Dear Reader,

Central bankers must be very careful with their language. The slightest word or phrase can be interpreted by the market as an indication of future policy. This makes the life of any central banker difficult. Sometimes they simply can’t be frank on the state of the economy. Saying too much can jeopardize their policy goals. That’s one reason that most central bankers appear to be shills for the administrations in power. 

In some ways, they must present a calm public image. If tomorrow Bernanke exclaimed that the U.S. dollar was falling to zero and hyperinflation was on its way, he wouldn’t be doing price stability a favor. Bernanke probably wouldn’t say this anyway, but I doubt that his personal opinions are as rosy as his public remarks. While the market’s reaction to any words from the Federal Reserve can be a hindrance, words can also become another weapon in the central banks’ arsenal. Instead of raising rates, the Fed can publicly promise to raise rates; if they’re credible, the market will respond.

These announcements can temporarily strengthen a currency without raising rates. Of course, this tool must be utilized sparingly. If not, the central bank may find itself in a “boy who cried wolf” situation when it actually does raise rates. If rate increases are unexpected, the market will react unfavorably. Hence, the Federal Reserve has some incentive to avoid habitual lying about future rate decisions.

However, the Fed may soon use this policy. Bernanke simply isn’t ready to raise rates. Does anyone expect a rate hike a month after QEII ends? I strongly doubt it. Therefore Bernanke will use the tools available to him. Trichet over at the ECB has already beaten him to it. With Trichet’s talk of raising rates and rising inflation, the euro continues to gain on the dollar despite the recent credit rating downgrades. Currently, one euro equals almost $1.42. 

But here’s the problem. Trichet’s fun will last only as long as Bernanke keeps his mouth shut, which I don’t think will be for long. If the dollar weakens to the $1.45 and $1.50 range, I wouldn’t be surprised to see Bernanke discussing inflation concerns and the possibility of higher rates. His sincerity should be highly questioned, but such an action would likely be enough for the dollar to regain a little ground.

The only question now is timing. Will Bernanke pull the trigger in response to a weak dollar, or will he save his ammunition for a post-QEII announcement? At some point, he’s sure to use his words as a policy tool rather than raising rates, and it should fool a good many market participants. In next few months, Bernanke’s language will likely see a transformation. However, it’s no reason to believe that he’s finally seen the light. Instead, the words will be a policy move in and of themselves.

Today, we’ll have a long article by Doug Hornig on the trial of Bernard von Nothaus. For those readers unfamiliar with the story: von Nothaus is on trial for his role in creating the Liberty Dollar. Apparently, the feds won’t stand a competing currency based on gold and silver.

I actually remember the Liberty Dollar gaining some small acceptance when I lived in Mississippi. About four or five restaurants began to accept them. I asked one of the participating owners about the degree of customer participation. He said only about seven or eight transactions a month were done with the Liberty Dollar. Nonetheless, it was still interesting to see the Liberty Dollar far from its home base. Usually, competing currencies are geographically confined. Perhaps the broader appeal with the silver backing is what most threatened the feds.

Money on Trial

By Doug Hornig

We know that our readers are probably riveted by the trials and tribulations of Charlie Sheen and Lindsay Lohan. This is important stuff, no doubt. Chas and LiLo, they’re like, y’know, family.

But while their personal trials are playing out in sunny Southern California, on the other side of the continent another trial just wrapped up. Not for TV, nor the flash of still cameras. No microphones shoved in faces. In fact, virtually no media coverage at all. Yet this utterly ignored event just might have been the trial of the new century.

The defendant, in a sense, was money itself.

The question of what constitutes “money” was raised back at the dawn of human trade, when people first began to realize the limitations of a barter system. Over the centuries, many things were used as money, such as shells, cattle, salt and dozens of others, including human beings. But wherever they were available, gold and silver became the standard, for a host of reasons – rarity, durability, divisibility, portability and so on – with which readers of this letter are quite familiar by now.

In the end, money serves two key purposes. It’s a unit of exchange upon which two parties agree, thereby allowing it to be swapped for tangible goods and services. And it should be a store of value, allowing it to have roughly the same buying power next year as it does today, creating confidence in the user and permitting the accumulation of wealth. Precious metals meet both criteria, and meet them well.

What we use for money today, fiat currency unbacked by gold or silver, is adequate for the first purpose, but it fails miserably with the second, simply because there is no limitation on the amount of paper that government (which holds a monopoly) can print, and no possibility that it can hold its value.

