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Tuesday, September 25, 2007

The Gold and Silver Contracts Scam

I read an interesting article. It said that if gold and silver are used as money, then the legal system does not consider it to be an enforceable contract.

In other words, if I hire you and agree to pay you 2 ounces of silver per hour, that is not a valid employment contract. I can agree to pay you $26 per hour, but I can't agree to pay you in physical silver. I can't agree to pay you in dollars and automatically adjust your salary as the price of silver changes. Of course, two people can do whatever they want in private if they don't tell anyone else. The problem is that the corrupt legal system doesn't recognize contracts that use gold or silver as money.

In anticipation of a devaluation of the dollar, before 1933 many debt contracts demanded payment in gold, not dollars. If the dollar was devalued relative to gold, the number of dollars required to repay the loan would be increased.

Sure enough, in 1933 President Roosevelt confiscated everyone's gold. He immediately devalued the dollar by nearly 50%. The government claimed the difference between the old price of gold and the new price as a profit. However, one purpose of devaluing the dollar was to provide relief to debtors. Many smart creditors had protected themselves with clauses increasing the payments due if the dollar were devalued relative to gold.

The insiders of the international banking cartel borrowed from the Federal Reserve and other banks at the bottom of the Great Depression. This enabled them to purchase many assets cheaply. By devaluing the dollar, these loans could be repaid in cheapened dollars. The international banking cartel made a huge profit twice. First, they got to buy assets cheaply at the bottom. Second, they were able to partially default on their loans as the dollar was devalued. However, smart creditors had protected themselves with clauses increased the loan payments if the dollar were devalued.

Congress passed a law saying that these clauses were invalid. Loans could be repaid in devalued dollars without adjustment. In other words, Congress screwed over every creditor and gave a huge subsidy to every debtor. Contracts are not allowed to have clauses that adjust the payments when the dollar is devalued relative to gold. This law is still on the books!

I couldn't believe this when I read it. Even though individuals were granted the right to own gold, the prohibition on gold-denominated contracts was never lifted! People are allowed to trade gold as a commodity. You are allowed to buy gold futures contracts. You are *FORBIDDEN* to use gold as money. Well, you can use gold as money if you want to; it's just that the corrupt legal system won't recognize gold-as-money contracts as enforceable. The source I read didn't say if the prohibition applies to silver as well. I suppose that the prohibition applies to silver as well, because you don't see any silver-denominated contracts either.

Except for futures bullion contracts, any contract that demands payment in gold is legally null and void. Any contract that contains a clause that compensates for devaluation in the dollar relative to gold is null and void. The corrupt legal system does not recognize contracts denominated in gold as valid.

Actually, this doesn't bother me at all. The agorist community is going to set up its own legal system and contract enforcement system. It doesn't matter that the corrupt legal system refuses to recognize contracts that use gold and silver as money.

It's even better that the legal system doesn't recognize gold and silver as money! If I hire someone for 2 ounces of silver per hour, and pay them in physical silver, I don't have an employer/employee relationship with him. I merely gave the other person a gift of silver, and the other person gave me a gift of free labor. As long as the value of the transaction is less than $10,000, it isn't reportable to the IRS as a gift!

After I wrote this article, I found that some sources say that gold clause contracts are actually legal now. They are not commonplace. The tax treatment of gold contracts strongly discourage using gold as money. For example, suppose I buy 1 ounce of gold for $700/ounce. Later, I buy something that costs 1 ounce of gold when the spot price of gold is $800/ounce. I have a capital gain of $100 on which I must pay income taxes. This tax treatment is a huge disincentive against using gold as money. If you want to use gold and silver as money, your only practical option is to work in the grey market.

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