Thanks so much for being part of this

2p EDT Sunday, December 24, 2000

Dear Friend of GATA and Gold:

The Mexican businessman and student of economics
Hugo Salinas Price, a great friend to GATA, has
written, in the form of an open letter to the
economic analyst J.N. Tlaga, a meditation on the
future of money and the international economic
system. While its advocacy goes well beyond GATA's
charter, the letter is compelling reading, so I
share it with you below.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

By Hugo Salinas Price

An open letter to J.N. Tlaga.

Dear Sir:

I have continued to give thought to your proposals in
Part II of quot;Euro and Gold Price Manipulation.quot;

You proposed a 5-Euro coin containing 5 grams of
silver. The idea is lovely, but I can perceive
difficulties.

Such a coin might circulate as long as the market price
of silver remained below 31.1 Euros per ounce; but if
the ECB is going to be the buyer of each and every gram
of silver offered to it, the ECB is then -- am I right?
-- going to be setting the world market price of
silver. The ECB would begin bidding up the price of
silver, up to a theoretical limit of Euro 31.1/oz. or a
little less.

Then the 5-Euro coin you visualize would no longer
circulate; it would be hoarded, under Gresham's Law. A
legal tender coin with a precious metal content equal
to or even less than the face value of the coin is
going to be retained by the owner, and payments (that
is, circulation) will be made in paper equivalents, the
currency of inferior quality.

A concrete case: in Mexico, during the presidency of
Salinas de Gortari, 1988-1994, coins containing silver
were put into circulation. They immediately
disappeared, as even a minute quantity of silver in the
coins made the holders wish to hold on to them, and use
other coins for payment, rather than hand over coins
containing even a small quantity of silver.

Further thoughts: If a large purchaser of silver such
as the European Central Bank came into the market with
such a plan, the price of silver would not rise to Euro
31.1/oz. The purchases by the ECB would set off a war
between the industrial users of the metal and the ECB.
The price might rise to who knows what levels -- more
than $100 per ounce, perhaps much higher.

It seems to me that as in the case of gold, trying to
find ways to introduce silver into an existing monetary
system -- any monetary system -- leads only to
quot;puzzlementquot; and innumerable obstacles. This is telling
me something.

What it is telling me is what I believe I came to
understand about the Mexican monetary system back in
the throes of the 1995 crisis.

Robert Mundell asked me how I came to what I am about
to outline to you. I answered, quot;It was an epiphany.quot;
Here is what I arrived at in that epiphany:

Any and all monetary systems in the world today are in
an irreversible downward spiral into destruction,
including that of Mexico, to which I directed my
thought.

This process, a sort of monetary cancer, has its roots
centuries back, but for practical purposes we can
identify the moment it became apparent: when Britain
went off gold in September 1931, followed by the rest
of the world in the next three years.

Since then the economic structure of the entire world
has been so distorted by the lack of real money that
the cancerous-like growth cannot be extirpated or even
modestly contained without killing the world economy as
we know it.

There are no remedies. The eventual destruction of the
monetary system prevailing in the world, and the
economy built on it, is inevitable.

All that the most sensible people can do is try to
delay the terminal point. It is a valid endeavor, I
must say. Like a good doctor who knows his patient is
dying, these economists are thinking of ways to prolong
the life of the patient, which they know they can't
save. They offer palliatives to the pain, medicines to
sustain life. They resort to ever-more-complicated
apparatus to keep the economy of the world turning
over. The Euro is one of the medicines offered to the
world. It may delay death, but it will not produce
health.

These economist-doctors know that the amount of
precious metals is insufficient to carry out a kind of
transfusion, supplanting gold and/or silver in place of
fiat money. They cannot do the transfusion, because the
structure of debt in the world, having been ever-
expanding in disorderly fashion since September 1931,
requires servicing, and the servicing can be done only
with a monetary system that can produce the additional
liquidity (inflation) requisite to service the debt.

A monetary system based on precious metals presupposes
a healthy economic body, not one cancer-ridden with
debt and uneconomic productive structure. A precious
metals monetary system will simply kill a world economy
based on fiat.

The debt is the question -- the debt that has been
growing since the '30s and has produced disorderly,
uneconomic investment that cannot service the
corresponding debt.

It is simply impossible to return to sound money
without a TOTAL COLLAPSE of all of the present-day
world economic structure. The practical economists know
this, but they cannot advertise it. All they can do is
try to keep things going as long as possible, as I have
already said.

