Creature From Jekyll Island by G. Edward

pay for a return to monetary sobriety. A hangover cannot be avoided, except by continuing the binge, which is the road to death. Let's take a look at what this binge has already cost us. We will measure that by calculating how much each Federal Reserve Note will be worth when the new money appears.

The following figures are presented for illustrative purposes only. The data are drawn from public sources and from the Federal Reserve itself, but there is no way to know how accurate they really are. In addition to the question of accuracy, there are some statistical items which are so obscure that not even the experts at the Fed are certain what they mean. When the time comes to apply this program, it will be necessary to assemble a task force of experts who can audit the books and assay the metals. Nevertheless, based on the best information available to the public, this is what we get: The total quantity of silver held by the government on

September 30, 1993, was 30,200,000 troy ounces. If we

assume the new dollar will be defined as 371.25 grains of silver (which equals .77344 troy ounces), then that supply is valued at $39,046,338.1

The price of gold on that date was 384.95 Federal-Reserve notes per ounce. Silver was 4.99 fiat dollars per ounce. The ratio between them, therefore, was 77-to-1.

The supply of gold was 261,900,000 ounces. The value of the gold supply, therefore, (at 77 times its weight in ounces) was $26,073,517,000.

The value of silver and gold combined would be

$26,112,563,338.

1. A l t h o u g h the w e i g h t of the s i l v e r - d o l l a r is 412.5 grains (.8594 t r o y ounces), it is o n l y 9 0 % p u r e . Its silver content, h o w e v e r , is exactly 371.25 grains (.77344 troy ounces).

A REALISTIC SCENARIO

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The number of Federal-Reserve notes this supply would have to redeem would be the combined total of the Ml money

supply (currency and demand deposits) plus the additional number of notes needed to pay off the national debt. Ml on September 27, 1993, was 1,103,700,000,000 FRNs.1 The

national debt stood at 4,395,700,000,000 FRNs. The total

amount to be redeemed, therefore, would be

5,499,400,000,000 FRNs.

The bottom line of this calculation is that the value of each Federal-Reserve note will be equal to .0047 silver dollar. One silver dollar would be worth 213 Federal-Reserve notes!

BAD, BUT NOT THAT BAD

That will be a bitter pill to swallow, but it sounds worse than it really is. Remember that the new dollars will have more purchasing power than the old. Coins will play a larger role in everyday transactions. The nickel phone call and the ten-cent cigar will have returned. In the beginning at least, the price of these items probably will be less than that. As explained in chapter seven, any quantity of gold or silver will work as the foundation for a monetary system. If the quantity is low—-as certainly will be the case at the time of transition—it merely means the value of each unit of measure will be high. In that case, coins will solve the problem. Pennies would be used for a cup of coffee; one mill (a tenth of a cent) would pay for a phone call, and so on. New, small-denomination tokens would fill that need. In a relatively short period of time, however, the monetary supply of gold and silver would increase in response to free-market demand. When the supply increases, the relative value will decrease until a natural equilibrium is reached—as always has happened in the past. At that point, the tokens will no longer be needed and can be phased out.

An inconvenience? Yes. Vending machines will have to be

retrofitted for the new coins, but that would be no more difficult than retrofitting them to take paper bills or plastic debit cards, which is what will be required if we do not adopt these measures. It is a small price to pay for an orderly return to real money.

1 . For those w h o feel that M 2 o r M 3 w o u l d b e a m o r e logical figure, see 'Is M l Subtractive o r A c c u m u l a t i v e ? ' i n the A p p e n d i x , c o n t a i n i n g the a u t h o r ' s notes a n d correspondence w i t h t h e Federal Reserve.

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THE CREATURE FROM JEKYLL ISLAND

Another possible solution would be to redefine the new dollar to contain a smaller quantity of silver. The advantage would be that we could continue to use our present coinage. On the negative side, however, is the fact that it would create headaches after the transition, because coinage then would be too cheap. Instead of changing over now, we would merely be postponing the task for later. Now is the time to do it—and do it right. The original value of a silver dollar was determined after centuries of trial and error. We don't have to reinvent the wheel. We know that it will work in the long run.

In the past, the banks have enjoyed a bountiful cash flow from interest on money created out of nothing. That will change. They will have to make a clear distinction between demand deposits and time deposits. Customers will be informed that, if they want the privilege of receiving their money back on demand, their deposit of coins or Treasury Certificates will be kept in the vault and not loaned to others. Therefore, it will not earn interest for the bank. If the bank cannot make money on the deposit, then it must charge the depositor a fee for safeguarding his money and for checking services. If the customer wants to earn interest on his deposit, then he will be informed that it will be invested or loaned out, in which case he cannot expect to get it back any time he wants. He will knowingly put his money into a time deposit with the agreement that a specified amount of time must pass before the investment matures.

The effect of this practice on banking will be enormous. Banks will have to pay higher interest rates to attract investment capital.