That $5.1 billion budget deficit? Don't worry, it's just fiat currency. That stuff is practically worthless anyway.
Friday, GOP freshman Rep. Kurt Bills introduced HF 1664 that would make gold and silver coin legal tender for debts, eliminate all state taxes on the sale of gold or silver, and create a commission to study the creation of an alternative currency for the state of Minnesota. Bills, an economics teacher at Rosemount High School, appears to be Minnesota's agent in a strategy of pushing "constitutional tender" bills at the state level to challenge the Federal Reserve bank.
Proponents of these bills argue that gold and silver are the only constitutional forms of payment, that gold and silver have inherent value lacking in fiat currency like Federal Reserve notes, and that the dollar is heading for an inevitable hyper-inflationary death spiral.
Of course, the purpose of Article 1, Section 10 of the U.S. Constitution was to prevent multiple state currencies. The "inherent value" of gold and silver is even more volatile than the value of Federal Reserve notes. And the purpose of these bills seems to be explicitly deflationary, crippling the ability to borrow and lend.
Others who have more stamina than me might watch Glenn Beck, follow Ron Paul, and be more aware of the thoughts of the gold bugs. But it's hard for me to take it so seriously, since it is just more of the same apocalyptic thinking as the May 21st folks, survivalists, the Y2K people, etc. There is a powerful psychological pull in the belief you are in a select group of people who see the truth, while the rest of world is blithely ignorant of impending disaster. Unfortunately, it's also a terrible basis for setting monetary policy.
There's a more practical side to these bills. It would provide a huge windfall for holders of gold who would otherwise be subject to capital gains taxes on the sale of gold. Minnesota taxes capital gains as regular income, which means that HF1664 would represent a big tax break for holders of gold. And in a bizarre turn of legislative language, HF1664 would hold any agent of the state personally liable for damage equal to 100 times the amount of tax that was collected.
If you didn't notice the series of Star Tribune articles about the gold coin industry that ran over the weekend, you should check them out. Turns out the industry is full of ex-cons who have a terrible record of ripping off investors. Imagine how HF1664 would supercharge this unregulated industry by allowing them to promise favorable tax treatment. Even if it didn't abet the shady grey market of gold coin dealers, bills like this favor the very wealthy who hold significant amounts of precious metals as a hedge. HF1664 represents an attempt to protect the wealth of the rich in case of the economic rapture. The rest of us in the cash economy will be left behind.
This is a very old debate. I couldn't help but go back and re-read William Jennings Bryan's classic "Cross of Gold" speech. In 1896, the debate at the Democratic National Convention was between populists like Bryan who sought a resolution in favor of "bimetallism" and banking interests who argued for the gold standard. Here's a section that is as relevant today as it was 115 years ago:
Mr. Carlisle said in 1878 that this was a struggle between the idle holders of idle capital and the struggling masses who produce the wealth and pay the taxes of the country; and my friends, it is simply a question that we shall decide upon which side shall the Democratic Party fight. Upon the side of the idle holders of idle capital, or upon the side of the struggling masses? That is the question that the party must answer first; and then it must be answered by each individual hereafter. The sympathies of the Democratic Party, as described by the platform, are on the side of the struggling masses, who have ever been the foundation of the Democratic Party.
There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.
I think we know which idea Rep. Bills favors.
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(Image: TYPICAL GOLD BUGS, published in Harpers Weekly, July 11, 1896)