold backed currencies (and one full scale gold based alternative monetary system) out there in the startup phase. But again, the public adoption so far is tiny compared to the official monetary and banking system we have now. This is an area worth following over time, but progress seems very slow and all of these alternatives have the enormous hurdle to overcome of not being legal tender currencies. Also, as more than one of my experts told me recently, the US is still the most powerful force in the world in defending the US dollar as global reserve currency and forcefully resists any kind of major change to the present system. I don't see that changing soon unless some kind of new major global crisis forces the US to accept major changes. Another expert reports that momentum for using blockchain for payments systems and digital currencies within the current banking system has stalled as the limitations and long term costs of public distributed ledgers have become more apparent.

Q: When should we expect to see a new major global crisis that you keep talking about as the primary catalyst for major change?

A: This is the key question for this entire topic. It is simply impossible to answer. This blog is proof that hundreds of dire predictions for systemic disruption or collapse can come and go for years without it happening. It could go on for many more years or some unexpected trigger (or snowflake that causes the avalanche as Jim Rickards puts it) could arise within the next month. Anyone who tells you they can predict the timing of the next major financial crisis is misleading the public in my opinion based on all the research I have done here on this topic. Almost everyone agrees the present system is not sustainable over the long term, but no one can pin down when it might falter.

Q: What impact has the election of Donald Trump had on this situation?

A: In some ways the election of Donald Trump has probably had some impact. However, so far the overall impact does not appear to be all that significant. Trump campaigned on a platform of putting US interests first so we can assume he is not interested in proposals coming from institutions like the IMF and The World Bank for major changes. Especially if they involve displacing the US dollar as global reserve currency. But the US has really had this same position all along for the most part for a long time. Trump talked a bit about the idea of a gold standard, but that has gotten no visible traction in his Administration that I am aware of so far. 

The ongoing "slow motion civil war" between the pro Trump forces and the anti Trump forces inside the beltway in Washington could potentially cause disruption in the markets and even threaten systemic stability, but so far the key markets (stocks, US dollar, gold) have yawned about all that and pretty much dismissed it as political noise. At this point, the civil war seems more like a stalemate with neither side gaining any substantial political advantage and markets are indicating they do not seem to think this is likely to change. So while the Trump era is good for TV ratings and lots of "drama" back and forth from both sides on the news networks for him and against him, the public has pretty much now dismissed it all as politics as usual (recent polls say 70% of the public is tired of hearing about it) and moved on with life At this time, this does not seem like a potential trigger for major changes. 

The recent release of the IG report just further confirms nothing significant in terms of legal action is likely to happen to anyone significant involved in all the TV drama live from Washington DC. It simply admitted a lot of corruption and sleaziness inside the government which most people already know is embedded in government agencies here and there. It seems like business as usual and the markets are confirming that.  


Q: Can you provide anything new to talk about that relates to major monetary system change?

A: Not in terms of something likely to trigger it any time soon. I have enjoyed the process of hearing about and learning about a lot of different interesting proposals that are out there for monetary system change and even complete monetary system reform. There are a lot of very intelligent and creative minds that do think about how to improve things or what we might need as a replacement system if the one we have does eventually go under. Just a few interesting ideas I have seen discussed by experts I hear from are:

- using a new version of the SDR (with a hard anchor) issued under Currency Board rules for the global reserve currency. IMF or BIS could issue it. (see details here)

- using a new global reserve currency that is anchored to a stable global equity index 

- a new "Commodity Reserve Currency" concept 

- a new global currency backed either fully or partially by gold. The latest versions of this now also include running this on blockchain based platforms. There seems to be more interest in this possibility in the eastern part of the world right now

There are also other projects being worked on by experts I hear from attempting to make cross border payments easier and less expensive and to establish an "Internet of Rules" to make it easier for businesses engaged in global commerce to apply various rules and regulations related to their line of business and to better hedge foreign currency transactions against volatile exchange rates. 

The goal of these proposals and the related discussions around them is to try and find a monetary system that is stable, fair and best supports the global economy. Some of these proposals are relatively new while others have been around for some time. What I have learned from my own journey on this is that it is good to keep an open mind and try to learn as much as possible about serious potential monetary system change proposals that are out there.

What will matter to most people who will live under whatever monetary system emerges is what actually happens and how that will impact their personal financial decisions. Whatever system is used must have the public trust and confidence or it will not be sustainable. In the event of a major crisis that leads to major change, I believe who the public blames for the crisis will be the key factor in determining who they will listen to for proposed system changes. If no crisis emerges any time soon, the status quo with the US dollar as global reserve currency is firmly entrenched at this time.

It will continue to be interesting to me to follow this and see what happens over time even if the process drags out over many years rather slowly. But I have reached the point in time where producing regular articles on an event that has not happened for 4 1/2 years (major monetary system change) does not seem necessary or of any substantial benefit to readers.

It makes more sense to just monitor things and cover something significant if and when it happens or feature something educational if it seems particularly valuable for readers. If an expert points me to something I usually try to feature that. But I also try to feature anything that any reader feels may be of interest that is relevant to the main topic. The blog will continue to remain online and all archived information will be available to anyone who can use it. Relevant questions or comments are always welcome.


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Added notes: Below are some links to some recent articles and discussions from alternative media that may be of interest. I am just passing along the info links without comment for anyone interested:

Article that proposes that China is slowly working towards a gold backed system
(suggests China is covertly moving towards returning gold to their system)

Jim Rickards monthly interview with Alex Stanczyk (he refers to his recent discussion with former IMF John Lipsky)

Interview with former Dallas Fed Adviser Danielle Di Martino Booth (talks about the prospects for another major financial crisis impacting the current system)

Kinesis Money CEO explains the goals for the Kinesis monetary system in webinar
(this is an example of a proposed alternative monetary system based on gold running on blockchain that intends to launch this fall)

These will give you a feel for some things being talked about in alternative media and not covered in mainstream media that could impact the present monetary system. However, I do not have any information at this time that suggests any of the things discussed just above are likely to impact the present system any time soon.

BIS: Market Value of OTC Derivatives at 10 Year Low

The Bank for International Settlements (BIS) produces a monthly email update. Below is the most recent issue that features an article on how over the counter derivatives have now fallen to a ten year low. 

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June 2018 Central banking: trending and cycling  Speaking at Sveriges Riksbank’s 350th anniversary, Agustín Carstens outlines trends and cycles in central banking. Reducing the risk of wholesale payments fraud  Central banks urge wide take-up of a strategy to improve wholesale payments security. Capital treatment for short-term securitisations The Basel Committee finalises the capital treatment for qualifying securitisations, including asset-backed commercial paper. Market value of over-the-counter derivatives at 10-year low The gross market value of outstanding OTC derivatives fell to $11 trillion at end-2017, mainly as interest rate contracts declined. Challenges for monetary policy from global financial cycles At a Swiss National Bank-International Monetary Fund conference, Agustín Carstens highlights the role of movements of major funding currencies’ exchange rates for global financial conditions. (0:49:00 - 1:00:00) More BIS publications  Publication: Implementation monitoring of PFMI: follow-up Level 3 assessment of CCPs' recovery planning, coverage of financial resources and liquidity stress testing Most central counterparties have made progress in meeting international standards on financial risk management, liquidity and recovery, but some still lag. Working Paper: The enduring link between demography and inflation High shares of young and old push up inflation, while a high share of working age population lowers inflation. Working Paper: The cross-border credit channel and lending standards surveys Central banks’ quantitative easing policies bolstered attitudes towards bank lending, but a negative signalling effect undermined their effectiveness and sapped demand for loans.