A few weeks ago, stories came out about Utah’s legislation enabling gold and silver as legal tender for state debts. The story excited hard money advocates and those favoring alternative currencies to the currently floundering US dollar. For those who wanted to maintain their purchasing power through hard money and avoiding the constant devaluation of fiat money issued by the federal government, the Utah legislation seemed like a long-awaited first step in that direction. Dreams of other state legislatures ratifying similar legislation danced about in our heads. Would US States really exercise their Constitutional rights by offering a true money alternative to the Federal fiat dollar?
The Utah house had passed legislation make gold and silver legal tender for state debts. Now all that was required was Governor approval. This week, hard money advocates joyously cheered as the legislation received the Governer’s signature. But nobody following the development mentioned a key point about this legislation that would turn it from a legitimate hard money system to a State gold confiscation scheme.
Rejoice or Reject?
The poison pill of this legislation turned out to be in the fine print. While gold and money are finally legal tender in Utah for all state debts, such as taxes, they are only valued at the face amount on the coins. Bullion dealers and collectors will tell you that the face amount stamped on a coin issue, whether it be an American Eagle or a Austrian Philharmonic, are really nostalgic deference to a time in which gold and silver were actually the coins of the various realms and their exchange rates to fiat paper money were relatively equal. Since then, the US dollar has lost 95% of its purchasing power while the amount stamped on US gold and silver coins has not changed.
What is the face amount on an American Gold Eagle? $50. So, that is the value you receive for your 1 oz. American gold Eagle when you exchange it for the privilege of paying your taxes and fees in Utah. What is an American gold Eagle really worth? As of the writing of this article, the 1 oz gold coin goes for $1451.28 plus any markup you pay to the dealer.
So for about $1500 in federal fiat greenbacks, you can reduce your Utah state taxes and fees by $50. As my favorite movie ticket counter clerk always says, “Such a deal, such a deal!”
Exchange Rate Follies
This basically amounts to a 1-30 exchange rate in favor of the state of Utah. So let me get this straight. Utah citizens get the right to pay their taxes to the state using one of the very few assets currently maintaining its purchasing power, for the low low exchange fee of 3000%. Such a deal indeed!
Now that exchange rate usury is official in Utah, I can think of several other ways they can take advantage of their citizens. Airport currency exchange booths should immediately begin exchanging 1 Euro for every $30.
State car license tags will not longer be payable in cash, but require that you instead turn in your car to pay the yearly fee. What a boon to the local car market that would be!
Home refinancings will once again boom as homeowners are required to pull out an additional 20% equity every year to cover their property taxes. I am sure mortgage lenders and brokers are rushing to their state legislatures as we speak.
Perhaps, instead of messing around with fiat money devaluation or hard money confiscation at all, we should just attach a promissory note to each birth certificate. Each child will be required to pay their first ten years pay into a general state fund to be used for whatever entitlement legislation makes it through the system. Each paycheck thereafter is taxed at 15% to maintain growth in these programs. Why bother with taxes and exchange fees when you can simply mortgage the person themselves? It would circumvent all the pomp and circumstance of current politics and get straight to the matter; the state is going to give you bread to live on at the expense of your labor, and they will take an extra fee for administering those programs to boot. After all, legislative salaries must stay competitive to the market place!
Will Anyone Actually Use This Law?
As demonstrated, this law amounts to voluntary confiscation of ones gold and silver. At least with a lottery, you have a chance, albeit small, of getting a payout capable of funding your retirement. And in some cases, legalized gambling does lead to the occasional bloke walking out of the casino with money in his pocket. The Utah legal tender (AKA gold confiscation) law offers no such upside.
Of course, the answer is that anyone smart enough to invest in gold and silver are not going to be silly enough to actually exchange their coinage for pennies on the dollar through this program. What then, if the legislation is doomed before it begins, is the point of the charade?
It is pretty obvious to even the casual economic observer that fiat money is devaluing across the world in what appears to be a race to the bottom. Governments are getting closer to defaulting on their debts and rating agencies are actually, in some cases, downgrading sovereign debt. None of them yet has the stones to take on the US debt, but that will come in time.
What the Utah law does is fill two needs. One, the circus of the legislature pretending to pass legislation challenging the supremecy of the US fiat dollar, when actually no such thing has occured. Secondly, it sets precedents for other state legislatures to do the same thing. Precedent is very important in American common law, when the state actually recognizes the value of the precedent and chooses not to ignore it. Now, Utah’s gold and silver legal tender laws offer states unwilling to use devalued fiat money to play the ponzi game and kick the can down the road a way to appear to be doing something when in reality they are doing nothing.
And the charade of government efficacy in the US continues ..