This is a very serious solution and a growing and very real problem.  Representative Mike Pitts has put a Bill (H. 4501) forth that would ban U.S. federal reserve notes (dollars) as legal tender in the state of South Carolina.  It may just be symbolic because of the massive deficit spending.

Since the federal reserve was established in 1913, the U.S. dollar has experienced a continued de-valuation by the issuance of more currency than has been required over the last 97 years.  This solution may be a little extreme but with the amount of spending and unfunded liabilities, it may be time to send a message that something needs to be done.

South Carolina Rep. Mike Pitts has introduced legislation that would mandate that gold and silver coins replace federal currency as legal tender in his state.

As the Palmetto Scoop first reported, Pitts, a Republican, introduced legislation this month banning “the unconstitutional substitution of Federal Reserve Notes for silver and gold coin” in South Carolina.

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.”

Analysis: The winds are changing about our dollar system and if we want to have no real constraint in the about of currency being issued and if we are okay with constant inflation no matter what and never allowing deflation or real corrections in the economy without some knee-jerk reaction from the congress.

Sorry about the delay since my last post.  Its been a busy new year.  This is a pretty important piece of news that has not gotten much play in the media but it has major implications.  In December, the Gulf Monetary Union Pact (GMUP) took effect.  This looks to be the first step on creating a single trading currency for crude oil coming out of the Middle East.  The dollar has been to sole currency almost all commodities have been traded in and this is a reason we have been able to run huge budget deficits compared to the rest of the world.

When you have to trade your currency in for U.S. dollars to transact an oil purchase, it creates demand for dollar no matter what.  If now you have a competing currency that 40% of the world’s oil can be traded in directly then you are opening a situation where the dollar is not in as much demand and that would mean with all these extra dollars being printed with our excessive federal spending, the value of the dollar with fall dramatically.

A Gulf monetary union pact took effect on Tuesday, the Kuwaiti finance minister said in a move that brings the energy rich region closer towards launching its own single currency.

“The Gulf monetary union pact has come into effect,” the finance minister, Mustafa al-Shamali, was quoted as saying by the official KUNA news agency.

“Accordingly, GCC central bank governors will work out a timetable for the establishment of the Gulf central bank to ultimately launch the single currency,” said Shamali.

Under the pact, a Gulf monetary council to be established early next year would develop into a central bank which would then take the required measures to issue a single currency.

Analysis: If this takes place into a single trading currency we will see further declines in the U.S. dollar and either major tax hikes or spending reduction we “have” to happen in the United States.

Now we are dealing with a mathematical function called “compound interest“.  The U.S. dollar is a un-backed fiat currency that used to be a contract for 1/20th an ounce of gold but that is no more.  So when we have treasuries that come due at maturity, we issue/print dollars to make good on the principal and interest or we issue more treasuries that will come due in the future again.  Over time this creates more money that is not keeping up with the amount of taxes we produce as a society or the exports we send abroad to settle with our trade partners.  Not to mention is creates price inflation because we are bringing in dollars faster that the economy can grow the put those extra dollars to work.

What is happening is we are slowing creating a situation where will not be able to “ever” pay back the debt unless we raise taxes through the roof and if we actually let the debt increase to $27 trillion dollars, that would actually eat up the entire U.S. GDP ($14 trillion).  CNN did a nice piece and if you look at the chart the produce that projects the increase in interest cost from now until 2019, it is a steady increasing line that looking just like a compounding rate of interest, which is actually happens to be and reinforces what I said above.

Here’s a new way to think about the U.S. government’s epic borrowing: More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest.

More than half. In fact, $4.8 trillion.  If that’s hard to grasp, here’s another way to look at why that’s a problem.

In 2015 alone, the estimated interest due – $533 billion – is equal to a third of the federal income taxes expected to be paid that year, said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group.

On the bright side – such as it is – the record levels of debt issued lately have paid for stimulus and other rescue programs that prevented the economy from falling off a cliff. And the money was borrowed at very low rates.

But accumulating any more interest on what the United States owes at this point is like extreme sport: dangerous.

Analysis: We are  coming to point where we are going to have a serious currency crisis and our current leaders seem to not being doing anything to prevent is and actually we are doing things that are making it worse.  Dollars savers are being punished so right now you are forced to speculate on other and more risky assets.

Turkey is now going to use its domestic currencies to trade for oil and gas with China and Iran.  With the greenback being the world’s reserve currency, this has given great benefit to the United States to have the ability to run large national deficits with the rest of the world because their has always been a large demand for U.S. dollars for foreign exchange transactions where a country would use their national currency to buy dollars then conduct the underling oil transactions using those purchased dollars with the country supplying the oil.

Turkey is switching to national currencies in trade with Iran and China, ending dependence on the U.S. dollar and the euro for about 20% of its commodity turnover, local media reported on Wednesday.

Turkey has already switched to settlements in national currencies with Russia amid weakening confidence in the greenback as the world’s major reserve currency. The move was initiated by Turkish President Abdullah Gul during his visit to Moscow in February.

Turkey’s decision to make settlements with Iran and China in national currencies was announced during a visit to Iran by Turkish Prime Minister Recep Tayyip Erdogan. The Turkish premier told a Turkish-Iranian business forum on Tuesday that the countries had prepared a legal framework for transition to settlements in national currencies.

“We have adopted a necessary legislative act and are prepared for the transition,” the Turkish newspaper Milliyet quoted Erdogan as saying.

Analysis: If this trend continues the U.S. government is going to be forced to cut spending or raises taxes or deal with a rapidly falling dollar based on lack of support and oversupply.