Dems Attack the Penny, U.S. Mint Questions Taxation of Gold & Silver

Rep. Alex Mooney (R-WV) Introduces Bill to Free Monetary Metals from Taxation


Mike Gleason Mike Gleason
Interview with: Steve Forbes
September 7th, 2018 Comments

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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up we’ll hear an encore of an interview with Steve Forbes. Mr. Forbes shares his tremendous insights on the growing discontent with the Fed and the booms and busts created by their policies. He also makes the case for why he believes the time is now for America to restore gold in our monetary system. Stick around for my interview with Steve Forbes, billionaire investor, two-time presidential candidate and CEO of Forbes, Inc., coming up after this week's market update.

Well, the gold market kicked off trading in what is normally its strongest calendar month by oscillating around the $1,200 level. Spot prices for the yellow metal currently come in at $1,199 per ounce, down 0.3% since last Friday’s close. Silver, meanwhile, is down 2.7% for the week to trade at $14.28 an ounce. The gold to silver ratio now sits at a whopping 84 to 1. And finally, copper is down 1.5% this week to come in at $2.69 per pound.

Metals markets may trade relatively quiet until the much anticipated Federal Reserve policy meeting, which doesn’t begin until September 25th. The central monetary planners are expected to hike their benchmark interest rate, but there has been some chatter of the Fed turning more dovish with its guidance. Fed officials are getting strong pushback from one important government official – namely, the President of the United States – who favors low interest rates.

On Wednesday, the House Financial Services Committee held a hearing titled "The Future of Money: Coins and Banknotes". Members of Congress grilled the Bureau of Engraving and Printing Director as well as the Director of the U.S. Mint on issues related to inflation, gold, and the lowly status of the penny.

Democrat Brad Sherman derided pennies as “litter.” The Representative from California has previously called for cryptocurrencies to be abolished. This week, Sherman called for the penny to simply be done away with all together.

Rep. Sherman: My guess is that you won't do it, but I'm going to suggest that you simply abolish the penny. It isn't currency, it's litter. If a police officer saw me throw pennies on the ground, I'd get a ticket for littering, and if I tried to pay that ticket in pennies, the judge would be very upset. The penny has been our lowest unit of currency since 1857, since Lincoln. Now he wouldn't throw pennies on the ground, and call it litter, because back then a penny was worth more than a dollar is today, I believe. Certainly well more than 50 cents.

Congressman Sherman is essentially correct about the current state of the cent. It used to have real purchasing power. Some of you may even remember in decades gone by being able to go into a candy store and buy a piece of bubble gum for one cent. Nowadays, one cent won’t buy you anything. The cent is no longer a functionally useful unit of value.

But it’s not the fault of the penny per se. In fact, pennies were once a form of sound money. They were minted out of copper until 1982 – but now they are mostly zinc.

Copper pennies are now valued based on their intrinsic metal content, which is currently around 2 cents per penny. Bullion dealers including Money Metals Exchange sell bags of copper pennies to sound money hoarders who want exposure to copper as well as to have handy small-denomination instruments for barter transactions.

Copper pennies are far from being “litter.” You’d be wise to save any you come across in change from everyday purchases.

But members of Congress including Representative Sherman have certainly helped trash the value of the dollar and of the cent. GOP Congressman Alex Mooney of West Virginia schooled Sherman on the inflationary nature of the monetary system lawmakers perpetuate.

Rep Mooney: I would just comment as an aside to my colleagues on the other side of the aisle who are complaining about the value of the penny, it’s the inflationary practices of the Fed that we should stand up to because those inflation costs have devalued the penny greatly over the years. The Fed's goal is 2%. It's been higher than that many years. So yes, the penny's worth a lot less...

Congressman Mooney also asked United States Mint Director David Ryder about the unfair taxation of bullion under the so-called “collectibles” rate.

Rep. Mooney: As you know the IRS currently classifies these precious metals and coins as collectibles, like Beanie Babies and baseball cards, and they require taxpayers to report capital gains, which are taxed at a discriminatory high collectibles rate of 28%.

My view, which is backed up by language in the U.S. Constitution, is that gold and silver coins are money and indeed these American Eagle coins are legal tender. If they're indeed U.S. money, it seems there should be no taxes on them at all. So, why are we taxing these coins as collectables?

