Feds try to seize "Liberty Dollars"

[Unidyne]

http://finance.yahoo.com/news/Feds-seek ... l?x=0&.v=1

Quoting the article:

RALEIGH, N.C. (AP) -- Federal prosecutors on Monday tried to take a hoard of silver "Liberty Dollars" worth about $7 million that authorities say was invented by an Indiana man to compete with U.S. currency.

Bernard von NotHaus, 67, was convicted last month in federal court in Statesville on conspiracy and counterfeiting charges for making and selling the currency, which he promoted as inflation-proof competition for the U.S. dollar.

His Charlotte-based lawyer, Aaron Michel, is appealing that verdict. He wrote in a motion filed Thursday that von NotHaus did nothing wrong because he didn't try to pass the Liberty Dollars off as U.S. dollars.

"The prosecutors successfully painted Mr. von NotHaus in a false light and now the U.S. Attorney responsible for the prosecution is painting the case in a false light, saying that it establishes that private voluntary barter currency is illegal," Michel wrote.

The trial was scheduled to resume Monday in Statesville. The case involves more than five tons of Liberty Dollars and precious metals seized from a warehouse, which the government wants to take by forfeiture, according to federal prosecutors and Michel.

Read the commentaries under the article. Seems von NutHouse still has his followers.

[The Operative]

Read the commentaries under the article. Seems von NutHouse still has his followers.

Yes, there doesn't seem to be an end to the people that because they read Griffin's drivel or Ron Paul's anti-Fed tirade they are now economic masterminds.

[The Dog]

The item below has just appeared on the FBI website:

Private Tender
Anti-Government Group Mints Its Own Coins
http://www.fbi.gov/news/stories/2011/ap ... lar_040511

[Brandybuck]

In my mind it still comes down to a voluntary exchange between individuals. I see nothing wrong with minting silver or gold tokens and using them as a private medium of exchange. The mistake NutHaus made was in tweaking the Fed's nose. I'm still not sure he violated any letter of the law, but when you are riding the ragged edge of that law, it is most unwise to piss of the eight hundred pound gorilla.

I have little sympathy for him though, as his coins were grossly overpriced, and he engaged in some rather shady business practices.

p.s. If those $5 million in coins were in his "warehouse", wouldn't his certificate holding customers have claims on them?

[bmielke]

Did they value this the way they value illegal guns? As scrap value? Because if they did wouldn't $7 million in silver be a lot of silver? Or is the $7 Million what he was paid?

[silversopp]

I believe the problem came down to him calling the coins "dollars" which would confuse those accepting the coins.

There are plenty of private barter currencies out there, like bonus points you earn on a credit card that you can redeem for cash, gift certificates, etc. Those points are clearly labeled as such, and you know that you can only use those points for those specific products offered. The credit card companies are not encouraging you to go to Wal-Mart and try to buy stuff from them by transfering your "points" to Wal-Mart.

I think if Liberty Dollars were called "Liberty Tokens" and if Van Nuthead had reached agreements with various vendors to accept those silver tokens, and made it very clear you should only use those coins at those vendors, they would be in good shape.

[Quixote]

In my mind it still comes down to a voluntary exchange between individuals. I see nothing wrong with minting silver or gold tokens and using them as a private medium of exchange. The mistake NutHaus made was in tweaking the Fed's nose. I'm still not sure he violated any letter of the law, but when you are riding the ragged edge of that law, it is most unwise to piss of the eight hundred pound gorilla.

I have little sympathy for him though, as his coins were grossly overpriced, and he engaged in some rather shady business practices.

p.s. If those $5 million in coins were in his "warehouse", wouldn't his certificate holding customers have claims on them?

The mistake NutHaus made was urging his followers to pass off LDs as U.S. currency. He advised his followers to blur the line between LDs and real money. Had he only minted metal tokens to be used to facilitate barter, even tokens that resembled U.S. coinage, I doubt he would have had a problem. But he openly stated his desire that LDs replace FRNs as the standard U.S. currency.

[Pottapaug1938]

I agree that, if von Nothaus had created precious metal tokens, of reliable weight and fineness, and offered them as other people have suggested, he would not be awaiting sentencing today.

