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A lawsuit over billions of dollars of unclaimed savings bonds is brewing over whether the Treasury Department or the States should be able to confiscate the minimal remaining value of these certificates of confiscation. This article will be written from the first person perspective of the victim who has been robbed after investing in these ‘risk-free’ assets issued by the United States Treasury.
DILIGENT SAVER
In 1965, being a diligent young man my parents rewarded me for graduating from High School by buying me a $75 United States Savings Bond. Following this pattern of savings while I was in the United States Army in 1969 I saved $6.25 per month so that I could buy a $25 dollar savings bond each quarter. Upon hearing the news of unclaimed bonds being confiscated by either the States or the Treasury Department therefore today, October 19, 2009, I cashed in these United States savings bonds. The original face value of these 3 bonds was $125 Dollars. I paid $93.75 for these in the 1960′s.
If I had used gold and silver to buy these same bonds then it would have cost me 2 ounces of gold and 24 ounces of silver. When I cashed these in today I received $825.11 which consisted of $93.75 in principal and $731.36 of interest. The value of gold today is a $1,063.90 per ounce and silver is $17.81 per ounce. Thus the $825.11 dollars represents 47 ounces of silver and no gold. But that is not all.
TAXES
From the $825.11 dollars there is $731.36 of interest. At approximately 30% tax rate that amounts to about $219.41 of tax liability. Therefore, the net amount received is $605.70 and will purchase a mere 34 onces of silver.
OPPORTUNITY COST
If I had kept the gold and silver that I could have bought these United States savings bonds with back in 1965 and 1969 then I would have two ounces of gold and about 24 ounces of silver. I could sell that bullion for about $2,850. What is wrong with this picture?
LYING GOVERNMENT
Newsmax reports, “The Treasury Department counters that it indeed tries to find owners of the unclaimed bonds, and says it has a Web site where people can simply type in their Social Security number to see if they have one.”
Diligent Saver responded, ‘Despite paying significant amounts of taxes for decades and using both a Social Security number and valid address while filing I never received a single communication from the Treasury Department about these outstanding savings bonds. Nevertheless, they were extremely diligent notifying me when they thought I owed more taxes.’
CONCLUSION
There are significant assets available that may be confiscated by the government as unclaimed property. The Treasury Department does have a tool to locate these certificates of confiscation. While many argue that these types of assets are ‘risk-free’ this example plainly illustrates that these assets are subject to payment, counter-party and political risks.
On the other hand, gold and silver are immune to all of those risks except political. For example, during some of the time period at issue the Ancient Metal of Kings was considered so dangerous by the United States government that it was illegal for residents in the Land of the Free to own.
But this is typical of fiat currency and the governments which issue it. Neither the paper tickets nor costumed officials should be trusted. In every case throughout history their paper coupons have over time proven to be merely certificates of confiscation. And to think the Chinese own $2T of these silly little coupons!
DISCLOSURES: Long physical gold, silver and platinum with no position in the problematic GLD or SLV ETFs.
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{ 17 comments… read them below or add one }
The late Dr. Franz Pick called these bonds Certificates of “Guaranteed” Confiscation. People buy the with Dollars and are paid in “mini-dollars.” Think about it. In the 1960′s and early 1970′s you could buy a 400 oz. bar of gold for $14,000.00. Today that would be $440,ooo.00. I guess that’s why gold is called a “worthless relic.” After all it doesn’t pay any interest! Dr. Pick loved to embarrass his audience by accusing them of “masturbating with mini=dollars!” He insisted that businesses should be required to balance their books in “Constsnt Dollars.” You have a great website! God Bless. R.H.
During one of my first days in bootcamp @ NTC San Diego, a bunch of us were herded into a small assemly hall where we were given a brief lecture on patriotism; then told, “We can’t make you do anything, but by god we can make you wish you had.” I got the message.
Then a young officer was introduced; his job was to get us to sign up for an automatic monthly deduction to buy U.S. Savings bonds. As boot recruits we were paid about FRN$73/Mo. He tried to explain all of the benefits of having interest earning savings; then I had the presence of mind (lack of self-control) to ask, “If the government issues them, who pays the interest? Don’t we all?”
I could have started a mutiny and the meeting was soon over, I suspect with meager pickings for the Department of the Treasury. A few weeks later, after a disasterous battle in Korea, our recruit companies ‘volunteerd to donate’ a pint of blood each.
Was John Paul Jones’ navy like this?
