Sovereign State currency?

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  • Wed, Feb 16, 2011 - 02:39pm

    #1

    PetraViolet

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    Sovereign State currency?

Just a news blurb about a small handfull of states whose political leadership has discussed a state currency separate from FRN’s.

http://news.yahoo.com/s/yblog_thelookout/20110214/us_yblog_thelookout/south-carolina-lawmaker-wants-separate-currency-for-state

(pasted below)

Mon Feb 14, 12:52 pm ET

South Carolina lawmaker wants separate currency for state

By Liz Goodwin

A South Carolina state politician wants the state to develop its own gold and silver-based currency in case the Federal Reserve collapses and hyper-inflation ensues.

“If folks lose faith in the dollar, we need to have some kind of backup,” State Sen. Lee Bright told the Spartanburg Herald Journal’s Stephen Largen. His bill asks a committee to look into the development of a state currency, citing the Constitution and Supreme Court precedents to prove the bill’s legality.

Slate’s Annie Lowrey tracks down similar bills in Georgia and Virginia, and points out that the legislation reflects a larger trend of state politicians wading into monetary policy. A bill in Georgia would require all debts to the state be paid in pre-1965 gold and silver coins. The Virginia proposal would let the state print its own money. Meanwhile, one politician in Utah wants to cut out the middleman entirely and allow the state’s residents to run their very own mints.

 Advocates of currency alternatives to the dollar argue that the Federal Reserve’s quantitative easing techniques will lead to inflation. Texas GOP Rep. Ron Paul, who won the Conservative Political Action Committee’s presidential candidate straw poll last week, has been Congress’ most visible anti-Fed leader. Paul argues the Fed devalues the dollar, and proposes that the United States should gradually return to gold-backed currency.

In addition to the nightmarish logistical challenges involved with a state adopting a new currency, Lowrey points out that commodity-backed currencies can also experience volatility. For example, if a state collects income taxes in gold and then a big new gold mine is discovered, the metal’s value would decline–together with the state’s revenue holdings.

So for now, it’s probably best for individual consumers to refrain from shifting over to sovereign state currencies–especially since none of the recently introduced currency bills stands a strong chance of passing. However, for numismatists looking to make a political statement, the Ron Paul silver dollar will likely appreciate–especially since federal authorities raided the libertarian minting operation that marketed it back in 2007.

  • Wed, Feb 16, 2011 - 02:53pm

    #2
    patrickhenry

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    Re: Sovereign State currency?

IMO, if anything is going to save the country from the Federal Reserve, it will be states conducting business in gold/silver backed currency, and state’s rights, in general.

  • Wed, Feb 16, 2011 - 06:09pm

    #3
    Carl Veritas

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    Re: Sovereign State currency?

Petra,

Congress repealed the ban on private ownership of gold in 1975, later amending the 1933 law to provide that parties could include gold clauses in contracts formed after 1977.    Gold clauses were common before the gold reserve act of 1934.   Creditors would  include the clause on long dated contracts whereby they retain the right to be repaid in gold or equivalents ——to protect them from paper money inflation.

The reason why gold clauses hasn’t returned  has to do with the Internal Revenue Service.

If I  bought your stereo and gave you $200 federal reserve notes for it,  you   are responsible for reporting the income and pay applicable taxes.    Fine.   But If I gave you $200 in gold coins instead for your stereo, we are now engaging in barter according to the IRS because gold  falls under “capital asset”     We would BOTH need to report the Fair Market Value of the item received in barter exchange as  income.    You will report the $200 FMV of the gold coins you received but I also have to report the $200 FMV of the stereo I received from you.   We both take a hit.   So using gold as money has a  built-in cost disadvantage compared to the Federal Reserve Notes.  This is not lost on the federal government.   Worst, if you hold on to the gold coins and the dollar devaluates, you will be holding an increasing  tax liability.   

I mention this because this is the law  that stands in the way (on purpose) of anyone, including States who might have the wise idea of using gold as money, ever again.

  • Thu, Feb 17, 2011 - 02:02am

    #4
    Ken C

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    Re: Sovereign State currency?

[quote=Carl Veritas]

Petra,

Congress repealed the ban on private ownership of gold in 1975, later amending the 1933 law to provide that parties could include gold clauses in contracts formed after 1977.    Gold clauses were common before the gold reserve act of 1934.   Creditors would  include the clause on long dated contracts whereby they retain the right to be repaid in gold or equivalents ——to protect them from paper money inflation.

The reason why gold clauses hasn’t returned  has to do with the Internal Revenue Service.

If I  bought your stereo and gave you $200 federal reserve notes for it,  you   are responsible for reporting the income and pay applicable taxes.    Fine.   But If I gave you $200 in gold coins instead for your stereo, we are now engaging in barter according to the IRS because gold  falls under “capital asset”     We would BOTH need to report the Fair Market Value of the item received in barter exchange as  income.    You will report the $200 FMV of the gold coins you received but I also have to report the $200 FMV of the stereo I received from you.   We both take a hit.   So using gold as money has a  built-in cost disadvantage compared to the Federal Reserve Notes.  This is not lost on the federal government.   Worst, if you hold on to the gold coins and the dollar devaluates, you will be holding an increasing  tax liability.   

