Ross Hansen: The Dawn of Electronic Money and The Push For More Government Control
Update from 2012 Mint Director’s Conference in Austria
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Show transcript of Ross Hansen: The Dawn of Electronic Money and The Push For More Government Control
JIM: Joining me on the program today as my special guest is Ross Hansen. Ross is president of Northwest Territorial Mint, one of the world’s largest mints and the largest mint in the United States.
Ross, you and I had a conversation not too long ago; you attended a conference in Europe, tell us about that conference because it was a meeting of all the world’s mints, both private and government mints. And this takes place, what, about every other year?
ROSS: Yes, it does, Jim. It’s called the Mint Director’s Conference. And this year it was held in Vienna and two years ago it was held in Canberra, Australia. And what it is it’s the world’s mints all getting together so that they can strategize, they can help plan levels of production because a lot of these countries have common currencies. It’s also looking at some of the technical issues; making sure that your low denomination [coins] do not fit in my machines that accept high denomination coins. So there is a lot of technical talk and there is a lot of strategy. But there were 46 mints represented, there are 48 national mints in the world and there’s just a handful of private mints such as ourselves and we were invited only because we do legal tender work for about 19 different countries. [1:57]
JIM: Now, at that meeting you were sort of a fly on the wall and I thought it was rather interesting, as these mints talk about the global macro situation, what they were saying. And there were some fascinating conversations coming from the head of Japan and others. And I wonder if you would share that with our listeners because it gives you a different perspective how other people and especially mints see the world that we operate in today. [2:23]
ROSS: Well, Jim, and it does. What’s so insightful is most people think that out of the 195 countries in the world that just about every country would have its own mint and that’s not true. Most countries are so small or don’t have the technical expertise is they rely on contract minting. And they’ll come to a company like ourselves or even go to a national mint; for years the US Mint made currency for a number of countries. So when you get there you’re dealing with kind of the core group of mints and in most every country the mints are part of their central bank. So this conference is made up of basically the world’s central bankers, and it’s the bankers within their central bank that are actually sleeves rolled up, boots on the ground, the ones that are looking at the money supply, the money flows, the acceleration of money, the deceleration of money and especially in Europe. And so when you listen to them, they’ll be sitting there and talking about production needs and how if this country is retracting --you know, they’re having to mint a lot less money, they’re having to pull their monies back.
In the United States, we have the Bureau of Printing and Engraving which prints the paper money and the US Mint which produces the coin and those two entities are separate, but in all other countries in the world those two entities are combined into one. So it gives you a chance to talk to these people and they’ll talk to you from a fairly technical perspective of what’s happening with the global currencies. [3:57]
JIM: When you walked away from that meeting, what insights did you walk away with, Ross?
ROSS: Well, talking at this level, and of course my participation is mainly as an observer because I don’t get involved in the money supply of our government or any other governments, you know, if somebody contracts with me I’m just told to produce a certain amount of coins of a certain size of a certain material. But in listening to the chatter back and forth and being in some very intimate conversations, the first thing that strikes me is they are very worried about the world’s economy especially in Europe. I would call it the ‘cabal’, that is, the European Union really has dissolved into a number of nations cheating on each other’s economic structure. And you know, in Europe, you have to remember, in the last century Europe has seen many wars, lots of conflict. And those conflicts still rise up in the form of economic conflict. There might not be armies on the border anymore; in fact, when you travel through Europe all the borders are wide open, you can drive through without passport check or a visa.