A nice video indeed! However, the comparison to gold and silver is not completely fair. First of all, buying gold and silver instead of E-Savings bonds, would have incurred storage and insurance costs. Even hiding these precious metals at home, requires that one does have a house which means that the cost of this housing would have to be correctly attributed to the utility provided by the storage of valuable items. Secondly, converting precious metals back to paper Dollars would create a tax obligation. Taxes on precious metals are higher than taxes on interest collected from saving bonds.
The main problem with this type of comparison is that it is arbitrary with respect to the time periods involved. Gold was a very poor investment during the twenty years following 1981. Any saving bond
would have beaten gold during that time. To properly account for the price volatility of gold over time, one would have to value gold by the geometric average of its price over long periods of time.
Taking all these factors into account, the comparison between gold and E-Saving bonds would not be as favorable to gold as it looks on the surface.
Nevertheless, the main point of the article is correct. Precious metals if held long enough provide for the easiest and safest method to preserve the purchasing power of savings (and earnings).
You raise some good issues that make for interesting discussion. Thanks.
I suppose we assume for the sake of argument that storage costs are excluded as both the savings bonds and coins need to be stored, either can easily be stored with an extremely low probability of being stolen, lost, etc. with no need for insurance (often bullion is not covered under contracts) and if stored at home then the cost of the home is a sunk cost and the expense need not be attributed via cost accounting because of the immateriality.
Yes, there is a ‘capital gains’ tax on gold but that is only applicable to those human livestock subject to US taxation and is yet another example and tool to measure the effect of confiscation through inflation which is a form of taxation without representation and without due process of law. Because currency is a fundamental human right this ‘capital gains tax’ is yet another example of how the United States government tramples fundamental human rights through violence and coercion. Thus, even if one is subject to the taxation there is no moral duty to pay it and so the individual then calculates the probability of loss from being aggressed against by the costumed criminal gang with the benefits of non-compliance and makes their individual decision. Therefore, the tax obligation argument is applicable only to a narrow subset of individuals.
But the real meat of the issue you raise with the assertion about the ‘price volatility of gold over time’. That is completely backwards because the real issue is the price volatility of the FRN$. As the video clearly demonstrates and the periodic table defines; 1 ounce of gold in 1965, 1980 and 2009 is the same. Gold is money, the ‘risk-free asset’ for correct thinking monetary scientists (the same way the sun is the center of the solar system and not the earth for correct thinking physicists) and not an investment as you assert, currency and a unit of account. Therefore, the arbitrariness has nothing to do with gold and silver because they are definable, constant and measurable but instead has everything to do with the question: What is a dollar? And the answer to that question is unintelligible under Federal law and therefore arbitrary.
The main point of the article was to illustrate how fiat currency and bonds issued by costumed criminal gangs are instruments to confiscate wealth (not necessarily purchasing power).
Trace,
thanks for the response to my comment. I agree with what J.P Morgan has said a long time ago “Gold is money and nothing else”. Why this is true, it is also true that Euros, Yen and Swiss Francs are all money. These monies share with gold the property that they can not be used in the US in order to buy let’s say groceries. Before buying a hamburger, one needs to exchange a gold coin into US Dollar currency since no store in the US will accept gold coins as payment for food.
I think this important fact should be stated clearly when discussing the nature of gold as money. Most people who are buying gold are buying it with the intention to convert it one day back into Dollars in order to pay their bills (say in retirement). So the volatility of gold in terms of US Dollar is a valid concern.
Please view this remark as a clarification to your otherwise excellent video.
You are honing in on more important and fundamental issues of monetary science. Like most people you are conflating the words money and currency. In order to avoid a semantic argument and instead focus on substantive actionable issues I think it is important to agree on definitions. Because of the common problems that arise from a confusions of definitions I actually address the question: What is money? in the very first paragraph of Chapter 1 of my book The Great Credit Contraction. Without a correct understanding of what money is and how it is distinguished from money substitutes and illusions, all of which can function as currency, it is impossible to derive a correct analysis of inflation or deflation.
