“In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve
System … the State’s governmental finances and private economy will be thrown into chaos,” stated North Carolina Representative Glen Bradley in a bill he drafted in 2011.
According to the U.S. Constitution, Article 10, Clause 1 (Contract Clause), States can issue their own money as long as they are in the form of gold and silver coins.
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.
How much time the U.S. dollar has left as a trusted currency is unknown, but the countdown has begun.
Like the sudden collapse of sub-prime mortgage market—which spread throughout all mortgages—and Greek sovereign debt in 2010—which spread to the rest of Europe—one day Americans will wake up to a crisis in the dollar.
The man who warned of a credit bubble in the U.S. mortgage market in 2006, Doug Nolan of Prudent Bear, told Financial Sense Newshour he likens Greece to the sub-prime mortgage market and the currency dominoes the besieged nation will eventually topple across the globe.
“I refer to this [U.S. Treasuries] as the global government finance bubble and I draw parallels between Greece and sub-prime U.S. mortgage back in the Spring of 2007,” said Nolan. “In the Spring of 2007, confidence started to falter for sub-prime. The risk is part of mortgage debt and of course you had the aggressive policy response. You actually had a very speculative market and you didn’t have a serious crisis until sometime later in 2008. Now we see Europe; they had the initial Greek crisis; they responded aggressively with the bailout. That bought them some time, but then things started to spiral out of control last year.”
Though U.S. Representative Ron Paul, TX has sponsored the “Free Competition Currency Act” in the U.S. House of Representatives, State legislators are waiting for Washington. They have proposed varying methods of introducing gold and silver as a go-to currency in their States so that their citizens can continue to buy groceries, services and durable goods, such as cars and major appliances after the fall of the dollar. [Related: iShares Gold Trust (NYSEArca:IAU), ETFS Physical Swiss Gold Shares (NYSEArca:SGOL)]
However, logistical issues abound for the States. Carrying around bullion coins aren’t practical and deviate grossly from ingrained habits of Americans in the use of money in a modern banking system of paper and plastic cards. But Utah has a solution: Utah Gold & Silver Depository, where clients can continue to use plastic cards. But instead of transferring fiat currency to a merchant with plastic cards, gold and silver grams would transfer instead to pay for goods and services. [Related: SPDR Gold Trust (NYSEArca:GLD), iShares Silver Trust (NYSEArca:SLV)]
“A Utah citizen, for example, could contract with another to sell his car for 10 one-ounce gold coins (approximately $17,000), or an independent contractor could arrange to be compensated in gold coins,” said Rich Danker, of public policy think tank American Principles Project in Washington, D.C. [Related: Why Does Fed Official Richard Fisher Own 7000 Acres of Farmland & $1 Million In Gold?]
Of the 13 States gearing up for its own currency, Danker told CNN he expects four States could pass legislation this year. Those States include South Carolina, Georgia, Idaho and Indiana.
“I think we could get a couple passed in this legislative session, and that would show this is mainstream, popular and it would be a justification for more of the risk-averse states for doing this,” he said, suggesting a domino effect with other States could result across the U.S.
According to Prudent Bear’s Nolan, the time bomb ticks away on the dollar, and when it blows, the demise of the dollar could move rather quickly as we saw in both the sub-prime mortgage market in the U.S. and in Greek sovereign debt in 2010.
“All of a sudden you could see a situation where the sovereign debt problem in Europe leads to question on the solvency of European banking system, on global derivatives, counter-parties, and maybe at the point there will be concerns with other structural debt issues be it Japan or the U.S.,” said Nolan. “Once the global community loses confidence in the capacity of policymakers to sustain credit excesses then it’s a totally different ballgame than what we see in Europe.”