But, because the euro has become the single currency, each of these nations is required to adhere to some strict financial guidelines regarding their own money supplies within their own countries. And they’re all cheating because they’re going to put their economic welfare of their country ahead of any agreements that they might have made with an outside group because politicians being politicians are going to want to take care of their own country first. And a lot of these accounting tricks such as Greece and in Spain and Italy have been covered up for years, but they manifested into these monsters that now they can no longer sweep under the rug. And so this has bothered tremendously some of these other countries such as Germany that has been fiscally responsible. And so even at this level, they’re all polite with each other, but the underlying tensions relating to their countries and their accounting tricks is really evident; there’s a lot of concern. There’s a lot of talk about whether the euro is going to survive or not. [6:11]
JIM: And when you hear this talk about whether the euro is going to survive or not, it reminds me, Ross, of our Articles of Confederation after the Revolutionary War where you didn’t have a central bank, you didn’t have taxing authority, you didn’t have a treasury department. So what you have in the euro is a currency with none of the other things that are necessary to run a government. So it’s a question it seems like to me, does Europe come together in a fiscal union or does this whole thing implode. Did you hear anything like that? Was there talk about, “we need to come together in a fiscal union to figure this out or make it work”? Or was there a feeling like this thing isn’t going to work and maybe it’s everybody off to protect themselves versus a cohesive plan to come together? [7:03]
ROSS: I saw no cohesiveness at all. In fact, you know, while it was smiles and pats and handshakes with all the major participants, you know, privately they’re talking about, well, thank god we still have a warehouse filled with our former currencies. The first plan in talking to some of these people is to keep the euro alive and keep moving forward; contingency plans are being drawn with all the mints to go back to single currencies or -- which kind of surprised me -- instead of some of the stronger countries kicking out the weaker countries out of the euro, just the opposite. The stronger countries leaving the euro to go form either a second currency or to revert back to their original currencies. [7:50]
JIM: One of the conversations I had with another money manager last week, Ross, was maybe one of the ways to solve this problem is instead of kicking out the Greeks, kick out the Germans; Germans could have their Deutschmark, strong economy and the rest of those weaker countries could sit there and just inflate their currencies and debase the euro. Maybe that’s a possibility. [8:12]
ROSS: That was kind of one of the plans that was floated. And if I could change gears for just a moment, Jim, one of the things that has been popping up and has been talked more and more about that is now coming into play is not even so much even printing currencies, it’s having electronic money. And at each of the mint conferences in the last 10 years that I’ve been privileged to attend, the electronic currency where your currency is put onto your smart phone; they’re even now printing up money that has a computer chip where you can download monies. And looking at the demographics; now, people of your and my age we like to have our billfold in our pocket and we like to pay in cash; we like that anonymity that comes with paying in cash. But the younger generation, especially in Europe and now in the United States, they don’t like cash; they don’t like to carry cash. And the mints are responding to that by developing all kinds of electronic currencies. And we saw graphs and talk about how most of the paper currencies and the coin currencies would be a thing of the past by 2025 or 2030 and it would be almost all electronic money for the convenience. And some of your younger or more techno-savvy listeners may know that you can now pay with your smart phone, you can pay with other electronic means. So that’s where it’s moving. And what that means for my industry is a lot less money is being printed, both coined and printed.
And the reason that this trend is making governments happy is that would give governments more control and it would also capture the underground economy. There was a tremendous amount of talk about the additional revenues these countries would capture and would help their economies and their struggling deficits by taking somewhere between 10 and in some places 20 and 25 percent of the economies and putting them back into play for taxes because you have places like Spain where they estimate up to 40 to 50 percent of the economy is underground. So if you have to deal with electronic currencies, there would be no hiding any of these revenues. And it would also give the government great control because they could merely shut your chip off if you fell out of favor. There were lots of smiles with people in the know. [10:48]
JIM: Now, you say the younger generation, which is very mobile. Everything they do with their mobile phones, there are smart phones, was there a feeling that they could move in this direction and there wouldn't be a backlash. In other words, I don’t know if I would like that because it tells me that the government now controls me. I mean if they don’t like my political views, if I have a dispute with them over taxes they could shut off the faucet and I wouldn't be able to spend money. [11:18]
ROSS: Precisely. And that’s one reason that these governments are anxious to move in that direction. You know, if you’re any kind of a conspiracy theorist and excuse me, but I kind of am, I believe that the government always would like to have more control over their citizens. Nowadays, I go turn my cable TV on and because my computer, you know, from home has hit many precious metals sites, my advertising is more directed at me. I get precious metals advertising on my telephone. And that’s one way that technology is being used. But that makes me scared because now I know there is some group out there that is monitoring my internet usage. And the government looks at this technology and says, well, if we can look at their purchases and compare it against their reported income, it just makes it so much easier to capture the revenue. And to them it’s all about control and it’s about revenue. And that’s where I get nervous about; it scares me to see so much control. But people like my assistant, she’s 35 years old and she never carries cash. She has a debit card. And to her, when she was listening to some of this, she said, wow, if I could pay with my smart phone, I’d love that. With me, it made all the alarm bells go off in my head. [12:41]