That being said, I still don't think that they'd work well as a medium of barter exchange. If I'm the proprietor of the Pottapaug General Store, I'd be concerned that the Liberty Tokens I gave out in barter might benefit the recipient instead of myself, if the bullion price rose; so I'd adjust the value of what I took in barter to protect me against coming out short on the deal. I'd also be concerned about accepting the Liberty Tokens and then seeing the price of bullion fall (as in 1980). True, the price could change in my benefit; but if I want to speculate in precious metals I can easily do so without making the profit and loss statement of my store dependent on the vagaries of commodity prices.

[notorial dissent]

As both Pottapaug and Quixote point out, if all von Nutbert had done was mint the tokens, and not tried to pass them off as currency, or make a point of calling them a replacement for currency he would have been fine, but instead, he made them look like US coins, and no one with any eyesight or common sense can say he didn't, and then he specifically made the claims he made, that was intent and nothing less.

The fact that he was charging twice or better their actual value and then turning around and claiming they were "inflation proof" was the major fraud in my opinion.

The problem with using precious metal as trade medium is that you have to be constantly aware of the current value of the metal at any given point and adjust your exchange accordingly. I face this when I buy bullion coins, I not only have to pay the coin value, but the current metal value when I make a purchase, and it is never the same. I wouldn't want to run a business based on that unless I was dealing in quantity and had some control. My suspicion is that the house would have the edge in that they would pad their costs and exchange rate to cover the fluctuations, and the buyer would end up paying more in the end. I seem to remember from my history studies that during the gold rush era when there was lots of loose metal and not a lot of coin that one of the advertising points a merchant made was about how good or fair their exchange rate was in comparison to the competitions for goods.

I think it ultimately boils down to von Nutbert being a liar, a fraud, and a really poor businessman. And his customers all got screwed.

[Pottapaug1938]

The problem with using precious metal as trade medium is that you have to be constantly aware of the current value of the metal at any given point and adjust your exchange accordingly. I face this when I buy bullion coins, I not only have to pay the coin value, but the current metal value when I make a purchase, and it is never the same. I wouldn't want to run a business based on that unless I was dealing in quantity and had some control. My suspicion is that the house would have the edge in that they would pad their costs and exchange rate to cover the fluctuations, and the buyer would end up paying more in the end. I seem to remember from my history studies that during the gold rush era when there was lots of loose metal and not a lot of coin that one of the advertising points a merchant made was about how good or fair their exchange rate was in comparison to the competitions for goods.

That brings to mind some interesting pieces of numismatic history. As notorial dissent points out, accurate valuation of gold dust (of unknown fineness) could be problematic; so throughout California various "private mint" and state issues sprang up. Some were just gold ingots with the weight, fineness and assayer's name stamped on them; but many of them were made to the same size and weight standards of official U.S. gold coins. In fact, many of them closely and skilfully imitated the official designs, except that, in one example, you'd see "Moffat & Co" instead of "Liberty" and "S.M.V California Gold" (for Standard Mint Value) instead of "United States of America".

Most of these private issues strove to be honest; but enough distrust existed, and enough hardship created due to the lack of sufficient money (a useful lesson to the "gold bugs" of today) that the United States Mint decided to establish a branch mint in San Francisco, so that legal tender gold and silver coinage could be produced without the need to ship the raw metal or ingots to Philadelphia or New Orleans for coinage (the Carson City and Denver mints came about for similar reasons).

[ArthurWankspittle]

I believe the problem came down to him calling the coins "dollars" which would confuse those accepting the coins.

Weren't they stamped with a dollar sign "$" and a numerical value? Surely that is a real red flag to the FBI and the treasury?

[Quixote]

The problem with using precious metal as trade medium is that you have to be constantly aware of the current value of the metal at any given point and adjust your exchange accordingly. ...

I seem to remember from my history studies that during the gold rush era when there was lots of loose metal and not a lot of coin that one of the advertising points a merchant made was about how good or fair their exchange rate was in comparison to the competitions for goods.

The same sort of thing is seen with paper money during hyper-inflation if an alternative, even one that is only marginally legal exists.

When I was visiting Venezuela in 1996, the official exchange rate was 270 bolivars per dollar. The market rate was in rapid flux and hadn't been as low as 270 for at least 6 months. But if I exchanged dollars for bolivars at a bank, that's the rate I would get. The market rate, for the two weeks I was there, was 360 bolivars per dollar. If I paid in dollars, rather than bolivars, various shops and restaurants would offer more favorable rates ranging as high as the market rate. I didn't realize that paying in dollars was illegal until one shop owner appeared scandalized that I would offer him dollars instead of bolivars. Fortunately, by then I had discovered a quasi-legal source that would give me 360 bolivars per dollar, the cashier at the US embassy.

