Trust in Gold, Not Bernanke, as U.S. States Promote Bullion

By Amanda J. Crawford - Apr 8, 2013
Bloomberg.com


Distrust of the Federal Reserve and concern that U.S. dollars may become worthless are fueling a push in more than a dozen states to recognize gold and silver coins as legal tender.

Lawmakers in Arizona are poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states.

The measures backed by the limited-government Tea Party movement are mostly symbolic -- you still can’t pay for groceries with gold in Utah. They reflect lingering dollar concerns, amplified by the Fed’s unconventional moves in recent years to stabilize the economy, said Loren Gatch, who teaches politics at the University of Central Oklahoma.

“The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing,” said Gatch, who studies alternative currencies at the Edmond, Oklahoma-based school. “There is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar. That’s what is behind it.”

Bernanke has pushed interest rates to near zero since the 18-month recession that began in December 2007. The Fed said in March it would continue buying $85 billion in securities each month in a program known as quantitative easing that has ballooned its assets beyond $3 trillion and is aimed at keeping long-term borrowing costs low to support economic growth.

Tame Inflation

Consumer prices rose just 1.3 percent in February from a year earlier, according to an inflation measure favored by the Fed. That was below the central bank’s 2 percent target and compares with occasional bouts of more-than 10 percent increases in the 1970s and early 1980s.

Bets that inflation would pick up because of economic- stimulus measures helped fuel a 78 percent jump in gold since December 2008. The dollar’s rise to less than 1 percent below a one-year high set in July and monthly increases of about 2 percent or less in the U.S. consumer price index have curbed demand for bullion. Since reaching a record $1,923.70 an ounce in 2011, gold prices have fallen and are near a bear market.

Gold futures for June delivery fell 1.2 percent last week, to $1,575.90 an ounce on the Comex in New York, after touching $1,539.40 April 4, a 10-month low for a most-active contract.

Texas Depository

In Texas, lawmakers are considering a measure supported by Republican Governor Rick Perry to establish the Texas Bullion Depository to store gold bars valued at about $1 billion and held in a New York bank warehouse. The gold is owned by the University of Texas Investment Management Co., or Utimco, which took delivery of 6,643 bars of the precious metal in 2011 amid concern that demand for it would overwhelm supply.

The proposed facility would also accept deposits from the public, and would provide a basis for a payments system in the state in the event of a “systemic dislocation in a national and international financial system,” according to the measure.

Should Texas take such a step, it would offer sovereign backing for deposits and make buying and storing gold easier, said Jim Rickards, senior managing director at Tangent Capital Partners LLC in New York and author of “Currency Wars: The Making of the Next Global Crisis.” He said the coin measures, while impractical, have symbolic value.

“We are seeing a distinct movement back to a world where gold is considered money,” Rickards said.

Inflation Protection

The measures give “people the option of using money that won’t lose any purchasing power to inflation,” said Rich Danker, economics director at the American Principles Project. The Washington-based public-policy group supports the steps as well as a return to the gold standard, which pegged the dollar’s value to bullion. President Richard Nixon formally ended the convertibility of U.S. currency to the precious metal in 1971.

“People in these states find the idea of having the option to use hard currencies appealing over these policies they have no control over,” Danker said.

The U.S. Constitution bars states from coining money and also forbids them from making anything except gold and silver coin tender for paying debts. Advocates say that opens the door for the states to allow bullion as legal tender. The measure being considered in South Carolina would recognize foreign or domestic minted coins as legal tender.

Utah’s law applies only to U.S.-minted coins, while other states are less clear on whether privately produced coins qualify. Arizona leaves the door open for private coins if they are declared legal by a non-appealable court order.

Tax Breaks

In Utah and some other states, the measures also eliminate state capital gains or other taxes on the coins.

Critics say the state measures are unwieldy. In Arizona, Senator Steve Farley, a Democrat, unsuccessfully offered an amendment that would have recognized as legal tender other state commodities, such as citrus fruit, as well as sunbeams. The amendment was intended to reflect the absurdity of the bill, said the 50-year-old lawmaker from Tucson.

“It is simply grandstanding to get people afraid that somehow President Obama’s agenda is going to drive us into hyperinflation and economic collapse,” Farley said. “We have enough real problems to deal with. I don’t see undercutting our entire financial structure as a priority.”

In Utah, officials haven’t yet figured out how to accept gold and silver for tax payments -- though some residents have asked to pay that way -- or integrate the precious metals into commerce, state Treasurer Richard Ellis said. Lawmakers have established a task-force to study implementing the law and to examine how the state can accept gold and silver, with their fluctuating values, for payment, Ellis said. He’s not optimistic that it will work, he said.