But to avoid chasing our tails for the sake of argument on this site we will my definitions. Of course, the exchange rate cost of using gold as currency is substantive and does impede its ability. Yes, I agree that most people are buying gold for its ‘store of value’ characteristics and not for its currency function. But that does not stop it from being used as a currency in ordinary daily transactions. In fact, in 2009 I have used gold more than any other currency for ordinary daily transactions. Of course, doing so requires transactional partners to accept it so I know I am not the only one using it :)
Hi again. Dr. Pick mused that there were only 2 men who really understood “money.” One was a Swiss banker and the other was a London bullion dealer. The problem of course was that they violently disagreed! Nothing has changed. There has been no understanding or truth taught in the universities about monetary science for almost 100 years. I’m not going to call Trace the new Ludwig Von Mises but he’s pretty darn close! There has been billions written about money but I believe we should remember the episode in the New Testament when Jesus attacked the “money changers” in the Temple. These money changers were not just changing one coin for another but were actually changing the “value” of money. Today these men would be called “central bankers.” It is very interesting that the only time Jesus became “angry” was when a group of damn bankers cheated the people. If you continue to masterbate with mini=dollars you too will be cheated! Yes, Virginia, there is a Conspiracy and it is very evil! God bless. RH
if you buy one ounce of gold for $1000, suppose the value of gold goes up to $1100.the value of gold has not increased but inflation has reduced your buyng power. and so it costs more for the gold. If gold has not actually risen but your money has devalued how can you pay a capital gain on sale of gold because no actual profit is made ,it only appears to have made a gain.
Same applies with interest from banks etc, inflation reduces profit, ie interest, so it should not be taxed ,because any gain from interest has been wiped away, and yet tax is still
Congratulations Mike P! You get it!! It’s frustrating that most of the people I discuss money with don’t have clue how “inflation” works. I sincerely believe 95% or more sincerely accept the error that inflation is “rising prices.” I know it’s very a very simple concept but rising prices are the “effect” of inflation! When the Fed prints excessive money and credit everyone has more dollars of less value. Soon everyone is angry because they have been cheated by higher prices but just can’t figure out why prices are higher. Unfortunately the Government (the Fed) never tells them how they were cheated! The coming massive inflation of prices will eventually destroy the Dollar. We will be cheated but those in power will usually escape. The economy well suffer until sometime in the future when sound money returns. The only road to safety for us sheep is to buy “things” of intrinsic value. And, historically, that means gold and silver. Land, homes, tools, etc. will help but they have never saved your butt like the precious metals. Remember Germany, France, Mexico, Zimbabwe, Argentina, and hundreds of paper money catastrophes. Is the almighty Dollar doomed? I don”t know but probably. “Argentum et Aurum Comparenda sunt.” God bless. R.H.
Essentially, what the ‘capital gain tax’ does is shift the fundamental human right to currency from the individual to the government. The next right to go is habeas corpus and then the right to life. Doing so will destroy the agency of man in all three time dimensions: past, present and future. Here is the video I made in case you missed it.
i saw a very interesting video on youtube 2 days ago , and now i cannot find it, it was saying that the oil and gold NOT being there for the dollar BUT, something that has been missed, the government saved the big mortgage credit agencies, and so the property (land)that has been forclosed to the banks now belongs to the government and this land is what will back the dollar. if this happens , there will be much less pressure on the government to pay off debts. This may reduce the pressure on prescious metals from the banks mp
One last comment. In about 1980 the ” Dow” was about 700 to 800 and the price of gold hit about 800. In other words the Dow was worth about one ounce of gold. Will that ever happen again?? If it did would the price of gold go to $10,000 0r would the Dow drop to about 1100? Next you have calculate how many dollars in cash and credit there is in relation to ounces of gold available. But recently the cash and credit Dollars have exploded! Smarter men than I have calculated that currently the price of gold could go to $15,000 per ounce!! You don’t think so! Well look at the price of gold in currencies around the world. Zimbabwe dollars anyone?We all know that can’t happen here! Right! Have a nice Thanksgiving! RH.
Is gold overvalued at $1150? To answer this question, my favorite comparison is the first class US stamp. Around 1980, the price of that stamp was 19 cents. Over the years, the price has risen steadily to if I remember correctly 45 cents presently. Now 45/19 is approximately 2.37. Gold has spiked in 1980 to over $800. However, it is unrealistic to take that price seriously since it lasted only a few days. The average price of gold in the 1980′s was somewhere between $400 and $500. If we multiply that price range by the appreciation factor of US stamps we get a price range between $950 and $1180. From this simple calculation we see that the recent rise of gold price is as spectacular as the rise in price of the first class stamp to 45 cents. Just inflation adjustment – no more no less. Gold has to rise a lot more before we can call it a bubble.