[Unidyne]

Von NotHaus apparently thought he could do in gold, silver and copper what the folks in Ithaca NY did with their "Ithaca Hours" notes.

The "Hours" are a locally operated scrip (officially known as a "community currency") that is designed to be used by local merchants. It's also very successful as a local program. The bills are exchanged at $10 to the Hour, so a 1/10th Hour note is worth $1, a 1/2 Hour is $5, etc.

However, unlike other "private currencies" like the Liberty Dollars or Angel Cruz's "United States Private Dollars", Ithaca hours were established with a lot of legal research. According to assorted Federal laws, such scrip must follow the following rules:

- It must be fully redeemable in US currency at face value.
- It cannot be issued in denominations lower than $1.
- It cannot be designed to be easily confused with actual US currency.
- It is taxable income when traded for professional goods or services.

http://www.ithacahours.org/
http://en.wikipedia.org/wiki/Local_currency
http://en.wikipedia.org/wiki/Ithaca_hours

Such laws were enacted after companies (often coal mining operations) during the Great Depression were paying their workers in company scrip that was valid only in company stores (that charged artificially high prices). If they wanted to change the scrip into US currency, they had to pay a "processing fee" of as much as 20 cents to the dollar, holding the workers in de facto serfdom to the company. Federal laws later enacted under the Roosevelt administration that required company scrip be exchanged at face value for US currency put an end to the practice.

http://en.wikipedia.org/wiki/Company_scrip

Believe it or not, in 2008, WalMart de Mexico was ordered by Mexico's Supreme Court to stop paying workers in company scrip redeemable only at WalMart stores.

http://jurist.law.pitt.edu/paperchase/2 ... art-to.php
http://afp.google.com/article/ALeqM5ikn ... zX3s98LyRQ
http://www.reuters.com/article/2008/09/ ... 1320080905
(Spanish): http://www.eluniversal.com.mx/notas/535941.html

[bmielke]

Von NotHaus apparently thought he could do in gold, silver and copper what the folks in Ithaca NY did with their "Ithaca Hours" notes.

The "Hours" are a locally operated scrip (officially known as a "community currency") that is designed to be used by local merchants. It's also very successful as a local program. The bills are exchanged at $10 to the Hour, so a 1/10th Hour note is worth $1, a 1/2 Hour is $5, etc.

However, unlike other "private currencies" like the Liberty Dollars or Angel Cruz's "United States Private Dollars", Ithaca hours were established with a lot of legal research. According to assorted Federal laws, such scrip must follow the following rules:

- It must be fully redeemable in US currency at face value.
- It cannot be issued in denominations lower than $1.
- It cannot be designed to be easily confused with actual US currency.
- It is taxable income when traded for professional goods or services.

http://www.ithacahours.org/
http://en.wikipedia.org/wiki/Local_currency
http://en.wikipedia.org/wiki/Ithaca_hours

Such laws were enacted after companies (often coal mining operations) during the Great Depression were paying their workers in company scrip that was valid only in company stores (that charged artificially high prices). If they wanted to change the scrip into US currency, they had to pay a "processing fee" of as much as 20 cents to the dollar, holding the workers in de facto serfdom to the company. Federal laws later enacted under the Roosevelt administration that required company scrip be exchanged at face value for US currency put an end to the practice.

http://en.wikipedia.org/wiki/Company_scrip

Believe it or not, in 2008, WalMart de Mexico was ordered by Mexico's Supreme Court to stop paying workers in company scrip redeemable only at WalMart stores.

http://jurist.law.pitt.edu/paperchase/2 ... art-to.php
http://afp.google.com/article/ALeqM5ikn ... zX3s98LyRQ
http://www.reuters.com/article/2008/09/ ... 1320080905
(Spanish): http://www.eluniversal.com.mx/notas/535941.html

Great Barrington Massachusetts set up a similar private currency, the Bureau of Printing and Engraving printed it for them.

[Brandybuck]

That being said, I still don't think that they'd work well as a medium of barter exchange.

Money is itself merely indirect barter. When a good becomes used for indirect barter often enough that other goods are priced according to it, then it becomes money. And due to network effects, secondary monetary denominations will be extremely rare. This is where alternate currencies break down. No one wants to mark two sets of prices on the menu.

