Oklahoma Authorizes Gold as Legal Tender

[anonamouse]

"Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level is what will get us there."

See - Oklahoma Senate Passes Bill to Authorize Gold and Silver as Legal Tender

If the scenario outlined above were to actually occur, how would this impact our portfolio... both cash and bonds tank?

[AdamA]

My bet is this bill won't do much.

You can't pay your federal taxes with gold and silver.

[anonamouse]

I don't mean today, I mean if the strategy plays out and the rug is pulled out. Arizona is attempting their 2nd try at this right now.

[Pointedstick]

"Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level is what will get us there."

There's this idea I sometimes hear expressed that "ordinary people" don't like FRNs and would prefer gold and silver. It will be interesting to see how many "ordinary people" actually start transacting with precious metals. My guess is that the number will be disappointingly low and proponents of this sort of thing will come up with all sorts of far-fetched explanations to avoid having to come to terms with the fact that electronic fiat currency is simply more convenient, and people are generally drawn to convenience far more than safety, privacy, sustainability, or any of the other legitimately good things that people are constantly trying to convince them they should care more about.

[anonamouse]

I realize at this point this is hypothetical and mostly just a thought experiment.

I'm new to all of this, and only about two thirds through the book. I am sold on this strategy and very soon will be implementing it.

I still have a lot to learn, just ran across this information today and it got me wondering. I decided to ask some of you more knowledgeable individuals how you think this unraveling would affect the portfolio. Would it impact BOTH cash AND bonds? Would gold sufficiently capture their lost value? Would none of it matter because we'd all be too busy fighting zombies? etc...

[Pointedstick]

I realize at this point this is hypothetical and mostly just a thought experiment.

I'm new to all of this, and only about two thirds through the book. I am sold on this strategy and very soon will be implementing it.

I still have a lot to learn, just ran across this information today and it got me wondering. I decided to ask some of you more knowledgeable individuals how you think this unraveling would affect the portfolio. Would it impact BOTH cash AND bonds? Would gold sufficiently capture their lost value? Would none of it matter because we'd all be too busy fighting zombies? etc...

The short answer is that it will have no effect on the PP because there is no unraveling and this will not cause one; "ordinary people" aren't going to start using gold and silver for their financial transactions, and if they did, the federal government would crush it to preserve the dollar's internal hegemony.

But if it did work, if anything, the result would be gold losing value, or at least losing its place in the PP. Gold is a freely-tradable commodity right now, which means its value is highly volatile, and that's exactly as we want it. If gold were to revert to being a monetary unit of exchange, it's value would be very stable and might even fall in value, either as a consequence of or precondition to its being used in such a manner. The reason is because people won't accept a currency that has crazy fluctuations. They want relative short-term stability. An inflation rate of 2-6% is far more tolerable to people than yearly swings of 30% or more in either direction. This kind of instability is exactly what the previous gold-backed monetary order lacked, but it was because of explicit government manipulation to keep prices level. Ironically, there was probably more manipulation in the price of gold prior to the end of the gold standard than there is now. Right now, the government doesn't give two shits if gold is worth $300 or $3,000 an ounce. Why would they care? What they want from you is your loyalty, obedience, and hard work for most of your life.

[anonamouse]

Wow, that's the opposite of what I was thinking. Glad I decided to register and ask. I'm somewhat apprehensive about all of this but I suppose that's normal until you get your feet wet.

Thanks for your well pointed thoughts on the matter! I do appreciate you taking the time.

[Pointedstick]

You're very welcome! And welcome to the forum, by the way. Finally, I'll mention that my view is by no means the universally accepted one. Others are more pessimistic about the dollar and the federal government's capacity to prop it up and stay afloat, and more optimistic about people's desire to use hard currency. I don't agree with them, but they're by no means unreasonable opinions to hold.

The fact of the matter is that we're all speculating on details in the future based on a single event, which means we're pretty much all guaranteed to be wrong.

[moda0306]

I just don't understand what people hope to accomplish by this other than to complicate their individual lives.

If you want to invest in gold to protect yourself from mid-to-long-term devaluation, I very much agree with that.  If you're worried about what to spend money with out of your account, hold enough cash to pay your bills every month, and avoid entering into long-term fixed-income contracts and maybe even equity contracts if you're really afraid of the destabilizing effect of devaluation.

