What if Australia "Nationalised" it's in ground gold?

[Big A.D.]

Constitutional power s51(xii) gives the Commonwealth power over "currency, coinage, and legal tender"
So they can legally make fiat.

If they have power over "currency, coinage, and legal tender" they can legally recognise whatever they like as "money", gold and silver included.

[Edit]

Put it this way, there is nothing in the constitution to prevent the Commonwealth government passing a bill called Livestock as Legal Tender Act 2012 and letting you pay your income tax in chickens valued at AUD$7.45 each.

 

[Earthjade]

Put it this way, there is nothing in the constitution to prevent the Commonwealth government passing a bill called Livestock as Legal Tender Act 2012 and letting you pay your income tax in chickens valued at AUD$7.45 each.

But they've chosen a plastic polymer instead.
Easier to store and doesn't drown if you leave it in your trouser pocket.
Admittedly you cannot eat it at a BBQ when you run out of steak, but that is the choice the Federal government made.
There is nothing stopping them making it gold or chickens, but the question is why would they?

 

[Big A.D.]

There is nothing stopping them making it gold or chickens, but the question is why would they?

Well, uh, if they were, like, trying to increase their stack...

 

[hussman]

There is nothing stopping them making it gold or chickens, but the question is why would they?

Well, uh, if they were, like, trying to increase their stack...

If government wanted to a cheap alternative to fiat currency, im pretty sure Cane Toads would make a good substitute.

 

[XB]

S115 is the "A state shall not coin money nor make anything but gold and silver legal tender" etc. part.

All this means is that states can't print their own money - so you can't have Victorian dollars or South Australian pounds.
But they can make gold and silver coins, which is why the Perth Mint is able to exist and make gold and silver coins that are legal tender.

Constitutional power s51(xii) gives the Commonwealth power over "currency, coinage, and legal tender"
So they can legally make fiat.

So there is no conspiracy that the Australian Constitution only recognises gold and silver as legal tender.
People who believe that end up like that moron in Queensland that got his butt handed to him when he tried to challenge his parking fine.

Actually it doesn't mean States can make gold and silver coins since that is "coining" - the PM can do it as it's been permitted to under Commonwealth powers to coin/mint coins and the Commonwealth sets the amount for which those coins are legal tender. And states cannot make gold and silver legal tender - they do have a power to make gold and silver coins legal tender but this ability is subject to the Commonwealth's powers regarding currency and legal tender. I've also had the argument twice now about gold and silver in the constitution and in this respect I concur with you Earthjade - thanks


But anyways, not a discussion about the technicalities of the constitution. Getting off the original topic a little.

 

[Lovey80]

Stupid fabian talking sense again

For some context - 1 metric tonne is 32,150.7466 troy ounces - at $1620 AUD an ounce, that's $52 million AUD a tonne. 300 tonnes is $15.6 billion.

Australia's GDP is $923.61 billion (source: CIA Factbook, converted to AUD).

So 300 tonnes of gold is 1.69% of GDP. That's a lot.

Something I read and put into an earlier post had Australian Broad money at 1.35 trillion. With that expanding at 8-10% a year, the "system" is creating an extra say 135billion dollars every year. I'm not an expert on the details of how exactly the broad money grows in reality but we all know it is through the RBA and the banking system. What if slight changes were to be made so that 20-30 billion of that " inflated " fiat was to enter the economy through the gold miners instead of through the banking system? Right now the miner sells the gold offshore in USD trades it to the RBA for AuD anyway right? The miner still ends up with AUD but instead of the RBA holding the USD they hold the gold in my scenario. It would still end up in the banks but as a liability to the miner and the "natural" part of the money expansion was cut to say $80-100billion to equal the same amount as it currently is for the RBA to reach their 2-3% inflation target.

It would mean though that 15+billion would come off of our trade surplus and possibly make us negative. But IMO holding 3-400 tonnes of gold is a much better pay off than 15+ billion in USD reserves.

 

[Lovey80]

What if we decided that for a decade, Australia would stop exporting gold, refine it and build a 3000-4500 ton reserve to cushion ourselves from world economic events.

Does America's hoard of Gold "cushion" them from World events?

I honestly don't see the point.

If SHTF and most countries are participating a race to the bottom in devaluing their currencies, having a substantial gold reserve to pay trade balances with would ensure that a country was able to keep many numbers of goods flowing from country to country. If USD became redundant as a reserve currency and no one was willing to take USD as payment for their goods, the USA would still have significant trading power because of their 8000t of gold reserves IMO.

 

[Big A.D.]