U.S. Mint Dir. Ryder: That's a very good question, I would like to see (it) and it would help our investor community, collector community if it weren't taxed.

It’s perhaps a bit surprising – but certainly encouraging – to hear a bureaucrat side with taxpayers. There is actually a small chance that the next tax reform bill could include some relief for precious metals holders. Not many members of Congress are motivated to take up the cause of precious metals investors in a standalone bill, but a majority could well vote to scrap the collectibles tax as part of a larger tax bill containing politically popular provisions. In fact, Congressman Alex Mooney introduced a bill today to do just that.

There is also a chance President Donald Trump could direct the Treasury Department to do away with the collectibles tax at the administrative level. This administrative option is being explored for indexing capital gains taxes to inflation – something Trump wants to get done this fall.

The idea of stripping out artificial inflationary gains caused by the monetary system from the capital gains calculation would be a welcome reform. But if the administration is truly serious about ending the inflation tax, it needs to push for the elimination of all taxes on sound money itself – gold and silver.

Well now for more on the topic of sound money and its importance in reigning in out of control government spending, let’s get right to the rebroadcast of my recent interview with a business icon.

Steve Forbes

Mike Gleason, Director, Money Metals Exchange: It is my great privilege to welcome Steve Forbes, Editor-in-Chief of Forbes Magazine, CEO of Forbes, Inc. to our Money Metals Exchange podcast. Steve is also author of many fabulous books, including Flat Tax Revolution, How Capitalism Will Save Us, and his latest work, Reviving America: How Repealing Obamacare, Replacing the Tax Code and Reforming the Fed Will Restore Hope and Prosperity. He's also a two-time Presidential candidate, having run in the Republican primaries in both 1996 and 2000. It's a tremendous honor to have him with us today. Mr. Forbes, thank you so much for joining us and welcome.

Steve Forbes, CEO of Forbes, Inc.: Good to be with you, Mike. Thank you.

Mike Gleason: Well there’s so much I want to ask you about and I know time is limited so I’ll get right to it. Now you’ve talked about sound money and the importance of demonstrating monetary and fiscal restraint a lot in your books, it was a main part of your platform when you ran for president those two times. So what do you make of this growing movement of people who recognize that the debt-based system we have today is a broken one… one where asset bubbles are perpetually created that will inevitably go bust. What do you make of this movement that’s come about as a result of the overwhelming discontent over where we are today with the state of our economy.

Steve Forbes: I think it's encouraging that a growing number are recognizing there is a problem. Even before you get to solutions you've got to recognize and acknowledge that the way things are being done is not working and that the Federal Reserve has been a huge factor in the sluggishness of the U.S. economy; very, very destructive actions they've taken. 

One of the things that really most of the economics profession doesn't seem to get is that money is simply a means for us to buy and sell with each other. It's like a claim check. You go to a restaurant, check your coat, the claim check has no intrinsic value, but it's a claim on the coat. Money is a claim on products and services. It has no intrinsic value. What it does, it's like a claim check on products and services. It works best when it has a fixed value.

Money measures value the way scales measure weight or clocks measure time or rulers measure space and length, and it works best when it's stable. The best way to get stable money, as we explained in our book Reviving America, is precisely to link it to gold the way we did for a hundred and eighty years. It works. Gold is like a ruler. It has a stable value. When you see the price fluctuate, that means that it's the dollar's value that's fluctuating, people's feeling about it for the present and for the future. But gold is like Polaris. It's the North Star. It's fixed.

Mike Gleason: That leads me right into my next question here. About a year ago you and Elizabeth Ames co-wrote the book titled Money: How the Destruction of the Dollar Threatens the Global Economy and What We Can Do About It. You proposed a modified gold standard... and I'll quote here, and then I'd like to get your comments.

The twenty-first century gold standard would fix the dollar to gold at a particular price. The Federal Reserve would use its tools, primarily open market operations, to keep the value of the dollar tied at that rate of gold.

What would be the main benefits of such a reform? And also I'm curious why you stopped short of calling for an end to the Fed all together and a return to true free markets when it comes to gold and the rate of interest?

Steve Forbes: In terms of the role of the Federal Reserve, I think you've got to take one step at a time. One of the fears is that if you didn't have the Fed you get a panic, which happens for whatever reason every few years, the thing would spin out of control. I think the key thing now is to get the dollar fixed in value, which we propose in that book, whether it's a thousand dollars an ounce or eleven hundred dollars an ounce.

