Larry Hilton, an attorney and insurance salesman has authored the “Utah Sound Money Act”. A couple of state legislators are considering sponsoring the bill. Here are a few things the bill would do.
Requires State To Accept Gold As Money
Among other things the sound money act requires the state to accept gold as payment and would allow but not mandate businesses to accept gold as payment.
Creates Defense Force to Protect Gold
Part 5 of the bill requires the governor to “recruit, form, train and deploy such troops and regiments of the Utah State Defense Force … as the Governor may deem necessary and appropriate to store, safeguard, protect and transport the Registered Specie holdings of all Utah Governmental Entities, as well as provide a means for the exchange, between and among Utah Governmental Entities and Utah Taxpayers, of Registered Specie, either by transfer of ownership of the same held in a secure storage facility or by physical delivery according to the recipient’s preference.”
Mandates Treasurer to Fix the Price of Gold and Silver Periodically
The Utah State Treasurer would have responsibility to “periodically set a Specie Exchange Rate for gold as well as one for silver. These rates shall equate a specific quantity of Federal Reserve Notes, or fraction thereof, to one Troy grain of each metal.”
Periodically means “no more than once per day, bank holidays and weekends excluded. Newly set Specie Exchange Rates shall not be disclosed to anyone other than the Utah State Treasurer’s staff until such new rates take effect at 12:01 a.m. the following day, at which time the new rates shall be published and readily available to Utah Taxpayers, residents and citizens.”
Limits Price Movements
Moreover “No single Specie Exchange Rate change effected by the Utah State Treasurer shall differ by more than one percent from the previously effective rate.”
The Salt Lake Tribune “Gold Fever” editorial calls Larry Hilton’s proposal a “crackpot idea”.
The 2011 session of the Utah Legislature is looking like uncommonly fertile ground for crackpot ideas. So far there is a bill to name an official state gun and two calling for conventions to amend the U.S. Constitution. But the most outrageous scheme to surface yet is the Utah Sound Money Act, a system of commerce within the state that would be based on gold and silver coins.
So far, the bill hasn’t found a sponsor. Here’s hoping it doesn’t. Utah can’t secede from the Union, and it shouldn’t try to secede from the federal currency, either.
Volatility Argument Flawed
The editorial’s primary argument against Hilton’s bill was in regards to volatility of the price of gold, measured in dollars. The irony of that logic is that price volatility of nearly everything is a result of boom-bust cycles caused by the Fed and fractional reserve lending.
Prior to the Fed, boom-bust cycles were exacerbated by banks lending out more paper gold than there was backing for it. Fractional Reserve Lending has always been a problem with banks and needs to be stopped.
It is governments, paper money, and fractional reserve lending that create volatility.
Hilton’s Bill Fatally Flawed
However, Hilton’s bill is indeed fatally flawed for numerous reasons including price fixing by the treasurer and authorization of a defense force to protect stored gold. As a practical matter, gold owners would not pay dollar debts in gold in the first place.
One does not (or at least one should not) attempt to fix the price of gold in dollars. Nor can one set prices once a day or hold price movements to 1% a day. Those are flawed ideas that cannot and will not work.
Instead, one dollar should represent a fixed amount of gold and every dollar should be 100% backed by that amount of gold.
Gold will buy what it will buy, and prices of goods and services will fluctuate by supply and demand. As a result, prices will be far more stable under a 100% gold backed dollar. Those who disagree need answer this question: How can the purchasing power of dollars backed by something not be more stable than dollars backed by nothing and conjured into existence at will by the Fed?
In spite of Hilton’s good intent, a 100% gold-backed dollar is a proposal that must happen at the federal level. I am quite sure Ron Paul will introduce a valid proposal in due time.
In the meantime, as convoluted as Hilton’s bill is, it’s important to remember the crackpot idea here is not a gold backed dollar, but rather crackpots who would rather have a dollar backed by nothing than gold.
Mike “Mish” Shedlock
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