JIM: Yeah, because I see that too. Let’s just say -- let’s carry this a step further, Ross, and let’s just say that this does take place and we eventually move -- who knows, they use some kind of crisis, terrorists come to mind, that, you know, terrorists are using money to siphon money out of the economy to hide their actions, so it’s done under the Patriot Act or something like that. Could you see where we go to actually a barter system to go around it, or let’s say people use coins and say, well, I have these coins here, and you have an underground economy develop with the coin market or barter? [13:18]
ROSS: Well, Jim, that to me any time the government is going to put up a roadblock you’re going to find ways to go around it. But what I believe is that right now some estimates are 20 percent of our economy is underground and it’s not being taxed. And if the government can devise a system where you have to use electronic payments and they can capture that, maybe they can take that 20 percent of the economy and knock it down to 2 percent and they would call it a victory. And people who are patriots like you and I, you know, we believe in the 4th and 5th Amendments where it says we have a right to be secure in our privacy and our papers. But when you deal with this electronically, there are no secrets. If you went and bought something, everybody can access it and everybody can know about it. And I just look at it as a civil liberties issue about my privacy. And about a third of the talk at the last Mint Directors Conference was all about the new electronic monies and how they’re coordinating within each other’s countries. And you look at Google had developed it and so has Amazon. And in the United States, it looks like Google, Amazon and Apple have already developed electronic money and they’re going to be the three big players and you have similar companies in Europe. And it’s not a matter of if, it’s a matter of when and how it’s going to work out technically with each other because right now Amazon knows how to do the electronic money, but it’s a matter of making all of the electronic monies interface with each other and work out the mechanics behind that. [14:53]
JIM: You know, you bring something that’s rather interesting and that is because you look at precious metals things and the ads that you see, somebody is tracking all of this. So these big companies like Amazon, I mean I know any time I buy something different on Amazon, the next time I log on all of a sudden I have all these products that are similar to what I just bought, suggesting other things that I might buy. Ross, it reminds me of George Orwell’s 1984, where maybe it’s not the TV that monitors, it’s our smart phones, it’s our computers where the government controls everything that we do. It’s kind of a scary thought when you think about it. [15:36]
ROSS: Well, you know, I’ll tell you about how interesting -- just as a little side note, one of my employees lost his smart phone and he’d left it in a hotel, and he knew he’d left it in a hotel, and the hotel mailed it to him. And he was able to get on the computer and track that cell phone all the way to the post office. Interesting was is once it showed up in the Carson post office, a postal worker stole the phone out of the mail. And he was able to track his phone all the way to that postal worker’s home. He was able to get the address; he was able to online look up who lived at that address. He then called the postal inspectors and they drove out to that postal employee’s house. When they got in there, of course the postal employee denied knowing anything about the phone. So they were talking to him on their cell phones and they said, Make your phone ring. And he was able to make it ring and they could hear it in the house. Well, he was delighted about this technology because it allowed him to recover his smart phone. But if that’s the kind of technology that’s out there and we’re all carrying a phone in our pockets and we're all making purchases on Amazon, what does the government know with their supercomputers and what does the government know with all their technology. And with the smart money, paying with a chip, paying with your phone, it just gives them that much more control and that’s what concerns me. [17:01]
JIM: I want to move onto another topic more in terms of what you’re seeing. As one of the largest -- well, the largest mint in the United States, what have you seen with demand for coins, whether it’s Eagles, silver Eagles, gold Eagles, silver rounds, gold bars? We've seen gold consolidate; we’ve seen gold stocks have not done well over the last two years. We've seen a situation where silver hit a high last April; we’ve never been back there since. We hit 48, today we're at 29. Gold got up to 2090 and we're at 1600. Have you seen a commensurate drop in coin demand. I have heard that coin sales have fallen. Can you tell us a little bit about what you’re seeing on the demand front. [17:54]
ROSS: I sure can, Jim, but let me correct you on one thing. We're the largest private mint in the United States. The US Mint is still larger than we are. But, whether it’s been the US gold Eagle program or the silver Eagle or the Canadian program, back at the Mint Directors Conference which we're talking about, the talk of the mints that produce bullion items -- and some of the countries, their sales were off as much as 80 percent. And I think what we've had in the last three, three-and-a-half years ever since, you know, probably actually four years, so it was about this time in 2008, you know, just prior to the election when the economy started turning bad and precious metals sales went up. I think with all the bad economic news, I think we're starting to see some crisis fatigue. People are saying, Yeah, the US has got fiscal issues. Yes, our dollar is weak and our dollar has got issues and so does the euro. And I just think that the people who were protecting themselves with precious metal have acted by now and we're starting to see kind of a fall off with people who, you know, it took them a while to make that decision to protect part of their assets with precious metals and there’s a pause before the election because people are holding their breath, they want to know what’s going to happen in November. And so there’s been a pullback in precious metals and it’s been anywhere from 50 to 70 percent pullback in purchases of precious metals. [19:23]
