States seek currencies made of silver and gold

[phantom power]

NEW YORK (CNNMoney) -- A growing number of states are seeking shiny new currencies made of silver and gold.

Worried that the Federal Reserve and the U.S. dollar are on the brink of collapse, lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are seeking approval from their state governments to either issue their own alternative currency or explore it as an option. Just three years ago, only three states had similar proposals in place.

...

Unlike individual communities, which are allowed to create their own currency -- as long as it is easily distinguishable from U.S. dollars -- the Constitution bans states from printing their own paper money or issuing their own currency. But it allows the states to make "gold and silver Coin a Tender in Payment of Debts."

To the state legislators who are proposing state-issued currencies, that means gold and silver are fair game, said Edwin Vieira, an alternative currency proponent and attorney specializing in Constitutional law. And since gold has grown exponentially more valuable, while the U.S. dollar continues to lose ground, the notion has become increasingly appealing to state lawmakers, he said.

http://money.cnn.com/2012/02/03/pf/states_currencies/index.htm

[Ikonoklast]

1. Some people just don't get it.

Going to specie-backed currency would grind this economy to a halt.

There could never be more money in circulation than there is precious metal to back it, and the value of that money would fluctuate with supply.

[phantom power]

3. I'm more interested in what it's a symptom of

which appears to be a declining faith in centralized govt, and a declining faith in the future of the economy.

[Ikonoklast]

4. Most Gold Bugs I talk to hate the Fed.

There seems to be a strong anti-goverment streak throughout their side of the equation.

[Yo_Mama]

13. I think you've got it backwards.

Because dollars would still exist.

Consider a state that had a substantial amount of hard coin circulating along with paper dollars. If the purchasing value of the dollar degenerated, the purchase value of the "hard" dollar would rise in comparison, which would tend to sustain consumption.

Also, there is an uncertainty factor in savings. If you are saving in a form that is very vulnerable to declines in real values and you truly need to save, you will save more than you would if you were saving in a form that is not vulnerable to declines in real value. The time value of savings works just as the time value of money does - risk of loss increases interest rates, but risk of loss of the value of savings increases the savings rate.

Despite the kindergarten versions of Keynes's theory that seem to predominate today, Keynes did take seriously the need of the economic entity to save. His observation that economic entities tended to act to increase savings in times of economic uncertainty also applies to the need to increase saving in times of uncertainty of value of savings.

Both of those forces actually act together. Deflation is the natural cure for a collective need to save in a fixed currency system; as demand drops prices will fall, which will raise aggregate savings quite quickly, which then drops the aggregate need to save. Savers save in order to buy commodities of need or of luxuries, and the need to save for commodities of need is a very powerful incentive to save.

Now, if you create a situation in which the return on savings is very low, the penetration of credit in the economy has reached nearly the saturation point, and the future value of savings is very uncertain, you will most certainly see the demand for savings increase. This is the natural cause of deflation, and it is the situation we have created.

In such a situation, inflation does not increase the propensity to buy hard assets as an inflation protection unless the hard assets have very high indices of moneyness and are sliced into quanta such that almost any economic actor can afford to buy them. Gold and silver coinage satisfy that need. Right now there is effectively a tax on saving in species (withholding on sale, capital gains), but if you make them into coinage that tax disappears.

[Historic NY]

2. Sounds like the bought into the glen Beck gold scheme....

I wonder how they will make currency that other people will accept? They can't expect to receive similar back.

Then again we can all hoard their coins.

[phantom power]

9. Well, if it's gold and/or silver coin, I assume people could accept it just fine.

Fraudulent nutballs like Glen Beck aside, I think there's another thing going on here. People look around them and they see that Things Are Getting A Bit Weird. We're in the longest and deepest economic slump since the 30s. We're a long way from being out of it. Maybe it's peculiar to how history got taught post-Weimar, but my sense is that people associate economic calamity with hyper-inflation, or at least the risk of it. There's a sort of instinct to hedge with stuff like metals.

As I mentioned below, a contractor actually offered silver as a payment option to me recently. I'd decline that, mostly on the grounds of volatility in silver spot prices. I'm not sure how I'd negotiate the amount. It was a strange experience.

[Yo_Mama]

14. You've got it

Yes, things are a bit weird and people have lost confidence in the whole. Thus they seek to secure their own positions.

That's a very interesting experience, and if a lot of people start thinking that way we do have a problem.

[Yo_Mama]

12. If it's gold and silver, no problem

What would happen is that the price of the individual currency would rise against the dollar if the dollar were deflated. At times the species currency would be trading even at a premium to the dollar/gold ratio.

The idea of a "hard" currency is that it allows people to save. Deflating the dollar cuts into savings; the same is not true with species-based currencies.

There's a reason that the Chinese and Indians are buying so much gold.

[Demeter]

5. More power to them

If they can pull it off....

[LiberalEsto]

6. I think we should return to wampum

What was good enough for the indigenous inhabitants is good enough for me.

[elleng]

7. Not an Onion story, I see.

Sounds like Paul got to them. Same States that are playing with voter registration etc???

And can we pay our doctors with chickens???

[phantom power]

8. Recently, I had a contractor offer me an extra discount if I paid him in silver.

Also not from the Onion.

[MarkCharles]

10. Fools' gold, I'm sure! n/t

[Paper Roses]

11. For those without the means, how will they purchase this 'state currency'?

Worthless dollars? Most of us do not have a lot of silver or gold to trade in for 'state currency.
Maybe I'm dumb but I don't see this working.

State and government issue money? Too confusing. Traveling out of state, will the issuers of their own currency take dollars?
I can't even think this one out.

[glinda]

15. I have only heard this from Conservatives.

[Mojorabbit]

19. I have heard it from some liberal friends. I am not sure it is anything to do with left or right

at it's core though probably appeals to more on right at this point in time

[ShaneL]

16. What I can say is

More states and places are faced with increasing insecurity concerning the American dollar and are proposing an alternative currency. Whether there is value to the idea or it’s just political grandstanding remains to be seen, but a growing number of suggestions are being put forth for alternative currencies. You can find similar topic here: Alternative currency proposals increasing

[girl gone mad]

17. Alternative currencies are not a bad idea, but these states are moving in the wrong direction.

Let's not devolve back to a shiny metal standard. Gold standards have failed, time and again. A simulated gold standard is currently tearing Europe apart. Fiat money is the most democratic solution available.

[Po_d Mainiac]

18. Question

Since the Fed has the concession for cranking fiat (by statute) what other means wood be available?

[MFrohike]

20. They don't have a choice

The states are expressly forbidden by the constitution from coining money or making anything but gold or silver a tender for payment.

I like the phrase "simulated gold standard."