[WildAboutHarry]

[quote=AdamA]You can't pay your federal taxes with gold and silver.[/quote]

Yes you can.  For silver, with pre-1965 dimes, quarters, halves, silver dollars, war nickels, 40% Kennedy halves, etc.  For Gold, Quarter Eagles, Half Eagles, Eagles, Double Eagles, etc.  Heck, American Gold and Silver Eagles could be used as well.

Not recommended, though.

[l82start]

i think Utah did this or something very similar back in 2011,  if i recall correctly there was even some mention of a gold depository issuing a gold/silver backed debit card.. 

[Ad Orientem]

I am extremely doubtful that this is going to have any meaningful impact, either near term or long term, on monetary policy in the United States or the way people pay for goods and services. This is just some political red meat being tossed out to gold bugs.

[moda0306]

i think Utah did this or something very similar back in 2011,  if i recall correctly there was even some mention of a gold depository issuing a gold/silver backed debit card..

This would be necessary in a modern society, IMO.  I think what this does though, is it creates another channel for exchange that can get around federal banking/laundering laws (not saying whether this is good or bad).

People would have to decide which model they want:

1) A "storage" model, where you pay the bank a fee to store your gold for you, but you can transfer ownership to someone else very efficiently.

2) A "fractional reserve" model, where the bank also makes loans denominated in gold, and people get interest.

One wonders what people would gravitate to.  I think the idea of LOSING money while your saving it feels an awful lot like why you moved away from the US dollar to begin with, but this sort of underlies my whole point that inflationists are making mountains out of molehills when it comes to the "crime of dollar devaluation." 

Not to get into that whole debate, but I think it's relevant when it come to the natural "demand" people will have for "sound currency."  Right now, I can put my money in a savings account and get .8% after taxes, lose about 2% to inflation (which nets me about 1.2% in total "cost"), and pay no account fees, with no limits on moving that immediately into spending-money.  This account also has the backing of the FDIC, which has since the 1930's resulted in 0 bank runs that I know of.

Or, I could put my gold in a "gold bank," and pay maybe a .5%-1% annual "fee" (http://www.bloomberg.com/consumer-spend ... tml#slide4) for storing it, including insurance, which will give me an annual cost which isn't really all that far off from a savings account.

I think the benefits really might be in the area of being able to settle payments via means that aren't tracked nearly as easily by the government, and 1) that only holds value to certain people or in certain amounts, or 2) could easily get wrapped up in government anti-money laundering BS that would subject it to banking laws if it became popular enough.

It just seems like a bunch of wasted energy.  There are so many easier/better ways to put yourself in a position to manage devaluation or government knowledge of you assets, and most of those have to do with my assets that serve as a store of wealth, or contracts that I engage in that have long-term and/or volatile value consequences to devaluation.... not my direct medium of exchange.

[anonamouse]

i think Utah did this or something very similar back in 2011,  if i recall correctly there was even some mention of a gold depository issuing a gold/silver backed debit card..

You are correct, Utah was the first state in recent times to make gold and silver legal.

Oklahoma passed a law back in 2010 that exempts gold from state sales tax if it is held in a "non bank" depository. I thought that requirement seemed somewhat fishy. APMEX is in Oklahoma and owns Citadel which just so happens to be an "approved" facility, so I would not be surprised if there were generous campaign donations that came from APMEX to the author(s) of that bill (purely speculation on my part). I don't have anything against APMEX and wouldn't fault them if it were the case, business is business.

This current bill does more than make gold and silver legal tender, it also strikes the requirement for bullion items to be stored in "non bank" depositories, exempts all bullion items from state sales tax, and provides exemption for capital gains realized on the sale or exchange of gold or silver for another form of legal tender. This will be a big deal for citizens of Oklahoma, where state and local sales tax averages 8.75%, it will remove most of the cost barriers to owning physical. It certainly won't hurt APMEX's local sales either, so it's win-win for pretty much everybody.

[anonamouse]

Oklahoma passed a law back in 2010 that exempts gold from state sales tax if it is held in a "non bank" depository. I thought that requirement seemed somewhat fishy. APMEX is in Oklahoma and owns Citadel which just so happens to be an "approved" facility, so I would not be surprised if there were generous campaign donations that came from APMEX to the author(s) of that bill (purely speculation on my part). I don't have anything against APMEX and wouldn't fault them if it were the case, business is business.

This is easy enough to follow up on, so I thought I would take the few mouse clicks to do it...

Oklahoma State House Representative Jeff Hickman authored the bill.

