This article was published by The McAlvany Intelligence Advisor on Friday, May 6, 2016:
A modest bill, getting little press and clothed in innocuous terms, could spell the end of the Federal Reserve’s monopoly on its “federal reserve note” currency. When Texas Governor Greg Abbot signed it into law almost a year ago, he said:
Today [July 15, 2015] I signed HB 483 to provide a secure facility for the State of Texas, state agencies and Texas citizens to store gold bullion and other precious metals.
With the passage of this bill, the Texas Bullion Depository will become the first state-level facility of its kind in the nation, increasing the security and stability of our gold reserves and keeping taxpayer funds from leaving Texas to pay for fees to store gold in facilities outside our state.
When responses to ITBs (Invitation to Bid) on building the new facility started coming in, it made the headlines – at a local radio station, News Radio 1200 WOAI out of San Antonio. The station elicited a similar response from the bill’s sponsor, State Senator Lois Kohlkorst: “We have a number of state agencies which have invested in gold and we have to pay for those storage fees. We would like to bring that gold back to Texas.”
Those various agencies have nearly $1 billion in gold and other precious metals stored in New York City. When the facility is completed late this year, those assets will be repatriated to Texas.
Buried in her bill, now become law, is the option for Texans to store their own personal gold and silver reserves at the Texas Bullion Depository (TBD) and be able, through a separate clearing house set up by the law, to write checks and perform other banking functions, all outside the current Fed monopoly. In addition, the law forbids the facility to engage in loaning out those reserves to other customers, thus eliminating any temptation to engage in fractional-reserve banking.
This has gotten Michael Boldin of the Tenth Amendment Center excited. He called the TBD “an important first step towards gold and silver as commonly-used legal tender in the state. By making gold and silver available for regular daily transactions by the general public, the new law has [a] potential wide-reaching effect.” He added that it “would undermine the monopoly of the Federal Reserve System by introducing competition into the monetary system.”
Boldin has support from an unlikely source, a liberal college professor at NYU, William H. Greene. Wrote Greene:
Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes).
As this happens, a cascade of events can begin to occur, including … an influx of banking business from outside the state … and an eventual outcry against the use of Federal Reserve notes for any transactions.
Although Professor Greene refers to gold and silver coins, his reasoning is valid for currency that is backed 100 percent by gold and silver bullion. And this is most encouraging to Boldin, who said that “Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people.” This would in effect be “nullifying the Fed on a state … level.”
It is said that getting the first olive out of the bottle is the hardest. Texas is the first olive.
In March, the Tennessee legislature passed unanimously a resolution setting the stage for its own gold depository bank:
The State of Tennessee supports the safekeeping and storage of gold and precious metals bullion and coins in a Tennessee bullion depository or other such similar facility.
Other states appear to be on the same path. Oklahoma, Utah, and Louisiana have each passed resolutions declaring that the Contract Clause (Article I, Section 10, Clause 1) of the U.S. Constitution (“no state shall … make anything but gold and silver coin a tender in payment of debts …”) is operative in their states.
Without being overly dramatic about the matter, it is helpful to remember that just 30 people were involved in the Boston Tea Party, dumping just 342 chests of the more than 2,000 that were on board, igniting the spark that led to American independence. Could the creation of the Texas Bullion Depository, acting as a bank for the state’s citizens, be such a spark to end the Fed’s monopoly?
News Radio 1200 WOAI: Efforts to Establish ‘Texas Bullion Reserve’ Moving Forward
The New American: Texas Launches Gold-backed Bank, Challenging Federal Reserve
The New American: Oklahoma Affirms Gold and Silver as Legal Tender
The Contract Clause: Article I, Section 10, Clause 1