The State of Utah has gone nuts. Gold nuts to be exact.

The State of Utah has just passed and signed into law, authorization to use gold and silver as legal tender.  If you're a Ron Paul follower, this may sound reasonable, but for the rest of the world and leading economists, this is downright stupid.

People barter all the time, so this isn't exactly groundbreaking, except that, now the State of Utah is willing to participate in bartering, specifically with gold and silver.  But obviously, this is not about alternative forms of transactions, but rather, a political statement affirming the Gold Standard.  And doing so -- using gold and silver as a means of payment -- will invariably cause problems.

I'll just put it plainly: gold is a commodity.

What happens to other commodities?

At this point, most reasonable people would know what happens to commodities: bubbles and crashes.  Tied to bubbles, as always, are those who follow late in the game -- the State of Utah and others.  It should be obvious where this is going, no?

So think about it.  If Utah chooses to barter both ways (as income and payments) then it has to peg a value to gold.  If it fixes the price of gold permanently but the nominal price of gold rises, people will stop using it to pay Utah, and will otherwise demand that Utah pay them in gold, at that artificially lower value.  Likewise, if the nominal price of gold falls, then people will start paying Utah with gold, but demanding that Utah pay them with US Dollars.

So what happens if Utah chooses to float the value of gold to the nominal market value?  Well then all they're doing is adding another layer of bureaucracy into the system, by having to constantly evaluate receivables and payments for the proper value.  Utah will end up spending more money keeping track of its books and transactions.  So much for smaller, efficient government!

But what if Utah decided that all it was going to do was accept gold, but not pay out in gold?  The answer is, that Utah is going to be the biggest loser -- see above about commodities.  One day, Utah will simply go bankrupt, much as some banks did, when they were left holding the big bag of overvalued mortgages.

Nothing good can come out of their decision to accept gold and silver as cash equivalent.

Well actually there is one good thing: their failure will give many people the opportunity to mock them, and other similarly-minded individuals.