I mention this because this is the law  that stands in the way (on purpose) of anyone, including States who might have the wise idea of using gold as money, ever again.

[/quote]

 

Carl,

 

Specifically, what law are you talking about? It would seem to me that if a 1oz gold eagle is legal tender for $50 one could offer to buy an object for $50 gold and pay with a gold eagle. Why would this not fit a legal tender transaction?

I realize that the IRS would not like it but where is it written and what law is it that says this is not a bonified purchase?

Ken

Edit:

Here is another example that just occurred to me. Suppose I have a 1951 half dollar (90% silver). Could I not take that half dollar into a store and spend it without first trading it for some FRN’s?

  • Thu, Feb 17, 2011 - 03:26am

    #5
    ltlredwagon

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    Re: Sovereign State currency?

His bill asks a committee to look into the development of a state currency, citing the Constitution and Supreme Court precedents to prove the bill’s legality.

I thought Article I, Section 10 of the Constitution prevented states from issuing currency.  Anyone know what Supreme court precedent is being referred to?

Could a state bank issue currency?

  • Thu, Feb 17, 2011 - 07:30am

    #6

    Travlin

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    Re: Sovereign State currency?

[quote=ltlredwagon]

His bill asks a committee to look into the development of a state currency, citing the Constitution and Supreme Court precedents to prove the bill’s legality.

I thought Article I, Section 10 of the Constitution prevented states from issuing currency.  Anyone know what Supreme court precedent is being referred to?

Could a state bank issue currency?

[/quote]

Section 10 – Powers prohibited of States

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

The wording is a bit confusing.  I had though states could issue coins, but this seems to say they can’t.  They can apparently declare that gold and silver coins are legal tender for payment of debts but nothing else.  Would be an akward way to pay state taxes. 

Travlin 

  • Thu, Feb 17, 2011 - 08:57pm

    #7
    Carl Veritas

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    Re: Sovereign State currency?

Ken,

“Bartering occurs when you exchange  goods and services without exchanging money”               http://www.irs.gov/taxtopics/tc420.html   

“Bartering is an exchange of property or services.  You must include in your income,  at the time received,   the fair market value of property or services you receive in bartering.”         http://www.irs.gov/publications/p525/ar02.html#en_US_2010_publink1000229343

US money are identified (by the govt) as United States coins and currency including Federal Reserve notes and circulating notes of Federal Reserve Banks and national banks.                       http://www.federalreserve.gov/generalinfo/faq/faqcur.htm#2

“Gold, silver, gems, stamps, coins, etc are capital assets except when they are held for sale by a dealer”          http://www.irs.gov/publications/p544/ch02.html#en_US_publink100072542

 Consult with a tax professional and have him/her interpret  IRS Barter Income laws before you do anything.  Let us know what happens (to you)

 

 

 

  • Fri, Feb 18, 2011 - 12:33am

    #8
    Ken C

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    Re: Sovereign State currency?

[quote=Carl Veritas]

Ken,

“Bartering occurs when you exchange  goods and services without exchanging money”               http://www.irs.gov/taxtopics/tc420.html   

“Bartering is an exchange of property or services.  You must include in your income,  at the time received,   the fair market value of property or services you receive in bartering.”         http://www.irs.gov/publications/p525/ar02.html#en_US_2010_publink1000229343

US money are identified (by the govt) as United States coins and currency including Federal Reserve notes and circulating notes of Federal Reserve Banks and national banks.                       http://www.federalreserve.gov/generalinfo/faq/faqcur.htm#2

“Gold, silver, gems, stamps, coins, etc are capital assets except when they are held for sale by a dealer”          http://www.irs.gov/publications/p544/ch02.html#en_US_publink100072542

 Consult with a tax professional and have him/her interpret  IRS Barter Income laws before you do anything.  Let us know what happens (to you)

 

 

 

[/quote]

 

Carl,

 

I have not done any barteriing yet.

As far as what is money; If the Gold eagle is not money then why does it say $50 dollars on the coin?

I am simply trying to get my head around why someone can’t “spend” a gold eagle just as he would “spend” any other money.

Ken

  • Fri, Feb 18, 2011 - 02:11am

    #9

    goes211

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    Re: Sovereign State currency?

[quote=Ken C]

As far as what is money; If the Gold eagle is not money then why does it say $50 dollars on the coin?

I am simply trying to get my head around why someone can’t “spend” a gold eagle just as he would “spend” any other money.

Ken

[/quote]

I think it is still in litigation but here is an example of what could happen.

http://www.lvrj.com/news/46074037.html

 

  • Tue, Feb 22, 2011 - 02:28pm

    #10
    yagasjai

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     What about towns? Are

 

What about towns? Are there any prohibitions against towns issuing their own currency?

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