In gold we trust - at least in Utah. / Image: sirqitous/Flickr/CC BY

Last March the Utah state legislature passed a law making gold and silver coins legal tender. In the wake of that decision, a Salt Lake City entrepreneur is proposing a system by which consumers can use those precious metals for everyday purchases.

Franco plans new depository

Craig Franco, CEO of Pacific Rarities, is planning to open the Utah Gold and Silver Depository as early as June 1. His company will allow consumers to deposit their and gold and silver currency and draw on it for purchases, just like using a debit card.

A way to spend precious metals

“With the state of Utah monetizing gold and silver,” Franco said, “the question then became, how do we provide a common vehicle for commerce to transact?”

According to the new Utah law, the sale of gold and silver coins will be exempt from state taxes, which makes the idea very attractive to many. However, the state can’t force businesses to accept them in place of paper currency, hence the market niche Franco is attempting to seize.

A wait-and-see attitude

“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.”

Legislators attempt to send message

The bill was proposed by Republican state Rep. Brad Galvez. He intended the bill to be largely symbolic, serving as a protest against Federal Reserve monetary policy. While he says “We’re too far down the road to go back to the gold standard,” Galvez maintains that Americans are losing faith in the dollar and that “this will move us toward an alternative currency.”

Economist Ralph Danker, who helped draft the Utah legislation, said, “making gold and silver coins legal tender sends a strong signal to Congress and the Federal Reserve that their monetary policy is failing. The dollar should be backed by gold and silver, so we have hard money.”

Other states consider following suit

Many other states are now considering bills similar to Utah’s. Earlier this month, a Minnesota Republican lawmaker proposed a bill to set up a special committee exploring the option. Virginia, North Carolina, Idaho and several other states are contemplating similar bills.

The gold standard abandoned

The idea of gold-backed money was set aside during World War I because of the nation’s need to pay for the war effort. During the depression, President Fraklin D. Roosevelt took steps to prohibit gold and silver currency as a measure to prevent hoarding. In 1971, President Nixon abandoned the gold standard altogether.

Critics call new law extreme and backward

Commentators have criticized the Utah bill as libertarian and extreme. Political columnist Dana Milbank said it was a bizarre formula concocted by “tea party chemists.”

“What backs currency is confidence in a government’s ability to pay debt, its government system and its economy,” said Carlos Sanchez, of N.Y’s CPM Group. “We’d be going backward in financial development.”

Sources

Huffington Post

Daily Finance

Fox News

The battle to return to a gold and silver standard for U.S. currency has waned, but it hasn't died. (Photo Credit: Public Domain/U.S. Mint/Wikipedia)

Producing paper dollar bills is a more expensive proposition than ever, reports AOL News. That’s why Senators Richard Shelby, Robert Casey and Tom Harkin are continuing a battle that in one form or another has been fought since U.S. President Andrew Jackson held office in the 1830s. On behalf of the U.S. Government Accountability Office (GAO), the Senators are calling on Congress, the Federal Reserve and the Treasury to pull $1 notes from circulation and replace them outright with $1 coins.

Paper dollars to coins could save $5.5 billion over 30 years

Long-term projections regarding the impact of replacing paper $1 bills with $1 coins indicate that the U.S. government could save $5.5 billion over 30 years by switching. Considering the difference in average lifespan between modern bills and coins – 3.3 years versus 30 years – less currency would need to be produced. GAO studies also indicate that coins are cheaper to produce than paper bills.

Over 30 years, taxpayers would save $184 million annually

The GAO has lobbied for the changeover for 20 years, but success has been moderate at best. The Presidential $1 Coin Act of 2005 was intended to serve as a major transition in monetary policy, and Federal Reserve banks carry an inventory of 1.1 billion $1 coins as of Dec. 2010, writes the GAO in a related report.

Only 4.2 million $1 coins are in public circulation, including the discontinued Eisenhower, Susan B. Anthony and Sacagawea $1 coins and the current Presidential and Native American series. American Numismatic Society Executive Director Ute Wartenberg attributes this relative dearth to the populace’s conservative view toward the use of coinage. Coins are heavier than bills, and many wallets are not sufficient to tote them.

Cut off the greenbacks, cut the cotton

The U.S. must completely withdraw of $1 bills from circulation, so that the public doesn’t have the option, suggests Wartenberg. British and Canadian governments went a similar route in the 1980s when lowest-denomination notes were replaced, and many other nations followed suit or had made the change before. Yet Southern U.S. legislators have resisted plans of replacing paper dollar bills with dollar coins for fear of weakening the cotton industry, which supplies the U.S. Bureau of Engraving and Printing.

The battle of specie versus greenbacks

The fight to return to “hard money” has precedence in U.S. political history, from the time of President Thomas Jefferson to the Lincoln administration and beyond. Jefferson considered paper dollars to be “the instrument of the swindler and the cheat,” according to Robert Remini’s account in “Andrew Jackson and the Bank War.” The underlying reason for Jackson’s vehement distaste was that paper money, while legal tender in the government’s eyes, could be converted into precious metal – gold, in particular.

Once Lincoln attained the presidency (1861-1865), greenbacks became official thanks to the Legal Tender Act of 1862. A system of nationally chartered banks that report to a main central bank arose, and the U.S. was quickly flooded with paper money.