When its authors came to write the U.S. Constitution, they gave to Congress the power to “coin Money, regulate the Value thereof, and of Foreign coin, and fix the Standard of Weights and Measures.” Immediately following comes the power to “provide for the Punishment of counterfeiting the Securities and current Coin of the United States.”

These provisions may seem straightforward enough, but they’re not. Though there is plenty of debate on the subject, many interpreters of the Constitution believe that when the Founders wrote “coin Money,” they meant exactly that, and that when they omitted the term “print,” that was on purpose. Those in this camp contend that the authors were specific about this because they had experienced the ruinous inflation that preceded the demise of the Continental, a paper currency that helped finance the Revolutionary War but became all but worthless by the end of it.

And of the second stipulation, the question is: what exactly constitutes a counterfeit coin?

Both of these were in play in the aforementioned trial – U.S. vs. BVNH, which opened on March 7 in federal court in Statesville, the county seat of Iredell County, in western North Carolina.

BVNH is Bernard von Nothaus. Some of our readers will no doubt be familiar with Bernard. He is the founder of Liberty Services (formerly known as NORFED, the National Organization for the Repeal of the Federal Reserve Act). And, more importantly, he is the creator of the Liberty Dollar, the act for which he is now under prosecution.

The Liberty Dollar – first created in October of 1998 – was intended to give Americans freedom of choice. It was for use by people who wanted to conduct their transactions in something of tangible value, rather than inherently worthless paper. Von Nothaus sees himself as a true patriot, offering a product that can function as a citizen’s defense against the ravages of inflation brought on by the systematic debasement of the greenback.

Thus was born his “money,” consisting of silver “rounds” – which are perfectly legal, as opposed to “coins,” which would not be – and certificates redeemable in silver. (There is a smaller number of gold dollars and certs, too.) I have a Liberty Dollar in my hand right now. (Does this make me a potential co-conspirator?) It was minted in 2006, has a face value of $20, and contains an ounce of .999 fine silver. A real bargain at today’s prices.

It’s a thing of beauty with an obverse of Miss Liberty that, on a very passing glance, might suggest an official silver dollar from the U.S. Mint. But even a minimal closer look reveals that it isn’t one. It even bears the maker’s Web address, and it ain’t (although if you go to today, all you’ll find is a single banner that says: Site Removed Due to Court Order).

Alternative paper currencies are not exactly unknown elsewhere in the U.S. these days. BerkShares, for example, are a currency designed and issued for the Berkshire region of Massachusetts, intended to keep money in the area when locals trade amongst themselves. Launched in September of 2006, BerkShares are issued from 12 branch offices of five local banks, which will also convert them back into Federal Reserve Notes. They incorporate anti-counterfeiting features, are accepted by more than 370 businesses in Berkshire County, and over 2 million shares are in circulation.

In addition to BerkShares, we also have the Ithaca (N.Y.) HOURS (original model for them all), the Burlington (Vt.) Bread (whose motto is “In Each Other We Trust”), the Traverse City (Mich.) Bay Buck, and several more either in operation or planned.

None has been busted. But von Nothaus has. Why? Because he both produced coin-like rounds and backed his dollars with metal. Neither of which the government could tolerate as competitors to fiat dollars and coins worth less than their metal content. Also annoying was the Liberty Dollar’s wide acceptance, with about US$20 million worth – in gold-and-silver specie, redeemable certificates, and digital form – in circulation worldwide.

The mint warned him to stop. He didn’t.

On November 14, 2007, the feds took to the field. Agents from the FBI and Secret Service swarmed the Liberty Dollar Company’s (LDC) Indiana offices and Idaho production facilities. They seized everything in sight, including 9 tons of gold, silver, platinum and copper, along with all the company’s files and all its computers. They froze LDC’s bank accounts. They confiscated the gold and silver bullion that backed up the paper certificates and digital currency, and was securely held in a commercial vault on behalf of the LDC by Coeur d’Alene, Idaho’s Sunshine Mint. Even the dies for minting the Liberties were taken. 

It was one of the larger and more egregious confiscations of private property in U.S. history. And no one cared. Outside of the Internet and a handful of right-wing talk shows, virtually no one spoke out publicly against this atrocity. Including, ironically, Ron Paul, whose image had been featured on some of Liberty’s rounds and who was then gearing up for his presidential campaign.

Despite the lack of resemblance between his products and official U.S. coins, von Nothaus was charged with counterfeiting, along with three colleagues, who are being tried separately later on this spring.