Too many goldbugs get stuck on this point. They think gold is money even though prices are not in gold and no one accepts it for purchases. Ditto for silver.

[Pottapaug1938]

The goldbugs sit around, misty-eyed, and think back to halcyon days when you held a $5.00 half eagle in your hand and knew that it contained $5.00 worth of gold.

They overlook the fact that the price of gold remained steady, in raw dollar terms, for almost 100 years; otherwise the half eagle might contain more, or less, than $5.00 worth of gold (flucutation issues like this were responsible for the export and melting of much of our early precious metal coinage almost as soon as it went into circulation). They also overlook the fact that you could not buy, in 1925, what you could have bought with the very same coin in 1845.

In short, they are chasing the vision of a stable-value unit of money, which never existed.

[notorial dissent]

The goldbugs sit around, misty-eyed, and think back to halcyon days when you held a $5.00 half eagle in your hand and knew that it contained $5.00 worth of gold.
And I'm not even sure that is correct, I seem to remember that the "official" coins were never exactly worth par, but were close enough to not matter. The critical point was that they guaranteed that the buying power of the coin was set at $5 when that was an incredible lot of money in the last half of the 19th C.
They overlook the fact that the price of gold remained steady, in raw dollar terms, for almost 100 years; otherwise the half eagle might contain more, or less, than $5.00 worth of gold (flucutation issues like this were responsible for the export and melting of much of our early precious metal coinage almost as soon as it went into circulation). They also overlook the fact that you could not buy, in 1925, what you could have bought with the very same coin in 1845.
Agreed, what they overlook was that the gov't was buying the produced gold at an artificially set price, call it $35 and ounce since I am too lazy tonight to look up the call price they were using at various times, and whether low or high it was what you got for the metal unless you sold it to some other venue-and there weren't many at the time, as the gov't was the main buyer at the time. So granted, the price of gold stayed pretty contant, the same can't be said for the price of goods which fluctuated wildly at times, and while that $5 might get you a lot one day, the next day it might not buy you breakfast in one of the mining camps.
In short, they are chasing the vision of a stable-value unit of money, which never existed.

More to the point, they are worshiping at a fantasy, the cross of gold-to borrow from Bryan, that never existed even then. Gold and silver were purchased at artificial prices, and minted at artificial rates by the gov't, and while it served to keep currency in circulation and certainly was a boon to the western mining interests and railroads, it certainly wasn't a hedge against inflation or depression either one, as we had any number of them in between with lots of gold and silver still in circulation.

It was an economic fantasy then, and it is an economic fantasy now.

[JamesVincent]

Such laws were enacted after companies (often coal mining operations) during the Great Depression were paying their workers in company scrip that was valid only in company stores (that charged artificially high prices). If they wanted to change the scrip into US currency, they had to pay a "processing fee" of as much as 20 cents to the dollar, holding the workers in de facto serfdom to the company. Federal laws later enacted under the Roosevelt administration that required company scrip be exchanged at face value for US currency put an end to the practice.

http://en.wikipedia.org/wiki/Company_scrip

Very true. During the Great Depression my maternal grandparents were still living in KY with their oldest 4 kids. My grandfather worked in a quarry during the day and in a coal mine at night. By doing both he was able to get real cash from the quarry and buy groceries from the company store since they always had groceries, even if it was an inflated price. In the area they lived in population about 1k for the whole county at the time there were no real reliable local stores and the company store had everything they needed. He was able to save enough up to eventually move out of KY into a better area.

[Gregg]

He was able to save enough up to eventually move out of KY into a better area.

The ruling body of the town of Argillite (which is also the 'medicine' distilling committee) wanted me to ask, where did you find a better area? Oh, and don't get caught in DTA (Downtown Argiliite) after dark...them squirrels is mean.

[Pottapaug1938]

Our gold coinage was always minted with the face value of gold contained inside each coin (multiply the actual gold weight times 20.67 and you'll see what I mean). That's one reason why, especially in the East, gold coins tended to remain in vaults, with paper Gold Certificates and FRNs (redeemable in gold or ther lawful money) circulating in their place. Underweight coins were withdrawn by banks and sent to the mints for melting and recoining into full-weight coins.

After 1853, on the other hand, silver coins never contained their face value in silver bullion.