Wednesday, February 17, 2010

A Separate Currency For South Carolina?

Some proposals are totally impractical, but raise good points. One such idea came out of South Carolina. South Carolina Republican Mike Pitts has introduced a bill that would ban the US dollar from South Carolina, replacing it with gold and silver coins. He is concerned about running up a deficit that is paid for by printing up new currency with no backing.The Political Hotsheet reports as follows on Mr. Pitts explanation of his unusual proposal.

"In an interview, Pitts told Hotsheet that he believes that "if the federal government continues to spend money at the rate it's spending money, and if it continues to print money at the rate it's printing money, our economic system is going to collapse."

"The Germans felt their system wouldn't collapse, but it took a wheelbarrow of money to buy a loaf of bread in the 1930s," he said. "The Soviet Union didn't think their system would collapse, but it did. Ours is capable of collapsing also."

History is littered with currencies that collapsed when money was printed to cover debt. Most national currencies are fiat currencies. A fiat currency is not indexed to any tangible commodity but is simply issued by the government with a promise that it will be accepted. The potential for abuse is obvious. Even when a paper currency is backed by a commodity, the assumption made by those issuing it is that most people will not demand to have the gold, silver or whatever commodity is being used to back the currency. This can prove very tempting to those who want to crank out easy money.

Inflation is not new. The Daily Reckoning presents the following account of inflation in the ancient Roman empire.

"Although Rome didn’t actually have paper money, it provided one of the first examples of true debasement of a currency. The denarius, Rome’s coinage of the time, was, essentially, pure silver at the beginning of the first century A.D. By A.D. 54, Emperor Nero had entered the scene, and the denarius was approximately 94% silver. By around A.D.100, the denarius’ silver content was down to 85%.

Emperors that succeeded Nero liked the idea of devaluing their currency in order to pay the bills and increase their own wealth. By 218, the denarius was down to 43% silver, and in 244, Emperor Philip the Arab had the silver content dropped to 0.05%. Around the time of Rome’s collapse, the denarius contained only 0.02% silver and virtually nobody accepted it as a medium of exchange or a store of value."

How hard would it be to print a monthly announcement of how many dollars are printed each month and put into circulation as well as how many dollars are destroyed because they are worn out. Someone has this information. Don't we have the right to know it as well? It could be printed on the financial page of every newspaper in the nation the first business day of every month.

Inflation has the effect of lowering wages. Inflation is really a de facto wage cut.The manner in which the money supply is managed effects the lives of all of us. Should this process not be more transparent?

Mike Pitts' proposal to have South Carolina's use its own currency will never pass constitutional muster. He might only succeed in getting his phone tapped. But he raises a valuable point. What is actually behind the money we possess? Probably a lot less than we think. And that should concern us all. Sphere: Related Content

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