Following the news that last week Arizona lawmakers passed a bill that will see precious metals become legal tender we thought this would be the perfect time to bring you a fourth installment of The Real Asset Report. Here we look at the moves several US states are making to move to sound money. Look out for the great infographic below.
‘No State Shall make any Thing but Gold and Silver Coin a Tender in Payment of Debts’ 1787 US Constitution: Article I, Section 8.
When President Nixon closed the gold window in 1971, ending Bretton Woods, it signalled the final disregard for the Founding Fathers’ US Constitution.
Whilst many have long campaigned for a return to the gold standard, including Dr Ron Paul, a former Congressman and GOP presidential candidate, moves to use gold and silver as legal tender have hit the big time since the financial crisis.
There are now 20 US states that either have successfully passed bills to allow gold and silver to be used as legal tender, or have been exploring it as an option.
Constitutional rights
The ability of states to look into using gold and silver is down to the Constitution. Whilst it bans states from printing their own paper money or issuing their own currency, it does allow states to make “gold and silver Coin a Tender in Payment of Debts.”
The first to take the step into showing the Fed just what they thought of the institution was Utah.
In 2011 Utah’s Governor signed the Utah Sound Money Act[1]. The Act allows US Mint issued gold and silver coins to be used as payment in the state of Utah in exchange for any goods and services.
The Utah Gold and Silver Depository allow individuals to deposit their bullion in exchange for a debit card for them to use when making payments.
Arizona looks set to be the second state to recognize gold and silver as legal tender. The Bill ‘SB 1439’[2] defines legal tender as a mode of paying debts and taxes.
Like the Utah Bill, any gold and silver coins issued by the US Mint will be seen as money, rather than property. Also like the Utah bill no-one is compelled to accept the coins in exchange for goods and services.
Once the state has been victorious signing a new Act regarding legal tender laws, it isn’t as easy as going out and spending your bullion. In Utah, the state government is still not prepared to take gold and silver as means of payment. Studies still need to be carried out to help determine how setting values for gold and silver coins used to pay taxes will be carried out.
In Missouri[3], gold and silver to be accepted by the state will be valued according to that day’s London PM Fix.
Protest with your wealth
In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System … the State’s governmental finances and private economy will be thrown into chaos, Republican Representative Glen Bradley[4]
The name of Utah’s Bill – the Sound Money Act – shows exactly what motivations lay behind the law. Missouri’s own Sound Money Act 2012 tells exactly the same story.
States and their citizens are becoming increasingly more concerned about the rising gold price compared to the US dollar which is being printed on a daily basis.
Using gold and silver as legal tender is a protest against such bad mismanagement of the US dollar.
In North Carolina[5], Republican Representative Glen Bradley stated in a currency bill he introduced last year, “In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System … the State’s governmental finances and private economy will be thrown into chaos,”
Like his contemporary in South Carolina, Republican Representative Mike Pitts in North Carolina argued for the use of any gold and silver coin to be used as legal tender (not just US Mint issued) as the state is facing “an economic crisis of severe magnitude.”
National drive to sound money
It’s not just at individual state levels where pushes for monetary reform are being made.
The Free Competition Currency Act, originally proposed by Rep. Ron Paul in 2011, was introduced in January 2013 by Congressman Paul C. Broun[6]. The bill seeks to repeal legal tender laws and prohibit taxes on certain coins and bullion.
The Sound Dollar/Federal Reserve Modernization Act, introduced into Congress by Mike Lee, Republican U.S. Senator from Utah, and Rep. Kevin Brady, R-Texas[7], requests the Federal Reserve to monitor major assets’ price, such as gold, and also value the dollar relative to gold.
Whilst national bills such as the Free Competition Currency Act are great for bringing about awareness, there is little chance of such bill being passed. Strangely supporters of the Free Currency Competition act are conspicuous in their support for individual states taking on monetary reform.
Really it is the actions of all of the states on an individual basis which will bring about the most change, and attention.
As each single state successfully passes a legal tender bill, it will raise the chances of other states doing the same – until it becomes a given that all states will wish to have the option of using gold and silver.
For many this is less of a move to an alternate currency, and instead a protest move to show the Fed that they are concerned with their currency management.
Rather than being allowed to spend in gold and silver, it is the removal of state capital gains taxes – which means gold and silver are now seen as currencies – which is the big step here. One must remember that federal capital gains tax must still be paid on those coins held in the depository, hence why this is likely to be a protest move.
Fed retaliation?
We are not prepared to rule out that an enlarged role for gold may emerge at some future date. If reasonable price stability and confidence in our currency are not restored in the years ahead, we believe that those who advocate an immediate return to gold will grow in numbers and political influence. 1982 Gold Commission Report
How will the Fed react to these moves from the 11 states? Quite possibly in the same way they did back in 1982. The Gold Commission presented President Reagan (who had requested the commission be organised) with their final report, “Role of Gold in the Domestic and International Monetary Systems”.
