The Federal Reserve increased the money supply by more than 2 Trillion Dollars within the last 15 months. The massive increase in the money supply creates a substantial risk of hyper-inflation. Hyper-inflation can strike suddenly and quickly reduce savings by destroying the value of the dollar. Most of the recently-created dollars remain in the banking system and have not been introduced into the economy as loans. Because the trillions remain on the sidelines the risk of hyper-inflation is suppressed . . . for the time being. However, when the stagnant American economy begins to rebound, the banks where all that newly-minted money is hanging out will start making loans again. Then, the risk of hyper-inflation will kick in.
People can partially hedge against the threat of hyper-inflation by buying gold. But a problem with that financial strategy is that the appreciation of the gold, or any other precious metal, will be subject to capital gains tax. Thus, while gold is a way to reduce the risk, it still serves in a less than fully optimal capability because of the United States exclusive currency and tax policies.
The federal government, through its instrument the Federal Reserve, created the risk of hyper-inflation by massively increasing the money supply. The federal government ought to responsibly create a safety net for the American public against the risks associated with its policy. It can mitigate the danger by enacting a law allowing accumulation of gold or silver.
Article I, Section 8, of the United States Constitution allows states to establish gold and silver as legal tender. “No State shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debts . . . .” However, the current federal law makes it a crime, punishable by imprisonment of up to five years, to use coins as legal tender. See 18 U.S.C. Section 486.
A proposed law pending to correct this untenable situation is the Free Competition in Currency Act of 2009, a refreshingly simple one page law. That statute, if inacted into law, would repeal 18 U.S.C. § 486, the criminal ban against States permitting use of gold and silve coins as legal tender. The proposed law would also ban imposition of federal or state taxes on gold and silver coins.
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