Ottawa Can’t Confiscate Gold, But That Won’t Save The Canadian Dollar

On January 30, 1934 the United States Government outlawed private ownership of gold.  Up to that point, gold circulated as currency in “the land of the Free,” with the US dollar fixed at $20.67 USD / oz.

As a part of the gold confiscation, the US government revalued the dollar against gold to $35/oz, effectively debasing the currency by 30% (robbing holders of dollars of 30% of their purchasing power).

The thought process among most economists was that by devaluing the dollar, the US Federal Reserve could print more of them, giving them the ability to “stimulate” the economy out from a deflationary depression.

It didn’t work, but that’s a whole other topic of discussion.

Jeff Berwick, editor of The Dollar Vigilante, highlighted the dismal state of the non-gold backed Canadian dollar in an article titled, “THE CANADIAN DOLLAR IS NOW EVEN LESS OF A HAVEN FROM A US DOLLAR COLLAPSE THAN IT WAS BEFORE.”

I am a long time follower of Mr. Berwick’s work and generally agree with his analysis.  I consider myself less of an anarcho-capitalist, and more of an libertarian capitalist, but I feel confident in endorsing his content.

One point in this article, however, I take exception to:

“There is always someone in the crowd who will say, “But, Canada has a lot of gold in the ground!”

So?  If what you are saying is that the Canadian government, if need be, can nationalize and take over private in-ground gold holdings held by landholders and private individuals and companies… then you are saying, ‘But, Canada can become more like Venezuela!'”

Mr. Berwick is insinuating that the government of Canada can simply nationalize and confiscate gold.  While technically they could try, practically speaking they can’t.

The reason:  Ontario and Quebec.

Gold, like oil, falls under provincial jurisdiction.  For the Canadian Federal government to confiscate gold, it would be tantamount to instituting a “NEP”-style program on a natural resource that both Quebec and Ontario are the largest producers of (In 2009, 82% of Canadian gold production was from both provinces).

Given that Ontario and Quebec are the provinces that decide the outcome of EVERY Federal election it is safe to say the Federal government will NEVER try to confiscate gold (Western Canadian oil on the other hand, is a whole other story).

This is probably the reason why the Canadian government did NOT follow the example set by the Americans in their gold grab of 1934.  Quebec would likely have separated if they did.

If you are like the average Canadian, odds are you don’t own a gram of gold or understand the significance of gold.  It’s not necessarily your fault, the Canadian education system is designed to keep Canadians financially and economically illiterate.  That said, this general lack of knowledge about finance and economics is perhaps the greatest reason Canada will NOT survive as a nation in the coming years, and if it does, it will be neither “strong” or “free.”

Precious metals (gold and silver) are the ultimate means to control government.

For the majority of recorded history, EVERY civilization that ever ascended to greatness (including Canada) did so using precious metals as their currency.

The reason is that precious metals prevent governments from being able to rack up significant deficits, borrowing prosperity from the future to spend in the present, crippling the economy with unproductive interest payments to creditors.  (This is something Canadians are going to become very painfully aware of in the coming years, that I assert will tear this country to shreds).

The reason precious metals have the power to prevent this is that governments mint coins as legal tender.  A government minted coin is a REAL contract between a government and the coin bearer.  It is not an imaginary “social contract,” that tyrants like to pretend gives them authority.

When you look at any nationally minted coin, be it a circulation or bullion coin, there are ALWAYS 3 components:

  1. Some national symbol (i.e. a head of state, a national insignia, or just the name of the country that minted it),
  2. A date,
  3. A currency face value

In essence, these three components indicate that the government, at the date of mint, have guaranteed that that unit of currency will have greater or equal value than the market value of the material in the coin.

When governments minted their currency from gold and silver, they gave their citizens two powerful abilities:

  1. The ability to preserve value by saving in the national currency
  2. The ability to restrict the government’s ability to flood the economy with currency whose value they could not guarantee (in modern terms, we would call this ability “preventing the government from going into debt.”)

To illustrate this, consider these three examples:

 

This first coin, for all practical purposes, is a contract stating:

“Between 1867 and 1967, the Government of Canada guarantees 1 Canadian dollar will have more value than 23.3 grams of 80% silver and  20% copper alloy.”

A year later, thanks to Pierre Elliot Trudeau’s evisceration of the currency, this coin’s contract would read: “In 1968, the Government of Canada guarantees 1 Canadian dollar will have more value than 23 grams of pure nickel.”

1 dollar 2014 - Lucky Loonie

Fast forward to 2014, and this coin’s contract would read: “In 2014, the Government of Canada guarantees 1 Canadian dollar will have more value than 6.27 grams of brass plated steel.”

To put that into context,

  • A pre-1967 silver Canadian dollar today has a guaranteed value of about $13 (CDN).
  • A 1968 nickel Canadian dollar today has a guaranteed value of about $0.17 (CDN).
  • A 2014 brass plated steel Canadian dollar today has a value of about $0.003 (CDN) – that’s about 1/3 of 1 penny (hence why the government stopped circulating pennies – the copper in the penny was worth more than the face value!).

The third coin is critical, as it highlights the direction of the Canadian dollar and the country as a whole.

In essence, the Federal government guarantees that the present circulating Canadian dollar will have $0.003 worth of value.

Put another way, for you and I as Canadians in 2016, we have to keep 333 Loonies to have $1 worth of guaranteed value from the Canadian government.

Conversely, if you or I kept a single pre-1967 silver Canadian dollar, in 2016 we would have $13 worth of guaranteed value from the Canadian government.

In the past, it was possible to both store value and restrict government by simply holding a piece of silver Canadian coinage.  Today it is impossible.

The day is coming in our lifetimes when the Canadian dollar will be worth no more than base metals it is made from.

When that day arrives, Canada will not exist.

 

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3 thoughts on “Ottawa Can’t Confiscate Gold, But That Won’t Save The Canadian Dollar

  1. “In the past, it was possible to both store value and restrict government by simply holding a piece of silver Canadian coinage. Today it is impossible.”

    WRONG: buy Canadian minted silver bullion. Face value of $5, real value closer to CDN$25.

    Liked by 1 person

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