When I first heard about this I thought it was a prank: Apparently a resolution has been put forward in Virginia to establish a subcommittee to explore the possibility of Virginia establishing its own currency. Total aside: wouldn't it be great if I could print JonDollars and buy stuff with it? Back on topic, from the resolution:
WHEREAS, an adequate system of governmental finance and a sound and robust private economy cannot be maintained in the absence of a sound currency; and
WHEREAS, the present monetary and banking systems of the United States, centered around the Federal Reserve System, have come under ever-increasing strain during the last several years, and will be exposed to ever-increasing and predictably debilitating strain in the years to come; and
WHEREAS, many widely recognized experts predict the inevitable destruction of the Federal Reserve System’s currency through hyperinflation in the foreseeable future; and
WHEREAS, in the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System, for which the Commonwealth is not prepared, the Commonwealth’s governmental finances and Virginia’s private economy will be thrown into chaos, with gravely detrimental effects upon the lives, health, and property of Virginia’s citizens, and with consequences fatal to the preservation of good order throughout the Commonwealth; and
WHEREAS, Virginia can avoid or at least mitigate many of the economic, social, and political shocks to be expected to arise from hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System only through the timely adoption of an alternative sound currency that the Commonwealth’s government and citizens may employ without delay in the event of the destruction of the Federal Reserve System’s currency; and…
The resolution's patron represents the 13th district of the Virginia House which is the neck of the woods where my family lived before moving to NC. He's a tad conservative as evidenced by some of the other bills he's championed:
- One man, one woman Marriage Amendment approved by voters (2006)
- Steroid Use by Public School Athletes prohibited (2005)
- Conflict of Interest Laws for Public Officials & Zoning Boards tightened (2003)
- National Motto, “In God We Trust,” posted in all Public Schools (2002)
- Sexually Explicit material on State Computers prohibited (1996)
- Counseling for Effects of Divorce on Children authorized (1995)
I'm thinking it's time to refresh my memory on my old US History lessons re. fiat money, the Federal Reserve, etc.
I know it’s just wikipedia, but states are prohibited from issuing their own currency – http://en.wikipedia.org/wiki/Contract_Clause#Bills_of_Credit
They are able to consider gold or silver for payments of debts, from my reading. But they’d pretty much convert from gold to dollars anyway. But think if your income went DOWN by 50% over the past few years? That is how it would work measured in gold. Very little of the VA economy is self-contained, so your income in dollars would stay stable, but in gold it would be all over the place.
Buffett’s right hand man slapping down goldbugs – http://www.bus.umich.edu/NewsRoom/ArticleDisplay.asp?news_id=20497
“I like working and understanding what works and what doesn’t in human systems,” he said. “To me, that’s not optional. That’s a moral obligation. If you’re capable of understanding the world, you have a moral obligation to become rational. I don’t see how you become rational hoarding gold. Even if it works, you’re a jerk.”
Counseling for Effects of Divorce on Children sounds like a great idea!
Time to bring that one back.
I agree. I actually included that one because I wanted to show that all of his bills werent what Id think of as negative or against something. Most of his others arent my cup of tea, but that sounds like a good one. The currency thing is just plain nutty to me.
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I love that last line!
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There’s also a very hypocritical aspect of a hard-currency policy. Most claim to be concerned about price stability, however using gold would necessarily produce deflation – especially if the whole world were on it.
1. The supply of gold is first-order fixed, so we have A ‘dollars’.
2. The supply of goods available for purchase combined with capital stock is constantly increasing – we (or the people in other countries) keep making useful stuff. So our amount of goods might go from B to 1.05B over the course of a year.
3. The price per unit good would go from A/B to 5% lower, 0.95A/B after a year.
Anyone advocating the gold standard needs to acknowledge the necessarily deflationary situation it would create.
This type of deflation would throw all sorts of problems into our system, far worse than the 10-20% inflation we saw in the late 70’s/early 80’s. Also, the Fed would have a lot of ammunition to tame inflation – selling the assets they’ve accumulated, or increasing the reserve requirement for banks. The fed and central banks in general (see Bank of Japan) have limited resources to combat deflation.
The other irony is that one of the most influential conservative figures of the past 20 years was Alan Greenspan, he of the ‘Greenspan Put’ – the idea that when the US economy hiccuped, the Fed would inject liquidity. We had a period where this was especially damaging – it was 2004-2006 (check the graphs here: http://economistsview.typepad.com/economistsview/2008/11/frbsf-monetary.html). It’s not coincidence that we saw massive inflation in the price of homes and some degree of excess inflation in the stock market during that period. So we had a period where prices (of homes in many areas) were rising double-digit per year, to some degree due to an overly permissive Fed, and where were guys like this then? Maybe it was because at the time our president was from a different party, and the apparent positives from the housing bubble (who doesn’t like refinancing and getting hundreds of thousands from their home?) were getting credited to one party versus another?
The other thing that Virginians should remember is their dependence on DC and federal jobs. Look at where VA’s high income earners are concentrated – mostly NoVA near DC, and pockets around Charlottesville & Richmond. What would happen to VA’s economy if you (magically) had the workers dependent on federal jobs move to Baltimore or SoMaryland?
I know people feel pinched every time they fill up when gas goes up $0.25 or $0.50/gal (this is also not exactly related to any actions at the Fed, but is one of the first examples of inflation people bring up), but you need to read about or talk to people underwater in their mortgages. Or people who can’t refinance because the value of their home has fallen. Think about how your budget looks if you’ve got a recently originated 4.25-5.25% mortgage, as opposed to 6.25-7.25%. 2% on a median home ($150k) is roughly $3000/yr, or about $60/wk – which is what my family pays in gas total with one long commute, and one medium city commute. So the premise is that the Fed has been increasing your family expenses, but in reality it has decreased most families’ largest expense.
This is not to absolve the Fed. http://www.calculatedriskblog.com/2011/01/fomc-2005-transcripts-flip-that-house.html We are just now hearing what the fed was discussing in 2005. You could argue a 3 or 6 month delay, but 5 years?
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