Second thoughts on the 'Thought Experiment'

Wednesday, 2 November 2011

Hugo Salinas Price

Let's get down to the fundamental question which would be on the minds of the Utah State Legislature, should the proposal come before them, to receive taxes and other revenue in the form of "rounded-up" silver dollar coins at a value quoted by the Utah State Treasury.

That question would have to be: "What does the State Treasury do with the silver dollars received, if the value of silver tanks?" That would be the No. 1 question!

I am afraid that the answer cannot be favorable. I prefer to face this question honestly, and admit a failure of the "Thought Experiment". After all, it was an “experiment”!

1. With the certainty that Utah State taxes are payable with silver dollars at the value quoted by the State Treasury, the residents of Utah would know that there is a "final buyer" for the coins.
2. The residents of Utah would be able to purchase these silver dollars for less than the Utah Treasury quoted value, on the US market, and tender them in payment at the quoted value. Thus, they would be able to get a discount on their payment of taxes.
3. The proposed measure would draw silver dollars from the rest of the US, to Utah, where the silver dollars could be used to pay taxes with an effective discount.
4. The State Treasury, in that event, would bulge with silver dollars obtained at an overvalued price.
5. Individuals wishing to own silver dollars would want to receive payment in FRNs, and purchase silver dollars at the US market price, which would be lower than the price quoted by the State Treasury.

I am quite sure that silver bullion will continue to rise in terms of FRNs given the present dismal financial picture of the US Government and banking system. However, that is my personal opinion and not a solid theoretical argument. It would not be wise for the State Treasury to gamble on a rising price of silver.

Thus I have to fall back on my original position, upon which I stand firm with no qualms, that the monetization of a silver coin in the US - be it the silver dollar or the "Eagle" - is something that must take place at the Federal, National level.

Supposing that the State Treasury is simply willing to receive silver dollars or “Eagles” in payment of taxes, at their market value; they might be willing to do this, and it would be a helpful measure toward the recuperation of silver as money. In which case, they should hedge their silver position in the futures markets, to protect against falls in the price of silver. This seems to me the most that can be done. The willingness of the Utah Treasury to accept silver would send a good message that would elevate the stature of silver among the population.

So, back to the drawing board! I have shot myself down.

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