But anyways, not a discussion about the technicalities of the constitution. Getting off the original topic a little.

The original topic started with...

What if Australia had some forward thinking leaders that understood gold enough to understand the need for Australia to hold larger gold reserves instead of foreign paper.

...and while that is an admirable goal, the proposal to achieve a larger national gold reserve involved the Commonwealth government starting to play the futures market.

Playing the futures market is (a) unnecessary because gold miners can already hedge their future output if they think the price is going to fall and/or stockpile their current output if they think the price is going to rise, and (b) undesirable in that the government shouldn't be the ones underwriting somebody's punt on a bit of dirt having valuable stuff in it.

 

[Lovey80]

If we simply recognised gold as money (funny how XAU is already gold's currency code under the ISO 4217 standard), we could let the miners pay their taxes in gold.

If their cash costs for digging it out of the ground are, say, $900/oz and we valued it for tax purposes at spot (currently ~$1600/oz), the miners would get an effective discount on their taxes, giving them an incentive to pay their taxes in gold rather than in cash.

Of course that means we'd be giving up cash that can be spent now rather than gold that would be saved, so government revenue would tax a hit. A solution to that would be to simply include gold in the Minerals Resource Rent Tax (like the Greens wanted) so that large gold miners theoretically pay more tax overall, but with the effective discount it wouldn't actually be that much more. The figures in the above example would provide the miners with a 56% discount, so for every $100 worth of extra tax they'd be paying, it would only cost them $46 to actually pay it.

I don't see how government revenue would take a hit under my scenario. If the miner is averaging 1600/oz and making 700/oz profit they are paying their tax rate on the 700/oz. That would not change and revenue would remain the same (less if a discount was offered to sweeten the deal for them to give up any future increases in the gold price).

I don't understand your thinking in how paying tax in gold would be a discount? They would still value that gold in reference to fiat terms and pay the same % in tax as if they had sold the gold and paid in fiat.

My scenario would not be a forced savings on government revenue they would still have the same revenue from the miners (less the discount if it was required).

 

[Lovey80]

...and while that is an admirable goal, the proposal to achieve a larger national gold reserve involved the Commonwealth government starting to play the futures market.

What? Not really playing the futures market. I can see your link between my proposal and "hedging" future price increases but it differs enough IMO to not get that title.

The advantages would see that government revenue from good mining remained stable ( but didn't cash in on possible future profits) I can see the "futures" link.

Can we please get off the constitution. And start criticizing my idea.

 

[Big A.D.]

If we simply recognised gold as money (funny how XAU is already gold's currency code under the ISO 4217 standard), we could let the miners pay their taxes in gold.

If their cash costs for digging it out of the ground are, say, $900/oz and we valued it for tax purposes at spot (currently ~$1600/oz), the miners would get an effective discount on their taxes, giving them an incentive to pay their taxes in gold rather than in cash.

Of course that means we'd be giving up cash that can be spent now rather than gold that would be saved, so government revenue would tax a hit. A solution to that would be to simply include gold in the Minerals Resource Rent Tax (like the Greens wanted) so that large gold miners theoretically pay more tax overall, but with the effective discount it wouldn't actually be that much more. The figures in the above example would provide the miners with a 56% discount, so for every $100 worth of extra tax they'd be paying, it would only cost them $46 to actually pay it.

I don't see how government revenue would take a hit under my scenario. If the miner is averaging 1600/oz and making 700/oz profit they are paying their tax rate on the 700/oz. That would not change and revenue would remain the same (less if a discount was offered to sweeten the deal for them to give up any future increases in the gold price).

I don't understand your thinking in how paying tax in gold would be a discount? They would still value that gold in reference to fiat terms and pay the same % in tax as if they had sold the gold and paid in fiat.

My scenario would not be a forced savings on government revenue they would still have the same revenue from the miners (less the discount if it was required).

I'm assuming that newly acquired government gold would not be "spent" or sold for cash but stashed in a vault somewhere for a very rainy day. If the government is accepting a commodity in lieu of cash, their cash revenue decreases and they don't have as much to spend on schools and hospitals and battleships and whatnot. The commodity they have instead of cash still has a cash value, but they're withholding that value by stockpiling the commodity.

The effective discount comes from the actual cost to the miner of digging a certain amount of gold out of the ground.

For example, it costs a miner $1 million to dig $2 million worth of gold out of the ground. Their profit is therefore $1 million. The miner pays tax on their $1 million profit at the company rate of 30%, which is $300k.

How much does it cost the miner to come up with $300k worth of gold? $150k.