JIM: And Ross, is part of that -- you know, it’s amazing what a rally can do and what I have seen consistently at least on the paper side of financial assets is money every single month has come out of the stock market and it has gone into the bond market where investors today -- now we've had a hiccup in yields here in the last couple of days, but when I look at bond yields, I’m taking a look at bond yields that are almost half the inflation rate, but that’s exactly where the public is going. They’re saying, you know what, I don’t trust the stock market, I’ve had two bear markets over the last decade and anybody that was in precious metals they’re sitting on losses if they bought in the last year. I don’t care if it’s bullion, whether it’s silver, whether it’s gold, or it’s gold stocks. So the money is going into government bonds, which is rather interesting because the rate of return is less than what the official inflation rate is and that’s if you believe that inflation rate. It just strikes me as rather odd, but that’s where the public is going. Maybe it’s that they’re just kind of fatigued and can’t handle the volatility so they think that being in government bonds is the place to be. [20:35]
ROSS: Well, you know, Mark Twain I think said it best. He said, I’m not so much worried about the rate of return on my money, it’s the return of my money. And I just think that usually the masses invest wrong. They’re investing on an emotional basis and not a rational basis. And when we see people who, again, have that fatigue -- crisis fatigue -- they’re looking around for a traditionally safe investment. And I think that’s why bond yields have gone so bad because all of these people have raced back to put their money into bonds when they’re really not thinking very clearly. Right now our economy, they’re putting the best polish they can on it prior to the November elections. And if you look back historically, the Federal Reserve has been very accommodating ahead of a presidential election. And I think that a lot of these -- the fins of our economy are going to come light right after the election. And when that happens, I think a lot of people are going to realize that their money is being loaned to a government that’s running a $16 trillion deficit might not be the smartest idea in the world. A lot of people turned around and loaned money to the Greek government and what happened there. And they’re saying the same thing now with a number of the European countries where people rushed in because they’re offering high reserves or because they thought their government was stable and now they’re pulling it out, and that’s part of the financial crisis that’s happening in euros. It’s not such a financial crisis, it’s a crisis of confidence because they won’t get their fiscal house in order. [22:09]
JIM: You know, I can’t help but believe -- I mean we've been in a falling interest rate environment since I got in this business, Ross. When I got in in 1979 we were heading towards 15 ½ percent and so I think the public is sitting there, in many ways, because interest rates have headed down because of the safety trade, they’ve gone into these bond funds as a substitute for cash, thinking they’re money market funds and they can’t lose. But as you and I know, as you just mentioned, I can remember in late fall 2009, when the new president of Greece took over and he said, oh, by the way, you know those numbers we were reporting on the budget, they really weren’t true. And he fessed up and all of a sudden Greek bond yields went from 2 percent to 7 percent over night. And that’s what I think the public doesn't understand right now because that’s what they’re doing; they’re going head first into these bond funds. And you and I know that the rate at which government is spending money, even if you raised tax rates to 100 percent, we still couldn't balance our budget. I just think that we're heading into another crisis here and the public is leading the way, not realizing that they’re about ready to get shorn again. I think there’s a real danger there. [23:23]
ROSS: Well, last night we had the elections in Wisconsin where you know, Gov. Walker was retained. And part of his appeal is he was talking fiscal responsibility. But, if you look at his numbers and you look at how that whole race developed, he should have won at a much wider margin than he did. And what I see is -- and I’ve written about this recently -- is more and more people are receiving some kind of a [stipend] from the government. And people will talk fiscal responsibility, but in the end they vote their pocket book and when their pocket book contains a government check, it’s pretty tough to buck that. So I often wonder if we’re kind of like an alcoholic and we've just got to wake up with our nose in the gutter before we go seek help. And until that happens, we're going to continue our drunken spending orgy that we're involved in and it’s not until we have some kind of a crisis that we go, “maybe we need a 12-step for our fiscal responsibility.” [24:29]
JIM: You know, I think you’re right on that because until -- I mean the one great thing about the world’s reserve currency is we've always been able to print money when we needed it, which has allowed politicians to spend well beyond our means for collecting revenue. And as long as we're able to do that, as long as the rest of the world takes our currency and takes paper dollars, but Ross, I don’t know if you heard this at the Mint Conference, but I’m seeing countries like China and Russia do bilateral trade agreements with their trading partners, bypassing the dollar; I see China increasing its gold reserves and more and more countries saying, you know what, we don’t need to trade in dollars. If that continues, I think this really tells us where the dollar is heading and maybe that’s why that they put in place this FATCA law that Obama signed in 2010 that goes into effect 2014.