Taking all this into account, I came up with the
following:

We must begin to work in preparation for the final
demise of the world's monetary system.

We must put as much precious metal as possible into the
hands of humanity.

We cannot try to put gold into the hands of a great
many people, because gold has always been the property
of the wealthy. Even at today's very low prices, gold
is out of the reach of the world's masses.

But there is a quot;poor man's goldquot;: silver.

Thus, what I have been working on in the past six years
is to get as much silver as possible into the hands of
Mexico's people.

The idea is to introduce a SILVER PARALLEL CURRENCY,
which can circulate alongside the paper peso and, of
course, the ollar. We cannot reform any present-day
monetary system; it is beyond reform. But we must not
abolish any present-day fiat system: we must graft on
to society a parallel sound system, based on silver or
gold. (I think silver is the preferable metal. Gold
will follow in due course.)

We must rebuild gradually, fostering a new economic
life based on real money. We cannot reform, but we must
not kill the patient either. We must work our way out
of this monetary and financial mess with a
corresponding re-structuring of the world's productive
system.

This can be done only with a coinage bearing no face
value, its exchange value determined solely by its
silver content. Such a coin can circulate alongside the
paper peso and the dollar, if its daily value can
fluctuate in adjustment to a changing silver price. The
dollar circulates in Mexico precisely because its daily
value can fluctuate. A fixed peso value would drive it
out of circulation and into hoarding, and into
availability only on a quot;black market.quot; We know this,
because it has happened.

When a substantial amount of silver has been sold to
the Mexican public, and when the spread between bid and
offer rates has closed, the public will begin to use
the coin in everyday transactions, just as it can, and
does, use dollars.

A further development, silver banking, or the use of
silver in transactions that involve a period of time
between purchase and settlement (credit transactions),
is some distance off; it cannot begin to function until
the price of silver is released from its straitjacket
of quot;paper silverquot; that operates in New York. When the
quot;paper silverquot; shorts are blown away and a true market
price arises, based on supply and demand, then it will
be possible, on the basis of the new, higher price, to
begin the construction of a new financial system based
on silver.

There is no other way, in my humble opinion, to
conserve a civilized, industrialized world. What I
visualized in my quot;epiphanyquot; is valid for the whole
world as well.

We must begin to lay the foundations for a quot;new world
order,quot; but not the one visualized by the present
powers, which is based on fiat money and a cancerous
world economy, but rather one rebuilt from scratch on
precious metals.

This new precious-metals-based world order can come
about by a gradual process of introducing a parallel
world currency, which can be the 1-ounce pure silver
coin, legal tender with no face value. (This coin can
also be .900 fine, but containing 1 troy ounce of pure
silver with some alloy, for the practical purpose of
preventing excessive wear.) This coin could circulate
anywhere; it would require no quot;passport.quot;

From credit transactions, including banking, as I have
said, it will be necessary for the paper stranglehold
imposed by the silver shorts to be destroyed, and a new
price level arrived at, which will reconcile industrial
use with monetary use. It may be very high, in today's
terms.

What I have outlined may be a very long shot, but as
far as I can see, there is no viable alternative to it.
If we do not lay plans for what comes after the
inevitable collapse, the human race may be in for
centuries of life on a primitive, barter level.

A question arises: Is it right to support the work of
the Gold Anti-Trust Action Committee, given the drastic
consequences of a substantial rise in the price of
gold?

Fundamentally, this is a moral question we must face:
It can never be right to support a fraud. Not even if
exposing the fraud means worldwide chaos? No, not even
then. And, besides, the chaos will come anyway, if we
do nothing.

Evidently, what we must urgently attend to is the
creation of means of sustaining world civilization (no
less) by taking thought and laying out the plan for the
coming necessary alternative: the re-creation of a new,
reality-based monetary and financial system using
silver, and gold too, eventually; a system to be
introduced gradually, and for which we have elaborated
the necessary intellectual underpinnings. Precious
metal coinage with no face value to commence
circulating in parallel with the paper fiat, for the
reasons given, represents the first step.

Let us not perplex ourselves with thoughts about saving
the present world monetary and financial system. It is
going to die.

Instead, let us think about a sound system that will
come into being with fresh life.

Fitting for this end of year, end of decade, end of
century, and end of the second millenium:

Ring out the old! Ring in the new! Ring in a thousand
years of peace!