HardAssetsInvestor

Norman: How about this? If you have a tax liability — you live in the United States, right?

James: I do.

Norman: If you have a tax liability to the U.S. government, and you need to pay the IRS, and you go there with a bar of gold, or some gold coins, what’s the IRS going to do? They’re going to tell you, “Go sell that and give us U.S. dollars.” Are you saying that at some point down the road the IRS will say, “Forget about the dollars, we want your gold?”

James: The state of Utah passed legislation enabling . . .

Norman: Right, but that’s not the federal government. States do that.

James: But it’s a bellwether kind of thing. That’s a striking strong wind, isn’t it? If a state government passes such a measure, doesn’t that sort of tell you something?

Norman: Personally I think it’s a silly measure because the gold standard, by the way it works, fixes the quantity of money. So if you think you’re going to grow your economy by fixing the quantity of money, then basically your economy becomes a zero-sum game where some people have the money and some people don’t.

James: I disagree.

Norman: It’s been that way for 5,000 years, until you went off it.

James: Well, no — it’s close, but not quite actually. There is mining. I said it was marginal, but there is mining. It’s an interesting thing: It turns out the natural growth rate of gold on the surface of the earth is about 3-plus percent. That’s what the mines in discovery over history have averaged out to.

And it turns out that if you’re trying to grow a stable economy, you’ve got a growing economy, you need more money in circulation to accommodate that.

Norman: Correct.

James: But that’s a pretty healthy level. That’s a manageable level . . .

Norman: I think the Chinese would argue differently. A 3 percent growth rate for China would be a Depression. But anyway, I guess it would be good for us. We were growing at 3 percent at one point last year.

James: I’m talking long-term historical averages. China had some very interesting peculiarities of its own . . . another conversation.

Norman: To be sure. So let’s talk about some price levels. Where do you see gold going, let’s say, in the next five years, in the next 10 years?

James: Oh wow, those are pretty long terms. Most of my subscribers want to know “what have you done for me lately; what should I buy now; where is it going next?”

It sounds crazy to say this, but there is almost no limit. If you were to actually go back on a gold standard, there are different calculations ranging from $10,000 to $40,000 an ounce . . .

Norman: Do you think that would ever happen?

James: . . . to back to dollar. Other countries have gone over the edge into hyperinflation, and people say, “It could never happen here.” But when you’re stuck between a rock and a hard place, very smart people do stupid things because they have no choice. And if such a thing were to happen where it became politically necessary to do something, what they do is . . . you’ve got the Yugoslavian currency going out of existence, and you’ve got to replace it with something — they replaced it with deutschmarks. When Zimbabwe had its hyperinflation, they basically said, “Hands off; you can use whatever currency you want.” So you replace what doesn’t work, what isn’t accepted, with something that is. So yes, I believe it actually can happen.

Norman: The problem with the examples you just gave is that when you start to denominate your debts in somebody else’s currency, or in some unit of convertibility, yes, that could happen. But the United States ... all of its debts are denominated in dollars. It’s . . .

James: It’s very interesting. It would be a tumultuous change. And this is why Doug is calling for the Greater Depression. These are not easy things. But just because it would be painful, just because the prescription, if you will, is chemotherapy and that’s serious business, it doesn’t mean you say, “Well, we’re just going to live with the cancer.” You don’t live with the cancer; you die with the cancer.