Utah now accepts gold and silver

One hundred and fifty years ago, Congress passed the Legal Tender Act, which authorized the use of paper bills to pay government bills. This week, Utah Governor Gary Herbert signed House Bill 157 allowing gold and silver to be used as currency in place of increasingly useless paper bills. Several states have proposed similar bills, but Utah’s is the first to pass. The bill provides for transactions based on the weight of metals to determine their value rather than face value. This allows the use of gold and silver bullion to be used as payment in lieu of the limited scope of minting precious metals minted by the federal government.

There are two clearly different issues at stake here. The first problem is the governor’s expression of the voices of his constituents. There is a genuine concern that the easy money policies in place since 9/11, including TARP, quantitative easing 1,2 and 3, operation Twist, etc., will seriously devalue the value of the dollar. This is not a tin foil hat, alarmist guess. Our money supply has exploded over the past 10 years. The money supply as defined by M1, which is currency plus demand deposits such as checking and savings accounts, has soared from $ 1.25 trillion in April 2002 to $ 2.22 trillion today. That is a 77% increase. In addition, the Federal Reserve expects M1 to grow at a rate of 17.4% over the next 12 months. In theory, each new dollar in print is worth exponentially less than the previous one. The dollars in your pocket should be worth 77% less than the same dollars in your pocket 10 years ago. Clearly, there is a devaluation argument for the dollar.

The second problem is the game-changing effect this will have on physical gold and silver trading. This could really be a watershed moment. For example, let’s say you’ve been on the cutting edge and started buying gold and silver years ago. Good for you. Generally, this meant buying metal from a coin dealer who charged you a premium above the spot market for your purchase and then the government collected sales tax from you in addition to the dealer’s premium. The bottom line is that you have overpaid to enter the market. Think of it as a start-up mutual fund.

Now that you are ready to go, you are being offered below market prices on your physical holdings, and due to your success, you will be issued a capital gains form to pay Uncle Sam his share. The bottom line is that being right in the market meant that you had to pay a total of four times.

Utah House Bill 157 will now treat precious metal transactions like currency exchanges. In other words, if you request an exchange for $ 100, you will get a full refund of $ 100. You can collect your precious metal stocks at fair market prices or simply use precious metals to make purchases, payments or deposits. The law establishes that metals do not have to be accepted but, if they are, it will be because of the weight of the metal and its market price.

Finally, the catch, as I’ve read it, is that Utah will offer a one-time tax credit to offset capital gains on any metal that is traded for paper. The nature of the capital gains and the tax return out of your holdings will work like a currency exchange. This eliminates the physical black market or shadow market for physical transactions. This will avoid multiple calls while buying transaction securities and eliminate the complicated conversation of tax filing problems. Who would have thought that Utah is rarely mentioned as the pioneer of such progressive thinking?