Slate’s Strange Currency On Monetary Gold

By Aaron Krowne

Slate magazine recently published an article by Annie Lowrey called “Strange Currency” excoriating various efforts by states and activists around the country to move back towards sound money by re-introducing a monetary role for gold and silver.  The piece (of garbage), which I will not give the undeserved honor of linking to (I’m sure you can find it easily enough on Google, if you feel you have too many brain cells currently), will be rebutted here, albeit almost a month belatedly.  But better late than never; I promised the author a blistering rebuttal, and if anything I’m a man of my word.

The article wasn’t just bad, it actually boggles the mind how disingenuous a story at such a high-profile publishing outlet could be — and have the “journalists” involved generally get away with it.

It begins by painting an imaginary picture of a laborious daily life spent weighing bars and coins, hauling them to and fro from the state paymaster and retail vendors, struggling to make change, and even (I’m not making this up) refining silver ore in your basement to fabricate coins (something no generic user of money under a gold/silver standard has ever had to do).

There is so much wrong with that, it’s hard to decide where to begin.

For instance, the proposed Georgia “Constitutional Tender” law (first up in the Slate hit piece) has little to do with paying taxes in satchels of physical coins.   Instead, it mandates a new class of bank account 100% backed by gold and silver coins.  As far as day-to-day use under this system, taxpayers would never have to handle coins (unless they really wanted to).   Payments would normally be by bank draft, as they are now, whenever you write a check.

Did Lowrey even read the law before “informing” us of its content in the manner of such a ridiculous boogeyman caricature?  One wonders.

At any rate, this sort of gross misrepresentation isn’t surprising, since Lowrey obviously writes not from a neutral journalistic perspective, but rather with the axiomatic bias that gold-backed money is simply a loony idea from the outset.

I’m amused any time I see rhetoric from that perspective, for the simple reason that the dollar was backed by gold until 1971, and at that time almost everyone considered it utterly insane to have an entirely unbacked currency, as we do today (if they even moved beyond considering a gold backing as automatic as breathing air or drinking water).  Yet, the authorities said it was to be so, and thus eventually that attitude became the conventional wisdom.  And it stayed that way for a long time, resulting in the kind of puerile ignorance Slate now proffers as economic insight.

But now this consensus is being shattered, as we have more and more prominent analysts and authorities admitting that indeed, after decades of ruinous economy-wide bubbles and imbalances,  a purely fiat global monetary system may not have been such a great idea.

Indeed, Lowrey does not seem to have noticed that such “nobodies” as Alan Greenspan, Bill Clinton, Robert Zoellick, and the Thomas Hoenig (at an obscure institution called “The Fed”, or something like that) have all recently expressed support for reintroducing some form of gold backing into the world’s monetary system.   Of course, it would be difficult to vilify loony right-wing bumpkin state legislators if this little factoid was mentioned in the article.

But this water-carrying for toilet-paper-funny-money and our de facto status quo of bankster financial totalitarism is even more disturbing in light of the reality that government funds have indeed been threatened by monetary instabilities in the context of the financial crisis.

For example, remember this blast from the past from Nov 29, 2007? Slate doesn’t:

Florida halted withdrawals from a $15 billion local-government fund Thursday after concerns over losses related to subprime mortgages prompted investors to pull roughly $10 billion out of the fund in recent weeks.

The State Board of Administration met earlier Thursday and voted to immediately freeze withdrawals, spokesman Michael McCauley said.

The decision shows how far this year’s subprime-fueled credit crisis has spread. Florida’s Local Government Investment Pool, which had more than $27 billion in assets at the end of September, is like a money-market fund that’s supposed to invest in ultrasafe assets to provide participants with a secure place to stash spare cash. But even these types of funds have been hit by the widening crunch.

Ultimately the Fed and the Treasury had to step in and bail out the entire money market system in the depths of the fall 2008 stage of the crisis.  Rep. Kanjorski even claims ~$500B was poised to be withdrawn from money market funds, had the monetary authorities not stepped in.  While this has never been precisely confirmed, it doesn’t exactly instill confidence in our fiat money system that a US Congressman was running around saying such a thing.

Of course, the problems go with how state money is preserved for safekeeping go beyond such funds to the entire vast edifice of government banking involvement (e.g. FDIC insurance) and  government pension accounts.

I imagine the durability of all that money (ostensibly held in trust for the public) is of no concern to the paternal humanitarians at Slate. I guess the state will just hold the people’s money in stock of bailed out institutions, with the Fed printing the money to keep them solvent?  (That is essentially what today’s dollar is — if you don’t believe me, ask yourself what would happen to the dollar, the banks, the stock and money markets and all of these pension funds if the Fed stopped and reversed all of its bailout printing).

I’m sure that will work out well for the general public’s long-term interests.

There are other kindergarten-level errors in the article I’ll only bother to gloss over: the mention of Soros calling gold “the ultimate bubble” (he’s been increasing his gold stake since uttering this statement, since, as obvious from the full context as seen by anyone who reads beyond pull-quotes selected by the wire service monkeys, he expects gold’s popularity will dramatically rise into the future); worries about “mine supply” altering the gold supply and hence value are trivial compared to fluctuations in the fiat money supply, exchange rate, and banking system condition; and concerns about US gold/silver Eagles being “in short supply” are totally artificial as the Mint is (by law) supposed to manufacture them to meet public demand (perhaps it should be held to account so that it actually is doing so on a more regular basis)?

And of course, never mind the fact that the Constitution still requires that states make “nothing other than gold and silver coin tender in payment of debts.”   Color me surprised that Slate buys into a vision of our government that is totally lawless with respect to money, and hence can ignore such powdered-wig anachronisms.

Yes, you all following along at home can breathe a big sigh of relief: in the near term, the caring stewards of your economic welfare at Slate are probably right; no one will compel you to transfer any of your hard-earned money into gold or silver, so that it might better be preserved from disappearing from your bank or brokerage account in the latest Wall Street scam, rapidly erode in real value due to Bernanke’s mad money printing (to bail out aforementioned banksters), or disappear from your state government’s coffers AFTER you’ve paid it to them with the expectation it will actually make it to its putative public spending purpose.    Sleep soundly, as they do at Slate, knowing all of this whacky Post-It-note IOU-money excitement will be allowed to continue unabated!