I’ve seen a fair amount of comments on Facebook poking fun of the Utah legislature for passing a law making gold and silver legal tender in the Beehive state. One Democrat said Utah should make salt legal tender because Utah produces a lot of salt.
Here’s a description of the bill:
The measure would recognize as legal tender gold and silver coins issued by the federal government — not just their face value, but also their value in gold and silver or to a collector, and exempt sales from personal gains tax. It also would order the state to study whether Utah should establish an alternative form of legal tender, such as one backed by silver and gold.
“It will put some pressure on the federal government. That’s the goal here because right now we have a dollar that’s just running away with inflation and our hope is that this is a little bit of a shock that’ll say we want to deal with inflation,” said Senate Majority Leader Scott Jenkins, R-Plain City, Senate sponsor of the bill.
I’m having problems understanding the concerns here. Perhaps you can help me out.
First of all, gold and silver have been used as legal tender for millennia precisely because they are portable, durable and relatively rare. It turns out that when you actually study the periodic table there are not very many elements with those qualities. Gold, platinum and silver are among the few elements that would work as currency. Obviously, salt wouldn’t.
But the reference to salt was mostly a snarky complaint about the legislature’s priorities. This is what I don’t get. If your complaint is that the legislature should be doing other things with its time, fine, but legislatures do much stupider things with their time every single day all over the world, and people don’t get snarky about it. Take a look at a state legislature calendar sometime: believe me, there are some really stupid things done by state legislatures with taxpayer money.
Having discussed this with a few pretty smart people, it seems that the concerns about the measure boils down to this:
1)Going on the gold standard is stupid.
2)The legislature is wasting its time on stupid things.
3)Most of the supporters (including the Utah legislators) are tea party/Cleon Skousen/Glenn Beck fanatics who are stupid.
I can mostly agree with these three statements. But I still think this bill is a good idea, atleast as a Robinhood alternative. Here is why: it draws attention to the debt and the declining value of the U.S. dollar. Folks, if you are not worried about the national debt, you should be. Really, really worried. Anything that gets people talking about this issue is a good thing.
Let me show you a few links and charts that explain why you should be worried.
First, here is the U.S. debt. It is $14.2 trillion. That figure is so staggering as to be difficult to imagine. Think of it this way: That debt is more than $128,000 per taxpayer. The yearly deficit proposals being discussed are $1.6 trillion. This means that Congress is discussing adding another $1.6 trillion per year to that debt of $14.2 trillion. Just paying the interest on our current debt takes up more than $200 billion a year. So, when you hear the Democrats talking about cutting $10 billion a year and the Republicans talking about cutting $61 billion a year, keep in mind that those cuts would not even touch the total interest on the debt.
Again, the numbers are so staggering that I don’t think people understand them. Let’s put it this way. Let’s say you just graduated from college with $200k of student loans. You also have $30k in credit card debt. Now let’s say you make $50k a year. Your student loan payments and credit card payments are $3000-plus per month. You are married with three young kids. Your spouse doesn’t work. How are you going to afford rent, food, a car payment, insurance, etc? You aren’t. Now, let’s say your best friend comes to you and says: let’s buy a condo in Park City, it’s only $250k. Your monthly payment will only be another $1500.
Folks, the numbers don’t add up. You can’t live on $50k a year when you have $230k in debt. And you certainly can’t go buy a new condo. There is literally no way out but personal bankruptcy (or borrowing a lot of money from friends and family). The U.S. goverment has taken the borrowing route. How is that likely to work out, based on your personal experience? You can’t borrow forever: at some point, the bill comes due.
All of us, every single one of us in the United States, are living on borrowed time. The bill will come due one way or another. There are only two possible results, long-term:
1)At some point, nobody knows when, the U.S. will not be able to sell any more debt to investors. The Fed will have to buy the debt. This will result in a massive selloff in bonds and treasuries, which means a run on the dollar and massive inflation, much higher than the U.S. has ever seen. According to an analyst who blogs for eToro Nachteile, the consequences for the world economy will make the 2007-2008 crisis look like a party in comparison. The stock market will tank. Your 401k will disappear. Banks will close. People will lose confidence in paper money. Commodities (wheat, corn, gold, silver) will soar even higher in value. If this happens, the U.S. will be forced to immediately, massively cut government spending. Every government program will be affected. If you get a pension or Social Security or some other check from the government, you will be affected.
2)We get serious about government spending before nightmare scenario 1) happens. This means very, very large cuts in real spending. But the interesting thing is that you can balance the budget with real cuts if you make them every year, and the cuts don’t need to be massive. Take a look at this proposal.
The problem is that nobody is talking about a real proposal to get to a balanced budget today. Nobody is touching Social Security, Medicare and Medicaid. And nobody is talking about cutting Defense. So the message to the bond market is: we cannot take the United States government seriously.
So, going back to why you should be worried: take a look at the value of the dollar. The accompanying chart shows that the dollar has lost half its value in the last 10 years compared to a basket of other currencies. This means that the world is betting that the dollar is weak compared to our competitors and that the it will continue to be weak.
The worldwide economy is already betting against the dollar. But it gets even worse: the worldwide economy is also already betting that inflation will get out of control. Leave out oil for a minute (although it is also relevant). Take a look at the following.
1)The price of silver.
2)The price of gold.
3)The price of copper.
4))The price of corn.
5)The price of sugar.
I could go on and on. Do you notice a common theme? Everything is going up (except the value of the dollar), and most things are near historically high prices. Why is this? There are a few main reasons:
A)There is more money in circulation because the Fed has increased the money supply. More money chasing about the same amount of goods means inflation.
B)The market believes there will be more inflation in the future. Therefore, investors are fleeing to stable items that will increase in value, like gold and silver and platinum.
C)The market believes that the U.S. government will not resolve the debt situation, which means that more and more people believe the scary scenario of a complete market collapse. If this happens, commodities will be worth even more, thus people are investing in these things as a hedge.
So, even if the rube legislators in Utah are stupid Glenn Beck/Cleon Skousen followers, they are probably smarter than you think. Their purpose is to try to draw attention to the debt and get people concerned about it, as they should be. Nobody thinks the U.S. will be going on the gold standard anytime soon. But if you are not worried about the debt, you are substantially less intelligent than the stupid Utah legislators.
As a last comment, I would like to link Connor Boyack’s piece on this issue, which makes some pretty good points supporting the measure.