The Constitution bans states from printing their own paper money or issuing their own currency. But it allows the states to make gold and silver coin a tender in payment of debts.
As of 2012, 13 states are seeking approval from their state governments to either issue their own alternative currency or explore it as an option.
What this amounts to is that if states *have* gold or silver, they can mint coins not as a currency, but to either back state debts or pay off existing debts.
In practical terms this means that their credit rating is sky high, so they can borrow money at much, much lower interest rates, because risk to the lender is reduced to almost nothing.
Say the state needs to borrow $10b dollars. If they can back that debt with gold or silver, instead of an interest rate of $1b, it might be just $50m. A much smaller bite on their taxpayers.
California, with no gold or silver, has to pay junk bond yields, if there is still anyone foolish enough to loan them money.
The other idea, that since they have a public depository, they can both snub the federal government, and help their citizens, by having it do double duty as a private depository.
This means we will hold your gold and silver “as is”, and give it back to you on demand; or, they will refine it to .9999 24K, and store it, or give it back to you on demand, but holographically make it numbered and very tamper resistant, and put it in a case, so that if you want to sell it, it is pretty much guaranteed as very pure.
They would likely charge you a small interest rate for doing this.
This idea really comes into its own if the federals decide to seize private gold again, offering to involuntarily “purchase” it at a ridiculously low price, as they did before.
Because the state can instead consider it a “debt”, pay you for it at the price of gold *at the time you deposited it*, not the ridiculously low federal price, then declare it the property of the *state*, so it cannot be seized by the feds.
Conversely, if and when the feds back off again, you can “repurchase” your own gold for exactly the same price that the state paid you for it, so you both come out “even”. Since the price may be considerably lower when gold has been legalized again, you got the better of the bargain in cash, but enough time will likely have passed that the sting is gone out of it for the state. And if the price of gold immediately skyrockets, you win again, buying your gold back at a much lower price than market value.
They should buy gold, with tax dollars, and use the gold to pay off existing debt? Why the extra step? Just use the tax dollars to pay off the debt.
Not sure what you mean by "back state debts".
Say the state needs to borrow $10b dollars. If they can back that debt with gold or silver, instead of an interest rate of $1b, it might be just $50m. A much smaller bite on their taxpayers.
If they have $10b in gold, their interest rate drops from 10% to 0.5%?
California, with no gold or silver, has to pay junk bond yields, if there is still anyone foolish enough to loan them money.
True. How does borrowing more to buy gold make their lenders feel better?
This idea really comes into its own if the federals decide to seize private gold again, offering to involuntarily “purchase” it at a ridiculously low price, as they did before.
They seized it last time, because it backed the currency. Seizing it now is pointless. They might as well seize something easier to find, like bank accounts and retirement accounts. They aren't going to break down your door to seize the gold American Eagle you bought.