Genesis,

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Congress has the power to set anything as money it so desires.

Where in the Constitution do you put your finger on that power granted to Congress, because I do not see it (Madison liked the "put the finger on it" test, since he basically wrote the thing, I figure that is a good test). And, no the power to turn Money into coin is not the power to create Money. It is historical fact that this was a power that the colonies and then the States exercised prior to ratification. Someone could turn in a silver candlestick and have it exchanged for coin of the same weight of silver as the candlestick. The Constitution just transferred this power from the States to the Congress. Coins are an easy way of knowing how much metal is being used. They allow exchanges without having to weigh everything, and having the power to convert money into a fixed unit of weight in the form of a coin fits in with the other powers granted to Congress in that section - the power to set weights and measurements. I do not see in the Constitution "Congress shall be able to set anything as money".

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They are prohibited fiat currency. Congress is not.

Where in the Constitution do you put your finger on the sentence that grants Congress the power to use fiat currency? I can't even find the words "fiat" or "currency". And by fiat I take it you mean something that is not inherently exchangable with gold or silver or some other similar negotiable instrument.

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The American Revolution was partly about the right of America to create its own currency.

The Constitutional Convention was about forming a more perfect union- the current union of the time had too many problems, including ones involving bank notes - the people at the convention had seen what happened when a bank or government was allowed to print notes as much as desired - and they tried to fix that problem (among others) with the Constitution. And they were using notes at the time - negotiable instruments/ exchangable for gold and silver, unless the note issuer reneged, which happened, which was part of the problem.

http://www.associatedcontent.com/article....

@Icanhasbailout

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Paper money was not at all unknown to the people who wrote the Constitution

yes, their experience of it was that it was disasterous. see link above for an example description - I don't claim that is the best link though.

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If they intended to forbid paper money, surely that would have made it in somewhere

In the Federalist Papers, Hamilton, Jay and Madison are very explicit that the Federal Government is without any inherent power and only gets the powers granted - so there was no need to prohibit or restrict a power, only to not grant it to begin with. They even went so far as to say that a Bill of Rights was not a good idea because people would get the idea that the rights were limited to those listed and that the government could restrict anything not listed, which they said was the opposite of the truth.

Section Eight. Clear as day.

Congress has the power to:

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The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

Note that a counterfeit indica of "money" may in fact contain the same metallic content (or other content) as a real indica of "money", yet it remains counterfeit and is punishable by explicit Constitutional provision.

The only mention of a prohibition on the indica of money that can be used is found in Article 1 Section 10. It says that:

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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.

Note that nowhere is The Federal Government required to use anything of a specific "value" in its indica of money. The states may not use anything other than gold or silver a legal tender for payment of debts and they are barred as well from emitting bills of credit.

What is a bill of credit?

Oh, now we're getting to it, aren't we?

A "Bill of Credit" is a thing that circulates and has value only on the faith and credit of the issuer.

Hmmm..... so we have a prohibition on this against The States, but it is curiously missing from The Federal Government.

As such since the Federal Government can emit money, nothing says it has to have an inherent value in the indica used. That's the definition of a "bill of credit".

Note that a "quarter" issued by the Treasury is in fact lawful money. It is "coined." Yet it does not contain silver or gold, nor is the metallic value of a "quarter" anything in particular. Similarly dollar coins are issued by Treasury as well.

Note that these forms of money as issued by Treasury are not debt-bearing. That is, unlike Federal Reserve Notes we already have legal tender in the form of dollar coins and fractional dollar amounts circulating right now, and none of them are debt-bearing. These have in fact circulated since the early days of the Republic, and through most of that time their value was not metallic - it was entirely predicated on their status as a "Bill of Credit."

There is no difference of substance between a dollar coin and a United States Dollar that happens to be flat, flexible, and rectangular - irrespective of what material it is made of.

I suggest you read Anti-Federalist 44 - specifically point 11. Note that this is contemporary with the Constitution (1788) and had the opinion that this be prohibited prevailed, it would have shown up in the Bill of Rights. Indeed, some of the other points in that specific missive having to do with freedom of both the press and religion DID!

Read your history before you opine upon it. This debate was held more than 200 years ago and the decision was taken after the fullness of that debate. The documentary record on this point is clear.

If you wish to change that decision the proper form is via Constitutional Amendment.

Mish is still going on about fractional reserve banking? Boy did he ever fall behind the ball. It's no wonder I don't bother reading his blog much any more...

He never had an answer when Karl called him out on FRB well over a year ago, now he expects us to take him seriously on this bill? Here's a guy that's so adamant that FRB is fraud, yet so noticeably absent when it comes to foreclosure fraud.

I'm really surprised he's taking shots at Karl, because he's gonna get burned again and lose more credibility with this one.

Why would a goldbug cower in fear over a new currency? The general rationale for goldbugs is that eventually a new currency will be issued, and they want to preserve purchasing power bridging from the old to the new.

Genesis wrote..

Immediate inflation has a habit of creating a really NASTY external moderating mechanism. In the extreme case it is actually more likely to lead to revolution than Bondzilla ever could.

That's certainly correct, but it seems to me that one loses a major impediment to reaching that situation with this plan.

I may not understand the "bondzilla" mechanism correctly, but I am under the impression that, under the present system, as bond rates for new short-term issuances go higher and higher due to increased deficit spending, the gov't is forced to reduce spending levels in order to be able to meet the increasing interest payment requirements. Thus, this external moderating effect is essentially a "hard" negative feedback loop which forces a reduction of the profligacy before (or as) the higher inflation starts to kick in.