It is an interesting observation that nobody will get excited by the price rise of a first class stanp (or the price of a soft drink). However, if gold or silver increases by the same factor, suddenly everybody starts talking about it. This is the magic of big numbers I suppose. However, if numbers are truly big (like many trillions), nobody takes that seriously simply because very few people know what a trillion means. I suppose one thousand is a number which people understand and that is the reason why gold passing $1000 is so exciting.
Reply to Robert Happek
The comparison of the price of a USPO 1st class stamp for 1 Avdp. ounce of postage is interesting but specious. It is true while gold’s price is manipulated, suppressed, by the short holders, the gold market is larger and worldwide. The millions of gold buyers, are bidding up the price of gold as they sense the flood of depreciating “currency & credit in circulation” and are moving to protect their buying power. However gold is manipulated, it is still in a competitive market.
USPO postage rates are set by an appointed commission, so that CONgress can’t be blamed for increases. If you didn’t notice the USPO has no competition in the U.S First Class mail market. Postage stamps are not a store of value, as they are priced in FRN$ & cents.
You may have saved a few FRN$ denominated 40 cent stamps, but you’ll have to add some current 1 cent stamps to carry your mail when the rates go up. In other words the value of postage stamps fall as rates rise.
Postage would be as good as gold if stamps were denominated in the ounces Avdp., they will carry, regardless of date of issue. You know, an ounce is an ounce is an ounce.
Jim, the comparison of the gold price to the price of a postal stamp is not “specious” as you say. Gold is traded worldwide, while US stamps are valid only in the US – all true. Nevertheless, the gold price is quoted worldwide in Dollars. If you buy gold in Euros, the price you pay is the Dollar price converted into Euros using the prevailing FX conversion rate. In that sense gold like oil is sold worldwide at the same uniform Dollar price. For that reason it is a very reasonable question to ask how does the price of gold compare to the price of other commodities priced in US Dollars.
The price of the US stamp follows pretty closely US inflation. The fact that USPS is more or less broke, is in my opinion an indication that the first class stamp is too cheap in the sense that it does not really reflect the true amount of monetary inflation. For instance, a German first class stamp is almost twice as expensive as the US stamp. So if US stamps are undervalued with respect to inflation, then gold must be undervalued as well (since the gold/stamp price ratio remained more or less constant during the past 40 years). Gold is undervalued in a much more fundamental way. In order to mine and to refine gold, it takes huge and growing amounts of energy (since the ore quality is declining due to depletion). In that sense, every ounce of gold has a certain amount of energy embedded into it. In my opinion the fundamental undervaluation of gold is the result of a fundamental undervaluation of energy. The price for gas we pay at the pump does not reflect the intrinsic cost of energy. It only reflects the cost of pumping that oil, transporting and refining it. It does not reflect the cost of replacing the finite supplies of nonrenewable fossil fuels. Once energy gets really scarce, the price of gold will adjust upwards.
You say “Postage stamps are not a store of value, as they are priced in FRN$ & cents.” Well, that is strictly speaking not true. The post office sells since a couple of years a so called “forever” first class stamp which has no price label printed on it. You buy it at the prevailing daily price and it maintains its value (which is a voucher for the delivery of a first class letter) forever. In that sense, this is even better than gold since the gold price fluctuates day by day. A “forever” stamp will maintain its value over the coming centuries. As good as gold if not better.
I still believe that we can learn a lot about gold by studying carefully the price of a first class stamp.
Finally, regarding the manipulation of the gold price: The manipulation of prices is not an exception. It is the rule. All prices are manipulated. If you place a limit order to buy or sell any stock, that action is a tiny attempt to manipulate the market either up or down (depending whether you sell or buy). There are no free markets in the modern world. All markets are manipulated either by the government or by big banks or by consumers. Although gold (like sugar and US stamps) is manipulated downward, it is actually a good thing as it allows small retail buyers to buy gold at a significant discount. Only people who are eager to convert their gold back into fiat could possibly complain about the ongoing manipulation of gold. All others, are either indifferent or are (like me) quite happy that somebody out there works hard in order to keep that gold affordable to me.
The following article paints a dramatic picture of the coming decline of gold production in South Africa. According to a scientific investigation, 95% percent of South African gold reserves in the ground are already exhausted. Within a few decades, gold production might cease in the world. Take a look at the graph in the following article.
http://www.mineweb.com/mineweb/view/mineweb/en/page31?oid=93062&sn=Detail
Gentlemen! So much cross-talk can be eliminated if we don’t confuse the price of gold with the value of gold! Nuff said.
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