I think the best way to understand this is to imagine what would happen if the Federal Reserve was in charge of the time bureau, and the Fed decides to float the clock, sixty minutes to an hour one day, thirty-five minutes the day after, ninety minutes the day after that. Everyone would know that if you had a fluctuating clock, if your timepieces couldn't keep accurate time, life would be chaotic. The same is true of money when it has a floating value. If you had the floating clock, imagine baking a cake. It says bake the batter thirty minutes. Is that inflation adjusted minutes, nominal minutes, a New York minute, a Mexican minute?

Gold is the best way to fix that value. The only role for the Fed, at least for now, would be to keep that fixed value and then deal decisively with the occasional panic, just as the British showed us a hundred and fifty years ago. If you have a panic where banks need the temporary liquidity, they go to the Fed with their collateral, borrow the money at above market interest rate, and then, as the crisis recedes, they quickly pay it back and it's done. So the Fed's role could almost be done by summer interns if they knew what they were doing, so it would not be the monster that it is today where the Fed tries to dictate where credit goes, what happens to the economy, etc. It's really bizarre and destructive.

Mike Gleason: They certainly have a whole lot of control and a lot of people have a lot of interest in Fed policy, way too much for our liking, and I'm sure yours as well.

Steve Forbes:One other example on that is Janet Yellen, the head of the Federal Reserve, says that we should have two percent inflation, which in her mind is seeing the prices rising two percent a year. If you take a typical American family making fifty thousand bucks a year, that means their costs would go up a thousand dollars a year, two percent of fifty thousand. Who gave her the authority to raise the cost of living, which is an effective tax, a thousand dollars on a typical American family? Yet Congress, they just nod their heads. It's a travesty.

Mike Gleason: I've always wondered if two percent is good, isn't three percent better? What about four percent? It seems like it could just go on and on and get higher and higher.

Steve Forbes:Yep, which is what happens. An unstable dollar, whether it's weak or strong, is like a timepiece, a watch that is too slow or too fast. Neither one is going to help you.

Mike Gleason: Looking at the current economic landscape and the debt-based dominated markets that we have now, the situation appears to have only worsened since the '08 financial crisis, how do you envision this playing out? Are we looking at some kind of economic collapse again or will the Fed and the central planners be able to keep the wheels on this thing?

Steve Forbes: Those words “central planners” get to the very problem with the Fed. The idea that the economy is a machine is a preposterous one. The economy is individuals. The idea that you can control people the way you can modulate an automobile is... that's how you get tyranny. That's why in the third part of our book, Reviving America, we talk about Soviet style behavior by the Federal Reserve and by economic policymakers. When you look at the great disasters of the past – like the Great Depression, the terrible inflation of the 1970s, what happened to us in the panic in 2008-2009 – all of those had at their roots disastrous government policy errors.

Mike Gleason: I want to talk to you about the role that gold, and to some extent silver, can play into all of this. In your book you've written about gold and its role in an investor's portfolio, but we shouldn't necessarily look at it as an "investment." Talk about that and then also whether you view gold ownership as more or less important now versus say ten, twenty, or thirty years ago.

Steve Forbes: In terms of gold, unless you're a jeweler, I see it as an insurance policy. It doesn't build new factories or things like that, new software. What it is is insurance that if things really go wrong you've got something that will balance your portfolio. So whether it's five percent, ten percent, it shouldn't be dominating your portfolio. But since you cannot trust this right now, what politicians do, what you have working out here is a situation where yes, the price of gold has come down since 2011 when it looked like the U.S. Government might default, but today in this kind of environment, is probably a good time. Not that you're going to make quick money on it, but it's like an insurance policy. You hope it doesn't have to be used, but if it does you've got it.

Mike Gleason: We talked about how anti-establishment forces are starting to get some momentum. Do you see any real change coming about in our monetary system without some kind of crisis event forcing it? Generally it seems like things don't change unless they're forced. What do you think, is now maybe the time in Washington for some of these politicians to seize on the fact that a lot of Americans are very frustrated and maybe there is the ability to get some traction with some of these radical reforms and getting us back to sound money?

Steve Forbes: Well, this is one of the reasons why we did the book. It was to lay out what needs to be done so, if the opportunity or the crisis arises, we have the tools to do it. We had this terrible crisis in 2008-2009, but because policymakers were still holding these obsolete theories and dangerous notions about money, which got us in the crisis in the first place, they not only made mistakes, they invented new mistakes such as Quantitative Easing or zero interest rates.