Number five of Hickman's top 20 campaign contributors that year was... Scott J Thomas who owns... APMEX.

Measly $2500 invested in candidate's campaign, language included in bill that requires gold be held in your facility to avoid taxes... priceless ; )

Now that's what I call a good investment!

[blackomen]

Will people's salaries be in gold?  Will minimum wage be indexed to gold?  It'll be a problem if gold goes to 3000, otherwise I don't see much harm.

[Libertarian666]

I realize at this point this is hypothetical and mostly just a thought experiment.

I'm new to all of this, and only about two thirds through the book. I am sold on this strategy and very soon will be implementing it.

I still have a lot to learn, just ran across this information today and it got me wondering. I decided to ask some of you more knowledgeable individuals how you think this unraveling would affect the portfolio. Would it impact BOTH cash AND bonds? Would gold sufficiently capture their lost value? Would none of it matter because we'd all be too busy fighting zombies? etc...

The short answer is that it will have no effect on the PP because there is no unraveling and this will not cause one; "ordinary people" aren't going to start using gold and silver for their financial transactions, and if they did, the federal government would crush it to preserve the dollar's internal hegemony.

But if it did work, if anything, the result would be gold losing value, or at least losing its place in the PP. Gold is a freely-tradable commodity right now, which means its value is highly volatile, and that's exactly as we want it. If gold were to revert to being a monetary unit of exchange, it's value would be very stable and might even fall in value, either as a consequence of or precondition to its being used in such a manner. The reason is because people won't accept a currency that has crazy fluctuations. They want relative short-term stability. An inflation rate of 2-6% is far more tolerable to people than yearly swings of 30% or more in either direction. This kind of instability is exactly what the previous gold-backed monetary order lacked, but it was because of explicit government manipulation to keep prices level. Ironically, there was probably more manipulation in the price of gold prior to the end of the gold standard than there is now. Right now, the government doesn't give two shits if gold is worth $300 or $3,000 an ounce. Why would they care? What they want from you is your loyalty, obedience, and hard work for most of your life.

I couldn't disagree more with PS. If gold is used again as money, its purchasing power will be many multiples of today's purchasing power. This should be obvious, because every commodity that becomes money gains in purchasing power, since it now has its previous uses AND the monetary uses. It will also be needed as bank reserves and for many other ways where paper is now used.

[anonamouse]

I couldn't disagree more with PS. If gold is used again as money, its purchasing power will be many multiples of today's purchasing power. This should be obvious, because every commodity that becomes money gains in purchasing power, since it now has its previous uses AND the monetary uses. It will also be needed as bank reserves and for many other ways where paper is now used.

This is my thinking as well, but being so new to all of this investing stuff leaves me unsure which of you is correct. PS makes some compelling arguments.

[Pointedstick]

I couldn't disagree more with PS. If gold is used again as money, its purchasing power will be many multiples of today's purchasing power. This should be obvious, because every commodity that becomes money gains in purchasing power, since it now has its previous uses AND the monetary uses. It will also be needed as bank reserves and for many other ways where paper is now used.

This is my thinking as well, but being so new to all of this investing stuff leaves me unsure which of you is correct. PS makes some compelling arguments.

Time will tell, won't it?

The basis for my opinion is my belief that the U.S. government will use an unlimited amount of threats and violence to preserve the fiat dollar as the world's reserve currency externally and the sole major currency internally. I could be wrong of course, and I certainly hope I am, but I haven't known the U.S. government to be all warm and fuzzy when it comes to legitimate currency threats. In the end, gold won't protect you from a bullet.

…unless you used it to buy some level IV armor, but then again that's something you can do today with fiat dollars too!

[dualstow]

Metals are too heavy.
If only we could use a lightweight token, say something made of paper & linen, to represent gold. Hmm...
Eventually, though, that would be asking for trouble.

[MachineGhost]

Metals are too heavy.
If only we could use a lightweight token, say something made of paper & linen, to represent gold. Hmm...
Eventually, though, that would be asking for trouble.

We better use hemp for that!

[Mark Leavy]

Metals are too heavy.
If only we could use a lightweight token, say something made of paper & linen, to represent gold. Hmm...
Eventually, though, that would be asking for trouble.

The random change in my pocket right now, (made from copper, nickel and zinc), if made from coins of gold, silver and copper, would easily replace both my pocket change and my paper and linen bills - producing more value for less weight and volume.