Gresham’s Law and the Venezuela Gold Recovery

The WealthCycles Staff

Gresham’s Law states that when a government (or governments) forcibly overvalues one money and undervalues another, the undervalued money will disappear, and the overvalued money will flood into circulation. The popular simplification of Gresham’s Law is simply “bad money drives out good money.” When a crappy currency impersonates a solid money (and they are equally valued), the solid money will usually disappear as people begin saving the solid money and spending the crappy currency.

Gresham’s Law hasn’t been violated since the dawn of money, and any time a government introduces a shaky currency to float alongside precious metals, the precious metals lie in wait (which is what happens when we invest in precious metals) until they revalue at a much higher price.

Just yesterday, the Venezuelan government finished a two-month-long process of repatriating (bringing back to their own country) 160 tons of gold that had been stored in offshore vaults in the United States and Europe. The Wall Street Journal had this to say:

Declaring the process a "mission accomplished," government officials and state news crews met the 14-ton load at a Caracas area airport and heralded the televised event as a boost to national sovereignty.
Beginning late November, the government of President Hugo Chavez called back to the central bank's vaults in Caracas about three-quarters of the roughly 211 tons of the country's gold reserves that were stored in U.S., European and Canadian banks.
The move was aimed at protecting the assets from turbulent financial markets overseas, officials said. About 50 tons of Venezuela's holdings have been left abroad to facilitate any future transactions, said Central Bank President Nelson Merentes, who was among the dignitaries at the airport.
"Venezuela's gold is now in the hands of Venezuelans, secured by Venezuelans and at the service of all Venezuelans," Merentes said, according to a central-bank press release.

This is an early sign of Gresham’s Law happening in modern society. When one country blinks and begins demanding return of its solid money, you know that the crappy currency will soon be shunned in favor of something than can weather any financial storm. 

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how much tungston is in those bars, 24 ct plate

Can I ask a question can I buy a Morgan made silver or NTR made silver

Mike Maloney please cloud you give me a favor?

Great example. This sort of thing is also happening now between Iran and India. Instead of taking crappy dollars Gold is being used.

Great article. Are there any other countries doing the same thing?

Yes Germany is looking into asking the US for some or all of its gold back...

Has any other country asked for their gold?

It becomes a political thing when countries ask for their gold. Venezuela, which is largely an ostracized country as it is, doesn't necessarily lose a lot of political capital when they ask for their gold back. They just don't give a hoot. On the other hand, if Germany asks the United States for their gold back, we would suddenly have an "act of economic terrorism," or some other focus-grouped phrase to scare the country into thinking someone is doing something wrong. But as Mike has always said: "if you can't hold it, you don't own it."

The Gold move by Chavez was, as the young people would say, Gangsta!
Who is next?!

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