The intervening years brought a tangle of legal shenanigans too convoluted to go into here, but the takeaway is this: von Nothaus was offered a plea bargain and turned it down, saying that this raid “was a direct assault against the U.S. Constitution and your right to own and use gold and silver in any way you choose,” and vowing to fight the charge all the way to the Supreme Court.

(As an aside, it’s worth noting that North Carolina is the site of the trial because that’s where the initial complaint against Liberty currency was sworn out. All in the “public interest,” of course. According to a government spokesperson, “Merchants and banks [around the country] are confronted by confused customers demanding they accept Liberty Dollars.” For anyone needing a clear illustration of the difference between a reason and an excuse, there it is.)

The face-off down in Statesville was a classic confrontation between a single individual and the full might of the U.S. government, over some pretty basic rights.

Most gave von Nothaus little chance from the get-go. But considering public sentiment about our fiscal mess these days, a conviction was by no means a slam dunk. It was not inconceivable that twelve good folks and true would take the side of liberty.

You may remember a column I wrote not long ago in which I detailed the efforts of legislators here in my home state, the Commonwealth of Virginia, to launch a study into the possibility of developing our own currency. Among other things, they put their philosophy down in writing, and it’s a credo that puts them on a collision course with the feds every bit as inevitable as Bernard von Nothaus’s: “Americans may employ whatever currency they choose to stipulate as the medium for payment of their private debts, including gold or silver, or both, to the exclusion of a currency not redeemable in gold or silver that Congress may have designated 'legal tender'.” That must’ve warmed Bernard’s heart.

I remember my colleague David Galland once opening a Casey conference by saying: “So who is Lindsay Lohan, anyway, and why do we care how much she drinks?” Good question. I’m sure, given the intellectual quality of our readership, your answer would be, “We don’t.” But far more Americans are fascinated by her trials than have even heard of the supremely important one down in North Carolina. And that’s sad. Because von Nothaus’s fate matters, to all of us, an awful lot more than whether LiLo is headed for jail or rehab.

As I was finishing this article last Friday, the verdict came down, and von Nothaus sent a message to his email list:

I sincerely regret to inform you that I was found guilty on all four counts regarding the Liberty Dollar in less than an hour on Friday, March 18. The only explanation is that a strong, anti-liberty person took control of a weak-willed jury and pushed the verdict through in record time in spite of well-worded Jury Instructions. A government forfeiture hearing immediately followed the conviction. PLEASE NOTE: Your property is at risk, so please continue to read these emails and take action so the government does not steal your property. An appeal is planned, but that will take years. More news to follow. An unofficial, but most interesting account of the trial is available via Heather's blog at:
God help you and our country as America descends into a hellish hyperinflationary future without the benefits of the Liberty Dollar.

I am very sorry our efforts to return America to value failed.

We are, too.

[The government may have stopped Bernard von Nothaus in creating sound money, but it can’t stop you from buying gold and silver bullion to protect your assets. As the U.S. dollar loses more and more of its value, only precious metals and related, sound investments can save your wealth. Read more about our gold expert’s portfolio strategies that can make all the difference for your year-end balance sheets.]

Thanks Doug. Vedran Vuk here again. Before I go today, I wanted to share with our readers a fun website, Besides serving as a decent gold and silver news aggregator, the site provides the melt value for U.S. coins. And I’m not talking just about the melt value for old silver coins. The site provides the melt values for even zinc, copper and nickel in the junk that we carry today. For example, today lists a 1909-1982 penny as worth $0.0282686 in melt value while the 1982-2011 penny is worth only $0.0061992. And who knew that the nickel is now worth almost 7 cents in melt value. It’s a neat website. I hope you get a kick out of it.

One last thing; yesterday I mentioned the hypocrites that would emerge among the Left after the strike on Libya. Well, here’s the start, an article from the very liberal Mother Jones defending the great leader on the bombings. Essentially, the liberal excuse seems to be that because Britain, France, Spain and a few dictators in the Middle East agree with us, this war is entirely different.

What a logically bankrupt idea. If I similarly argued that gold was going up because a coalition of my friends agreed, I’d have lost my job at Casey Research ages ago. Whether Bob, Joe and Susan agree with you has nothing to do with whether an idea is good or bad. However, I’m not surprised by this lame excuse. Don’t expect much logic from hypocrites.

Thanks for reading and subscribing to Casey’s Daily Dispatch.

Vedran Vuk
Casey's Daily Dispatch Editor