Sources

“Andrew Jackson and the Bank War”

AOL News

“Lincoln, Gold and Greenbacks”

“Reassessing the Presidency: The Rise of the Executive State and Decline of Freedom”

U.S. Government Accountability Office

Fixing volatility in the International Monetary Fund

Gold futures hit a new record high today at over $1,400 an ounce. (Photo Credit: CC BY/Giorgio Monteforti/Flickr)

There is a definite connection between currency values and the price of precious metals, and if today’s movement on gold futures is any indication, the world is experiencing a major shift. According to Marketwatch, Gold for December delivery went up $7.20 per ounce to an all-time high of $1,405 early Monday on the Comex of the New York Mercantile Exchange. It soon peaked at a high of $1,407.20 per ounce.

Gold futures began the day on downward slope

Trading began Monday with a loss of as much as $10 from Friday’s closing price on gold futures ($1,397.70 per ounce). Not coincidentally, the currency value of the dollar rose. But dark clouds of European debt – particularly in Greece, Ireland and Portugal – massed on the horizon, giving gold prices, silver prices and even copper prices an historic lift.

The Federal Reserve’s bond buying excursion spun the market like a top

The recent move by the Federal Reserve to buy up $600 billion worth of bonds over the next eight months spiked investor interest in selling paper currency and shifting toward the precious metals end of the market. Yet currency values are not in complete free fall as yet, reports Marketwatch. The U.S. Dollar rose 0.5 percent against rival paper currencies. The euro, however, experienced a marked decline, thanks to bonds from Greece, Ireland and Portugal came under performance pressure.

Re-instituting a gold standard

World Bank President Robert Zoellick has suggested that the re-institution of the gold standard should be a topic of serious discussion at the upcoming G20 conference in Seoul, South Korea. “Employing gold as an international reference point of market expectations about inflation, deflation and future currency values” could go a long way toward establishing a practical economic yardstick, said Zoellick in a recent Financial Times op-ed piece.

James Cordier, a portfolio manager at Optionsellers.com agrees. A global gold standard could “stabilize gold and turn what is still a thin market into a more orderly one.” Not only that, but currency values would benefit, as it would be tied to something to something more tangible.

Silver and copper prices also shot up

Marketwatch reports that silver prices went up toward $27 an ounce. Meanwhile, copper prices rose to $3.96 per pound in December delivery figures.

Sources:

Marketwatch

Is it government manipulation – or luck?

Unlike Auric Goldfinger, Glenn Beck doesn't appear to know gold (or Goldline, for that matter) as well as he thinks he does. (Photo Credit: CC BY-ND/BullionVault/Flickr)

A ubiquitous part of Glenn Beck’s programming is his endorsement of the gold vendor Goldline. Recent concerns over the value of the U.S. dollar have prompted many to turn their attention toward the market for gold, and Beck and Goldline have been eager to capitalize. However, as blogs like Mediaite and The Big Picture report, Goldline International is currently under legal investigation for its business practices. Glenn Beck may not be part of the investigation, according to the Los Angeles District Attorney’s office, but Fox News does not appreciate there being yet another problem with a sponsor of “The Glenn Beck Show.”

Understanding why the law is upset with Goldline

For a brief period of time – long before Goldline came into existence – the United States based its monetary system on a gold standard. Such a system of commodity money has its limitations, but fiscal conservatives praise the gold standard for its ability to place a government on a leash by limiting the potential for chronic deficit spending. Such people tend to believe Glenn Beck when he predicts that the U.S. dollar will collapse and says that buying gold is the only way to avoid economic gloom and doom. Conveniently, Beck gives his endorsement to Goldline, a company that, according to the Los Angeles District Attorney, is selling gold at overly inflated prices. Congressmen like New York Rep. Anthony Weiner and House Commerce Subcommittee Chairman Bobby Rush have taken a particular interest in the DA’s investigation of Goldline.

Where the DA claims Goldline has been dishonest

The Los Angeles DA claims that Goldline “grossly overcharges” for its coins. The Big Picture notes that markup on average is “90 percent above the melt value of the coin” and 47 percent higher than the competition, while one coin was valued by Goldline at 208 percent above melt value. Selling coins as high as twice that of melt value does not constitute a good investment for consumers, as the price of gold would have to double before a consumer could break even. Moreover, the DA takes issue with the claim some Goldline salespeople have made that they can give gold investment advice, but because they are not licensed investment advisers, Goldline salespeople cannot legally make that claim.

Rep. Anthony Weiner has heard enough

Anthony Weiner, who sits on the House Subcommittee on Commerce, Trade and Consumer Protection, has contacted the SEC and FTC regarding Goldline’s practices. He has proposed legislation that would require companies like Goldline to reveal their full business plan to consumers, markup included. Hearings on the matter will be held later this summer, according to The Big Picture.

In a public statement, Anthony Weiner said that “Goldline rips off consumers, uses misleading and possibly illegal sales tactics, and deliberately manipulates public fears of an impending government takeover – this is a trifecta of terrible business practices.” If Congress believes that Goldline is intentionally exploiting the public, self-proclaimed “rodeo clown” Glenn Beck will be forced to drop another sponsor.

Sources:

Mediaite

Rep. Weiner’s report on Goldline

The Big Picture

Wikipedia on the gold standard

Rep. Anthony Weiner versus Goldline