Was there any talk about the dollar and about our own fiscal house? Because right now with all the crisis in Europe, the US has been the main beneficiary as money has come out of, let’s say, European bonds, it’s come out of European banks, it’s gone into the dollar and Treasuries. And that’s why we can sit here and talk about a 3-month Treasury bill paying less than one-tenth of a percent. [25:49]
ROSS: You know, one of the most insightful discussions I had as I was talking to one of the heads of the Japanese central bank. And as we were talking, we were discussing the debt to GDP ratio, which Japan has one of the highest in the world and as we were discussing this he said to me, he said, Ross, the difference between the Japanese debt and the United States debt is almost 90 percent of it Japanese debt we owe to ourselves. It’s our citizens that have loaned us the money, and our citizens can’t call in our money. He said, your debt is different. Eighty percent of your debt is owed to foreign countries and foreign corporations and that money is very transient. He said the greater concern I would have is not how much debt that you’re carrying, but whom do you carry it to. And that was his shot across the bow and his warning to me. And I thought about that and I’m thinking, you’re right, their citizens can’t call it in, but our debtors can and when you’re debtor can call it in, it’s very dangerous.
And you know, there’s a lot of concern in our government, when I talk to our politicians in our government, I’ve got some issues going on right now; China of course is the nation that counterfeits so many things and they’ve gotten very blatant in their counterfeiting. One of the heads of the Chinese central bank was there at the Mint Directors Conference talking about their efforts to curb counterfeiting of other countries’ currencies, which is a great concern. They’re counterfeiting euros. Most of the counterfeiting that’s going on nowadays is coming out of China. They’re counterfeiting some of our products too. And I sat in a high level secured meeting as this Chinese central banker was describing all the wonderful things the government was doing to curb their counterfeiting, there was howls of laughter coming from this group and he was very embarrassed. In fact, he kind of stormed off the stage because people were laughing at him because they knew the opposite was true. The reason that our country won’t take an aggressive stance -- and I actually had a Congressman recently tell me this, is they said the word is out you do not offend the Chinese. The Chinese are our bankers right now. The Chinese and some other countries, they are our bankers, and if they need to counterfeit some currency or if they need to counterfeit some of their products to keep their economy going, fine, we're going to let them because we're not going to offend them because if we offend them they can do all kinds of bad things to us. And that’s where the real danger is. When our own government won’t act in our own best interests simply because they need to borrow money from the Chinese, then we've really got a problem. [28:35]
JIM: Well, I wish we could end on a more rosier note, but given the fact that right now prices are cheap, it might not be a bad time given the events that may take place after the election to pick up some extra bullion where prices are low.
Ross, as we close, if our listeners would like to find out more about Northwest Territorial Mint, why don’t you give out your website if you would. [28:57]
ROSS: Well, thank you, Jim. Our website is nwtmint.com or you can just call us on (800)344-6468; we’d be happy to send you a package on how to get started investing and protecting your assets with precious metals. [29:17]
JIM: All right. We've been speaking with Ross Hansen head of Northwest Territorial Mint. Ross, thanks for joining us on the program today.
ROSS: Thank you, Jim. [29:23]