Zero interest rates sounds great, like price controls sound great. You're in an apartment, you only pay ten dollars a month, boy, that sounds great if you don't mind having no maintenance. But when you suppress prices you distort the marketplace, deform the marketplace, people don't invest, and you get stagnation. If the Federal Reserve announced that it was going to put price controls on Big Macs at McDonald's and what you pay for a rental car and things like that, people would say that's outrageous. And the Fed would say we want to suppress prices to stimulate the economy so you have more money to spend. We know it just wrecked the economy.

Yet when they do the same thing with interest rates, Congress hardly says boo! The Fed has distorted markets to the point where on zero interest rates, what the Fed in effect did was seize almost four trillion dollars of assets out of economy, made it very easy for those assets to go to the government and the large companies, and starved credit to small and new businesses.

Just one statistic, in the last five years the growth of credit to government has gone up thirty-seven percent, growth of credit to corporations thirty-two percent, growth of credit to small businesses and households only six percent. As you know, small and new enterprises are where the bulk of the jobs are created. So the Fed is in the business of credit allocation. That is profoundly wrong and must be changed.

Mike Gleason: Where do you see Fed policy going here? Are they truly stuck between a rock and a hard place? What do you think their policies are going to be as we go throughout the year?

Steve Forbes: They'll be tempted to stop allowing the market interest rates in the name of saving the economy, which is like taking an anemic patient, a patient suffering from anemia, and bleeding them. With the Fed the “rock and a hard place” (idea) is only in their minds. What they should do is just step aside, let borrowers and lenders determine what interest rates should be, and let the markets function again instead of trying to control them like commissars in the old Soviet Union. Free markets always work when you let them, but the Fed has to be pushed on that.

Mike Gleason: As we begin to close here, what do you think it's going to take for gold and silver to become a mainstream asset class again? For example, will it be China or Russia backing its currency with precious metals because the devaluation has gone too far too fast? Something like that? What are your thoughts there as we wrap up?

Steve Forbes: Well I think if they see precious metals for what their historic role has been, we have gold-based, gold-backed money today. Remember, gold is a ruler. Because it's got that fixed value, it makes sure that the politicians don't muck around with the integrity of the U.S. dollar. We had a gold standard from the 1790s right through the 1970s, a hundred and eighty years, and it worked very well. We had the most phenomenal growth of any country in the history of the world.

Since then we've had more financial crises, more dangerous banking crises, lower economic growth, and we see the stagnation that we have today. So maybe the Russians will get it, maybe the Chinese will get it, but the reason we have this book Reviving America, is to help activist citizens have the tools they need to push and get integrity back to the U.S. dollar, get rid of this horrific tax code, and get patients in charge of healthcare again. We do those things and you'll see the American economy will roar off like a rocket. You should have your gold as that insurance policy and life will be good again.

Mike Gleason: Mr. Forbes, I can't thank you enough for your fantastic insights and for being so generous with your time. I very much enjoyed reading your latest book in advance of this interview. You give the reader a great explanation of the history behind all of this, and then also more importantly some practical things that they can do to protect themselves, and we certain urge everyone to check that out.

It was great speaking with you today and we wish you and your family and your team there at Forbes and Forbes.com all the best. Thank you so much, and thank you for your continued efforts to spread the ideals of free market and liberty. It's been a real pleasure to talk with you.

Steve Forbes: Great pleasure to talk with you. Don't lose faith. Markets are people, and people thrive most when they are free.

Mike Gleason: Excellent way to end. That'll do it for this week. Thanks again to Steve Forbes, CEO of Forbes, Inc, Editor-in-Chief of Forbes Magazine, and best-selling author, including his latest work, Reviving America: How Repealing Obamacare, Replacing the Tax Code and Reforming the Fed Will Restore Hope and Prosperity. You can obtain a copy of your own at Amazon.com, download it onto your Kindle or iPad, or purchase it at other places where books are sold.

And don't forget to check back here next Friday for our next Market Wrap Podcast, until then this has been Mike Gleason with Money Metals Exchange. Thanks for listening, and have a great weekend everybody.

Mike Gleason

About the Author:

Mike Gleason is a Director with Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.