What I infer from your reply is that for the proposed system, the externally imposed moderating effect is the public reaction to the high inflation levels, i.e., the high inflation is not impeded/prevented, but only reacted to after it has reached unacceptable levels.

Or, perhaps, is my layman's POV too simplistic?

Bondzilla can be neutered to some degree (as you've seen.)

Passthrough inflation is instantaneous (especially in energy.)

Feedback mechanisms are most-effective when their impact is felt immediately and is very difficult (or impossible) to "game"

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Mish is still going on about fractional reserve banking? Boy did he ever fall behind the ball. It's no wonder I don't bother reading his blog much any more...

He never released my comment on his site. It still says moderator needs to approve. Oh well, I guess a logical debate isn't what he likes. BTW here is what I said that he didnt think it was worth approval..

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Mish says wrote..

"Neither sound money nor the free market comes from printing money into existence. Arguably the only thing worse than the Fed printing money out of thin air is Congress printing money out of thing for the purpose of full employment and/or any other absurd ideas Congress has."

Which is why you need not think in extremes. First off the nice thing about a bill like this is it brings debate to the whole "monetary system issue" We need to have this debate because our current debt based system is flawed and these flaws are crushing our country. You cant borrow money to prosperity and considering the only two ways to get money into the system is for the government to borrow it at interest and spend it or for the banks to lend it into the system at interest one has to come to the conclusion its a scam and cannot last.

Government issuance of currency as a means of exchange has been tried successfully in our country, pre revolutionary times. Colonial Scrip was used amongst the colonies and it worked just fine for areas like Pennsylvania. Others it didn't work so well so obviously management plays a roll but to say that it cannot work is just false.

There would have to be mandates in giving the government control of the currency that isn't in the bill, but once again this is where debate comes into play. I personally would mandate the only the thing the government can issue currency for is for infrastructure. This really gives our currency the defacto backing of the infrastructure of our country. This promotes the building of our infrastructure. DO NOT give them the power to issue currency for defense, this would have to be taxed. If you give them power to issue for defense you will have a situation like we had with the continental currency.

If you try to issue the new currency as a medium of exchange we get into the games of how much or how little do you put in and you run some major risks. Regardless a government issuance of currency prevents the perpetual debt system we have now. Gold backed currency can lead to manipulation just as it has in the past by the goldsmiths.
Message awaits moderator approval

I agree with Karl - intention and black latter of Constitution says that National Government can issue currency ("To coin Money, regulate the Value thereof"), States, however, CAN NOT.
The question is HOW the money issued by the Federal Government are spent. Take the QE2 for example. I dont see the problem with the fact that FED prints new money, I see the problem in how those money are used: they are gonna mostly go to the big banks to speculate internationally, zero will be spend in US. Why not take those money and spend them on National importance projects like new nuclear reactors(pleeaaase no friggin windmills), transportation and water systems.
The problem is NOT the FED, the problem is the loyalty of the people who runs it to the Nation

Hi Karl,

I found another post about the Kucinich bill at

http://www.zerohedge.com/article/contrar....

This post also mentions both your and Mish's commentary on the bill.


RH

marxghost,

That's some good commentary there and it's a shame it wasn't released.

You hit the nail on head with this one:

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Others it didn't work so well so obviously management plays a roll but to say that it cannot work is just false.

That's really all this comes down to is sound management. Guys like Mish seem to think that the system could just manage itself, which is hogwash considering how Gresham's Law and Dynamic can turn the "free" market into anything but free.

It's interesting that Mish cross-links a lot with Steve Keen and vice versa, who would probably back this bill 110% and might have even contributed to it considering that he and Michael Hudson are close buddies. Hudson was picked as Kucinich's economic advisor when he ran for President, and undoubtedly had something to do with this bill. And Hudson was (is still?) a prof at University of Missouri Kansas City. Guess who else teaches there? Bill Black.

Funny how all these guys are intertwined and might actually be making policy through Kucinich, but I guess Mish disagrees. I think he might find himself isolated on this one if Ron Paul goes along with it, which I think he will. Then Mish will really look like a dumbass...

Mish runs money for people.

You enact this and the serial bubble game is OVER.

Gee, how do you make money again as an asset manager?

Wow.. and we start to find out who the true rats/snakes are. Mish.

How the **** did the US survive before the Fed was created and how come we didn't "print money forever" and create hyperinflation before the Fed? You should mention that in your next ticker Karl. What a ****ing retard he is.. And he says it's "unconstitutional." Typical crook I guess that's just looking out for his own neck.

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Mish runs money for people.

You enact this and the serial bubble game is OVER.

Gee, how do you make money again as an asset manager?

EGG-ZACTLY.

Not to mention him and his cronies will see the "intrinsic value" in their hoards of metal holdings drop 80% in a flash.

Beware false "prophets"!

ADD: Ritholtz, Whalen et al - hell - even some Bears like Roubini - all benefit from the 'system'. Expect them ALL to show their true nature before long.

C'mon, Karl, you know you want to ...
http://globaleconomicanalysis.blogspot.c....

Sound Money, Gold Fever, and Crackpot Ideas
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."

Crackpot Idea?

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.

Do they still mine silver in Utah?

"Fix the price of."

Someone didn't read his Constitution.

The State can mandate (in fact IS mandated to) accept gold coins at their face value. That could be a problem, considering the face value of an American Eagle (and incidentally, only American minted coins are so mandated.)