That's how they make their profit to begin with - selling stuff for more than it costs them to dig it up. The government would basically be saying "You need to pay us $300k in cash or $300k in gold. If you can obtain $300k worth of gold for less than $300k then you can keep the difference."

 

[Big A.D.]

Can we please get off the constitution.

The constitution is only relevant in that it defines what "money" is as far as the Commonwealth government is concerned. If gold is not money then, technically, it can't make up a portion of our foreign exchange reserves anyway because it is neither money, nor is it backed by the word of a foreign government.

And start criticizing my idea.

"Nationalising the gold mines" or anything else will freak people out.

"Banning gold exports" will freak people out.

"Forcing companies to work for the government" will freak people out.

"Pegging the gold price" will freak people out.

 

[Lovey80]

Ok now I get what you are saying in your original post makes semse now That would be a bad decision on many fronts in comparisson to my idea.

Tendering an agreement between the mines and government wouldn't really be nationalising. I am sure many may take up the offer of a set price over a set period indexed to CPI to give them stability. It doesnt freak people out when state governments do exactly the same thing to secure coal supplies for power generation As such if the majority got on board it wouldn't be a "banning" of exports rather than the government simply buying the product in advance of it becoming available to the market. I am sure other governments could (and do) do the exact same thing with Australian mining companies.

There would be no force, simply an agreement that they could opt into or out of. A simple consultation process that may see them take up the offer willingly. I know that if I was one of these miners I would be taking up the offer on at least part of my output to give myself security over profits etc.

The overall market will not be pegged, what the govt doesn't buy will still be available to buy gold with.

 

[bron suchecki]

Miner's currently aren't interested in hedging their production so they won't take up the offer you are proposing - if they did they could currently do that with a bank but they don't.

RBA should just buy up production at market prices.

Note as at March 2012 RBA has about $4.2 billion worth of gold (80 tonne) compared to FX reserves worth $47.7 billion, so first off they should just use those reserves before "printing" money. That $47.7b would get them 900 tonnes which is about 3.5 years of Australian gold production.

 

[Lovey80]

I expected a post from you Bron. Those reserves would be fantastic to be spent for such an exercise. Although buying up current production at Market rates would bring some serious upward pressure on the gold price.

 

[Big A.D.]

I expected a post from you Bron. Those reserves would be fantastic to be spent for such an exercise. Although buying up current production at Market rates would bring some serious upward pressure on the gold price.

...which is why it might be better to quietly skim little bits here and there off the top of current production in lieu of company tax and jack up the special taxes on non-renewable resource exploitation to make up the difference in cash revenues.

Whichever way they were to do it, it would have to be at market rates otherwise the local mining industry would start getting distorted. If the price of gold were to crash to $1200/oz and the RBA has agreed to buy it at $1600/oz then they (on our behalf) would be overpaying for something which also can't be dug up a second time. That could lead to us depleting our in-ground reserves and keeping mines operating that would otherwise be unprofitable (which means those mines would be chewing up capital and labour that could be utilised more efficiently on some other part of the economy).

 

[Rinchin]

"Nationalising the gold mines" or anything else will freak people out.

"Banning gold exports" will freak people out.

"Forcing companies to work for the government" will freak people out.

"Pegging the gold price" will freak people out.

Just increase regulation and bureaucratic money wasting to the point where mining gold is unprofitable. eg production, taxpermits etc = 1700/oz spot 1600


Save the day by guvment taking over the mines and returning them to profitability, in the process keeping production and distribution a closely guarded secret.

Problem/Reaction/Solution

 

[Earthjade]

Why does the government have to buy it?
Government wealth is not the people's wealth.
Why not disseminate the gold among the people like superannuation?

Having the government cajole miners to pour their gold into the state coffers is pure fascistic communist crony capitalist socialism with a anarcho-Keynesian bent.

 

[Guest]

The US supposedly has 8000+ tons of Gold, 73% of the Gold reserves of the world. However, note sure that is in fact true, they don't exactly let anyone go and have a look, not since Goldfinger anyway.

Excellent point. If if was all there the US would be showing it saying "see, see its all there!"

The only reason they don't allow people to look inside is because what they say is in there is not in there. Can't see any other reason.

.. They probably settled debts to China with it.

Who knows at the end of the day.

 

[Big A.D.]

Government wealth is not the people's wealth.

Er, no.

The government's wealth is most definitely the people wealth. The government represents the people and exists solely to provide a benefit to the people.

Having a functioning monetary system, including foreign exchange reserves (and gold) is part of that benefit and they hold those assets in trust on our behalf.