Sunday, May 22, 2011

Utah Legalizes Gold, Silver Coins As Currency

SALT LAKE CITY — Utah legislators want to see the dollar regain its former glory, back to the days when one could literally bank on it being "as good as gold."

To make that point, they've turned it around, and made gold as good as cash. Utah became the first state in the country this month to legalize gold and silver coins as currency. The law also will exempt the sale of the coins from state capital gains taxes.

Craig Franco hopes to cash in on it with his Utah Gold and Silver Depository, and he thinks others will soon follow.

The idea is simple: Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings.

He plans to open for business June 1, likely the first of its kind in the country.

"Because we're dealing with something so forward thinking, I expect a wait-and-see attitude," Franco said. "Once the depository is executed and transactions can occur, then I think people will move into the marketplace."

The idea was spawned by Republican state Rep. Brad Galvez, who sponsored the bill largely to serve as a protest against Federal Reserve monetary policy. Galvez says Americans are losing faith in the dollar. If you're mad about government debt, ditch the cash. Spend your gold and silver, he says.

His idea isn't to return to the gold standard, when the dollar was backed by gold instead of government goodwill. Instead, he just wanted to create options for consumers.

"We're too far down the road to go back to the gold standard," Galvez said. "This will move us toward an alternative currency."

Earlier this month, Minnesota took a step closer to joining Utah in making gold and silver legal tender. A Republican lawmaker there introduced a bill that sets up a special committee to explore the option. North Carolina, Idaho and at least nine other states also have similar bills drafted.

At the moment, Franco's idea would generally be the only practical use of the law in Utah, given the legislation doesn't require merchants to accept the coins, either at face value – $50 for a 1-ounce gold coin – or market value, currently almost $1,500 per ounce. And no one expects people will be walking around town with pockets full of gold and silver.

Matt Zeman, market strategist for Kingsview Financial in Chicago, expects more people will start investing in gold as America's growing debt and bankruptcies in other countries continue to decrease the value of government-backed money.

"You've seen gold replacing these currencies as safety instruments," Zeman said. "If I don't feel good about the dollar or other currencies, I'm putting my money in precious metals."

Some supporters, including the law's sponsor, seek to push Congress toward removing the tax burdens that discourage use of the coins, such as a federal capital gains tax.

"Making gold and silver coins legal tender sends a strong signal to Congress and the Federal Reserve that their monetary policy is failing," said Ralph Danker, project director for economics at the Washington, D.C.-based American Principles in Action, which helped shape Utah's law. "The dollar should be backed by gold and silver, so we have hard money."

The U.S. and many other countries largely abandoned gold-backed money during World War I because they needed to print more cash to pay for the war. Later, during the Great Depression, President Franklin D. Roosevelt took steps that essentially prohibited gold and silver as legal currency to prevent hoarding.

In 1971, President Nixon formally abandoned the gold standard.

Fifteen years later, the U.S. Mint began producing the gold and silver American Eagle coins, primarily aimed at investment portfolios and allowing people to trade them at market value but with capital gains taxes on profits.

Utah is now allowing the coins to be used as legal tender while levying no taxes.

Opponents of the law warn such a policy shift nationwide could increase the prospect of inflation and could destabilize international markets by removing the government's flexibility to quickly adjust currency prices.

"We'd be going backward in financial development," said Carlos Sanchez, director of Commodities Management for The CPM Group in New York. "What backs currency is confidence in a government's ability to pay debt, its government system and its economy."

Larry Hilton, a Utah attorney who helped draft the law, disagrees and says the gold standard would restore faith in American money at a time when spiraling debt is weakening confidence.

"We view this as a dollar-friendly measure," Hilton said. "It will strengthen the dollar by refocusing policy matters in Washington on what led to the phrase, `the dollar is as good as gold.'"


More:

Conservative lawmakers across the country seem determined to crucify mankind upon a cross of gold. In the past week, a string ofarticles have exposed how once-fringe conservative economic theories have migrated into the political mainstream — with alarming consequences.

Perhaps the most obvious example is the conservative gold craze, which is based on apocalyptic beliefs that the U.S. dollar is on the verge of collapse, runaway inflation is imminent, and gold is a more stable and reliable currency than paper money. The tough economic times have spurred many Tea Partiers in particular to rush to invest in gold, pushing its price to a record high. Glenn Beck and other talk show hosts frequently advertise gold on their shows — along with fallout shelters — “as a way to weather the end of the world as we know it.” And presidential contender Ron Paul (R-TX), who was made chairman of the House committee overseeing federal monetary policy, has long advocated returning to the gold standard and abolishing the Federal Reserve.

This month Utah became the first state in the country to officially recognize gold and silver coins as legal currency:
Utah legislators want to see the dollar regain its former glory, back to the days when one could literally bank on it being “as good as gold.”
To make that point, they’ve turned it around, and made gold as good as cash…The law also will exempt the sale of the coins from state capital gains taxes. [...]
The idea was spawned by Republican state Rep. Brad Galvez, who sponsored the bill largely to serve as a protest against Federal Reserve monetary policy. Galvez says Americans are losing faith in the dollar. If you’re mad about government debt, ditch the cash. Spend your gold and silver, he says.
The law is a toned down version of a bill introduced in Georgia last December that would have required that all transactions with the state, including paying taxes, be paid with gold or silver coins. Although Utah’s new law and similar bills are often sold as providing “options to consumers,” they are widely regarded as a backdoor attempt by conservatives to reintroduce the gold standard.

The U.S. officially went off the gold standard under President Nixon. Most mainstream economists agree that it never worked in the first place and reimposing a gold or silver standard now would have disastrous consequences. The U.S.’s failure to abandon the gold standard in the 1930′s was one of the main causes of the Great Depression.

Republican politicians have increasingly pandered to the far-right base by endorsing loony gold schemes, such as when presidential candidate Tim Pawlenty derided the U.S. dollar as a “fiat currency” — “a signal to a narrow constituency of voters who believe that America’s woes began when it abandoned the gold standard.” Minnesota also moved one step closer to adopting gold and silver coins as legal tender this month, and North Carolina, Idaho, and at least nine other states are considering similar legislation.

In a debate with Ron Paul, comedian Stephen Colbert lampooned the central tenet of this modern gold rush — the idea that gold is somehow different and better because it is inherently more valuable. “Yes!” he declared, “Gold is intrinsically more valuable because…it’s shiny!”

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