Regulatory Barriers

“People point to Utah and say we are leading the way, but nothing much has happened because regulatory hurdles have gotten in the way,” said Ellis, a Republican. If gold and silver is being used in the state as legal tender, it is probably only in transactions between individuals, he said.

The Utah Precious Metals Association, established after passage of the 2011 law to advocate for the use of gold and silver coins, has about two dozen members enrolled in a two month-old bill-pay service in which their accounts are held in gold, said Lawrence Hilton, the group’s chairman. Hilton envisions a future with an alternative monetary system based on precious metals in which merchants accept silver coin while gold mostly backs electronic transfers.

Gold Producers

The Arizona measure, sponsored by Republicans, won preliminary approval in the House of Representatives April 4 after passing the Senate on a party line vote Feb. 28. Gold is mined in both Arizona and Utah, while Nevada is the largest U.S. producer, according to National Mining Association figures.

The bill’s sponsor, Senator Chester Crandell, 66 of Heber, said he is convinced the move is the “logical thing for the state of Arizona to do.”

“I think you look at some of the things that are happening and the amount of money printed by the Federal Reserve and who has control of that money, and I think anybody would be concerned,” Crandell said. “Gold and silver have been around a long time and people are secure with it and we should give them an opportunity to use it.”

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"Not Worth a Dollar: Utah recognizes gold and silver as legal tender"

by Brian Bolduc
National Review Online

Since 1913, the dollar has lost over 95 percent of its purchasing power. Why? Because the Federal Reserve, which Congress established that year, has printed more money than necessary.

Or so skeptics claim. Many tea partiers agree — so much so that they’re spearheading an effort to introduce two competing currencies into the money supply: gold and silver.

The Constitution forbids states to coin money. In Article I, Section 10, however, it reads, “No state shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debts.” Jeff Bell, policy director of American Principles in Action, argues that this passage authorizes states to recognize gold and silver as legal tender.

Colorado was the last state to do so, in 1893. But Utah, taking “a precaution against further deterioration in the dollar,” has revived the endeavor, Bell says...

...But this setup poses challenges. If gold and silver trade at market value, vendors will have to measure coins’ weight and purity to determine their worth. Will McDonald’s have a scale in every drive-through?

No, thankfully. Bell says private interests are starting banks in which members can leave their gold and silver deposits. They then can use those deposits as backing for debit cards: “You could pay any bill or your taxes with a Visa debit card that would then be assessed against the valued coins — and they may be revalued all the time.”

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"The Gold Standard: A Litmus Test For GOP Candidates"

by Ralph Benko (@TheWebster)

...More than half of the current Republican aspirants have moved monetary policy — and the strong dollar — as a key campaign plank, half of these calling for the gold standard. More are likely to weigh in. The gold standard, in only two years, has moved from a perceived-fringe prescription to the mainstream. How?

Fed Chairman Ben Bernanke “primed the pump,” not in a good way, of public interest with his two QEs. This raised popular awareness of, and ire about, monetary policy. The record shows that a small group of thought leaders effectively championed the gold cause.

In roughly chronological order this may be said to have begun with the forum which John Tamny, on Forbes’ Opinion pages and at RealClearMarkets, gave pro-gold advocates such as Brian Domitrovic, Charles Kadlec and Nathan Lewis — and with consistently savvy support for gold from the New York Sun under the editorship of Seth Lipsky.

Onto this fertile ground came Princeton Professor Robert George’s American Principles Project, chaired by Sean Fieler; then Judy Shelton’s Atlas Sound Money Project. The dynamic was supercharged by World Bank Group’s president Robert Zoellick’s famous gold FT op-ed; then by the formation of the Lehrman Institute’s The Gold Standard Now (for which this writer serves as editor); a call for gold by conservative champion Rep. Mike Pence in a major speech before the Detroit Economic Club; major op-eds by Sean Fieler and Jeff Bell, Charles Kadlec and Lewis Lehrman, in the Wall Street Journal; an important Reagan centennial gathering of supply side titans at the Manhattan Institute; an endorsement by the Weekly Standard‘s Bill Kristol; the most important Congressional hearing on monetary policy in at least a generation conducted by domestic monetary policy subcommittee chair Ron Paul; the high-profile championship by former presidential candidate and CEO Steve Forbes; and, most recently, an endorsement by Mundell...

...Stir in the populist power of the Tea Party, especially that of electoral bellwether Iowa’s Tea Party coordinated by Ryan Rhodes and April Linder. Add a sprinkle of state activists, such as Larry Hilton, who have, with assistance from American Principles In Action, moved gold standard legislation originally inspired by Dr. Edwin Vieira into law in Utah and are moving it forward elsewhere.

This is what moved the gold standard, decisively, from the realm of mavericks and social dystopians to mainstream conservative, and even Republican presidential candidate, policy. The gold standard’s momentum is building fast.

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