Virginia is one step closer to breaking ties with the country's monetary system.
A proposal to study whether the state should adopt its own currency is gaining traction in the state legislature from a number of lawmakers as well as conservative economists. The state House voted 65-32 earlier this week to approve the measure, and it will now go to the Senate.
While it’s unlikely that Virginia will be printing its own money any time soon, the move sheds light on the growing distrust surrounding the nation’s central bank. Four other states are considering similar proposals. In 2011, Utah passed a law that recognizes gold and silver coins issued by the federal government as tender and requires a study on adopting other forms of legal currency.
Virginia Republican Del. Robert Marshall told FoxNews.com Tuesday that his bill calls for creation of a 10-member commission that would determine the “need, means and schedule for establishing a metallic-based monetary unit.” Essentially, he wants to spend $20,000 on a study that could call for the state to return to a gold standard.
The gold standard is a system under which a country ties the value of its currency to gold, setting a fixed price at which gold can be bought or sold by the government.
Hugo Chavez’s announcement that he will nationalize his country’s gold industry may come across as another in the long list of power grabs by the Venezuelan leader. But looked at from a larger vantage point, he is following the rest of the world’s drift toward a de facto international gold standard.
Venezuela’s gold mining was already officially nationalized in 1965, and the new measure means the government will enforce the law more stringently. The reason? Venezuela’s central bank already has 63 percent of its reserves in gold, now it wants to add more. It will repatriate the portion of that gold currently held abroad and use its control over the mines to augment its gold holdings. Central bank president Nelson Merentes simply said that this measure reflects “prudence.” Chavez put it more bluntly: “Let's convert [gold] into our international reserves because gold is increasing in its value.”
Gold is increasing in value because the largest paper money printers in the world like the United States and the European Union are debasing their currencies. It has sustained a steady march upward for a decade at more than 20 percent per year on average in U.S. dollar terms.
Foreign central banks like Venezuela’s that hold dollars and other reserve currencies are realizing that these depreciate over time, having no collateral behind them, and the best expression of money that holds its value is gold. China, South Korea and Russia are some of the big emerging market economies to recently start supplanting foreign reserves with gold, but Chavez’s regime shows that even the socialists are not immune to this free-market trend.
Today we celebrate, or, actually, mourn the 40th anniversary of President Richard Nixon’s taking America, and the world, off the gold standard, making many promises that were promptly broken. (For instance, President Nixon promised that the dollar would retain its full value. It only is worth about 19 cents today of what it was worth in 1971.)
There’s a little known twist. And as the late Radio Journalist Paul Harvey, master of the unexpected twist, would have said, “now you know the rest of the story.”
President Richard Nixon famously resigned the office of the presidency in the face of certain impeachment and removal from office. The charges were based in the infamous burglary of the offices of the chairman of the Democratic National Committee in the Watergate complex and, more specifically, of the ensuing alleged cover up.
America was transfixed for months by televised hearings presided over by the colorful Sen. Sam Ervin. We were treated to spectacles such as the discovery of The Tapes, the “Monday Night Massacre” resignation of the Attorney General and high Justice Department officials. We learned about the mysterious insider, pornographically code-named “Deep Throat” murmuring intriguing clues like “Follow the Money….”
It was a media circus.
But barely remembered, even by those of us who lived through that era, it also was a time of really serious, and in many ways unprecedented, inflation. And inflation causes a kind of societal uneasiness … uneasiness that easily can create a toxic political climate.
John Maynard Keynes, the famous economist, once wrote, in "The Economic Consequences of the Peace":
“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
WASHINGTON - The debate about the economy is beginning to show gilded edges as politicians mining voter uncertainty and skepticism about the nation's fiscal position are forcing gold back into the policy discussion.
The precious metal has bubbled up on a number of fronts in recent weeks, both on Capitol Hill and on the campaign trail. A trio of GOP senators this week introduced a bill aimed at making it easier to use gold coins, and a House panel recently held a hearing on "investigating the gold" to examine U.S.-held gold at Fort Knox and elsewhere.
In Iowa, meanwhile, the group behind a grass-roots "Gold Standard 2012" campaign is partnering with the Iowa tea party to promote a bus tour that is scheduled to feature appearances by a number of Republican presidential contenders.
"A lot of folks are looking at that as a stabilizing force," Rep. Blaine Luetkemeyer (R., Mo.) said of gold. "There's genuine concern about our currency, and I think that's where most of the people who are talking about the gold standard, that's their concern."
Republican Sen. Mike Lee of Utah, whose state recently recognized gold and silver coins as legal tender, said the focus on precious metals is tied in part to concerns among some vocal groups that the current monetary system encourages an ever-expanding federal government. The recent decline in the dollar has also contributed to the discussion.
"Fiat currencies are frequently manipulated in such a way to finance the large-scale expansion of national governments," Lee said. "The expanded discussion about the need for at least the option of precious metal currency systems is because of that fear."
The proper role of gold in the economy has been a popular bugbear since the U.S. moved off the gold standard under President Richard Nixon. Vocal politicians such as Rep. Ron Paul (R., Texas), who chaired the recent hearing on gold reserves, have repeatedly pushed the issue, though a groundswell of mainstream support for a return to gold has yet to materialize.
Jeff Bell, a leader of the Gold Standard 2012 campaign, hopes to change that. His group is using television commercials and voter events in Iowa to urge voters to raise the issue with candidates at campaign events as a way to boost the profile of gold in next year's elections.
"It's only going to happen if the audience of activists say, 'Hey, that's right.' If they start putting questions to the candidates when they see them, it will have an effect," Bell said.
Despite the increased chatter, there remains widespread opposition to gold from most mainstream economists. Federal Reserve Chairman Ben Bernanke, testifying to a Senate panel earlier this year, said gold isn't a panacea, noting practical problems for expanding its role such as the fact there isn't enough gold to back the current money supply.
"A return to gold would require handcuffing monetary policy in a way that neither the political class, nor the populace, would accept," said University of Wisconsin economist Menzie Chinn.
The broader economic uncertainty is contributing to the attention on gold, but the economic virtues attributed to the precious metal are often overstated, said CPM Group Managing Director Jeffrey Christian. Gold and silver make good additions to an investment portfolio, Christian said, "but it's a gigantic leap to say gold has some mystical power to stabilize currencies or prevent inflation."
"I think some of these guys truly believe; they have this visceral need to believe in the stability of something," Christian added.
Gold backers are unlikely to be deterred. Bell said he has heard the ridiculing and jokes, but points to the recent economic turmoil and sees an opportunity for change.
"There's a sense that the game is over, the magical Volcker, early-Greenspan days have long since passed and the Fed is just as baffled as anyone," he said. "It isn't just that prices are going up; it's really that the chaos in the monetary system is really holding back the entire economy."
Utah took its first step Friday toward bringing back the gold standard when the state House passed a bill that would recognize gold and silver coins issued by the federal government as legal currency.
The House voted 47-26 in favor of the legislation that would also exempt the sale of gold from the state capital gains tax and calls for a committee to study alternative currencies for the state.