Their recommendation[8] was that ‘no change was necessary at the moment’ but they stated in their concluding remarks “The majority of us at this time favor essentially no change in the present role of gold. Yet, we are not prepared to rule out that an enlarged role for gold may emerge at some future date. If reasonable price stability and confidence in our currency are not restored in the years ahead, we believe that those who advocate an immediate return to gold will grow in numbers and political influence. If there is success in restoring price stability and confidence in our currency, tighter linkage of our monetary system to gold may well become supererogatory.
“The minority of us who regard gold as the only real money the world has ever known have placed our views on record: the only way price stability can be restored here (indeed, in the world) is by making the dollar (and other national currencies) convertible into gold. Linking money to gold domestically and internationally will solve the problem of inflation, high interest rates, and budget deficits.”
They recommended no change unless “…reasonable price stability and confidence in our currency are not restored in the years ahead.” The rest, as they say, is history.
The Fed reacted to the reports’ release with almost defensive behaviour which suggested they felt threatened by the Commission’s existence. The spring following the report’s release, a clear relationship between gold price rising and Fed tightening, and gold price falling and Fed loosening; it appears as though the Fed followed a gold price rule for a while. People at the Fed had begun to adhere to the market price of gold, and manage the dollar accordingly.
The report and suggestion that the central bank may have their ‘discretionary’ power taken from them, was enough to set them on the right path, for around the next two decades.
Perhaps these moves may be enough to set them back on the right path. Although something tells me not just yet.
Utah – signed into law the Sound Money Act in 2011. In 2012 a law was passed which makes it easier to pay taxes and do business using gold and silver.
Arizona –Set to be the second state to recognize gold and silver as legal tender. Bill ‘SB 1439’ defines legal tender as a mode of paying debts and taxes. Any gold and silver coins issued by the US Mint will be seen as money, rather than property.
Missouri – passed the Sound Money Act in 2012. Like Utah, citizens are encouraged to deposit gold and silver coins into the state depository and then use a debit card in order to use the bullion as a medium of exchange. The debit cards debits from the value of the precious metal content as opposed to the face value of the coin. Directs the state to accept the gold and silver coins issued by the U.S. government for payment of debts. (Remains to be passed).
South Carolina –April 2012 – Bill advancing which calls for a currency system that would allow people to use any kind of silver or gold coin – i.e. Silver Eagle or a South African Krugerrand – based on weight and fineness. In this instance, lawmakers are going one step further than other states and are looking to replace the US dollar with gold and silver coins.
Georgia – introduced the “Constitutional Tender Act” in 2011, which will require Georgians to pay their state taxes in gold and silver, as well as banks in Georgia to offer accounts denominated in gold and silver coins. The bill remains to be passed.
Kansas – House Bill No. 2379 states gold and silver bullion coins issued by the federal government would be legal tender in Kansas. Sales of such coins would be exempt from sales tax. The bill remains to be passed.
North Carolina – Rep Glen Bradley introduced a bill that would establish a legislative commission to study his plan for a state currency. He is also drafting a second bill that would require state government to accept gold and silver coins as payment for taxes and fees. The bill remains to be passed.
Virginia – Bill calls for creation of a 10-member commission that would determine the “need, means and schedule for establishing a metallic-based monetary unit.” Republican Del. Robert Marshall wants to spend $20,000 on a study that could call for the state to return to a gold standard. In February 2013 the State House voted in agreement, the bill will now go to the Senate.
Idaho – Bill number 578 the bill states gold and silver are to be used as legal tender and recognised as money. Passed April 2012 .
Maine – Proposed law to make gold and silver legal tender, “An Act to make gold and silver coins and bars legal tender”. (Remains to be passed)
New Hampshire – Proposed law to make gold and silver legal tender in January 2011
Iowa – Proposed law to make gold and silver legal tender cited in the news but cannot confirm.
Oklahoma – Proposed law to make gold and silver legal tender cited in the news but cannot confirm.
South Dakota – Rejected House Bill 1100 (January 2013) which would have made U.S. Government-minted gold and silver coins legal tender. These would have been used to pay state taxes at their market value.
Indiana – Senate Bill 99, which recognises U.S. issued gold and silver coins as legal tender, appears to be buried in the Indiana State Senate Committee on Tax and Fiscal Policy.
Montana – Proposed law to make gold and silver legal tender rejected by 20 Republicans and 32 Democrats in March 2011.
Colorado – Senate Bill 12-137 rejected by Senate Democrats in March 2012.
