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Montana H.B. 639, sponsored by State Rep. Bob Wagner, R-Harrison, doesn’t require the state or citizens to conduct business in gold or silver, but it does require the state to calculate certain transactions in both the current legal tender system and in an electronic gold currency. It further mandates that the state must accept payments in gold or silver for various fees and purchases.

While Wagner was unavailable for comment, the bill’s language clearly alleges the nation’s current financial system, with its reliance on the private Federal Reserve system for money supply, is a danger to American freedom.

“The absence of gold and silver coin, whether in that form or in the form of an electronic gold currency, as media of exchange,” the bill states, “abridges, infringes on and interferes with the sovereignty and independence of this state … and exposes this state and Montana citizens, inhabitants and businesses to chronic problems and potentially serious crises that may arise from the economic and political instability of the present domestic and international systems of coinage, currency, banking and credit.”

Further, the bill states, relying only on the depreciating legal tender issued by the Fed subjects citizens to “losses in purchasing power” inflicted by the government, a dilemma the bill says amounts to the “incremental confiscation” of property by government in violation of the U.S. Constitution’s protections for just compensation and due process.

The Fifth Amendment states, “No person shall be … deprived of life, liberty or property, without due process of law; nor shall private property be taken for public use, without just compensation.”

Critics of the current financial system argue that using Federal Reserve notes as legal tender, rather than gold- or silver-backed currency, means the value of Americans’ money – and thus their “property” – is siphoned away by inflation, a process perpetuated by the government’s reliance on legal tender. Gold and silver, critics say, don’t lose their value on the whims of the Federal Reserve.

U.S. Rep. Ron Paul, R-Texas, even favors abolishing the Fed’s system of fiat currency to return to dollars backed by gold.

“Throughout its nearly 100-year history, the Federal Reserve has presided over the near-complete destruction of the United States dollar,” the Texas Republican said. “Since 1913 the dollar has lost over 95 percent of its purchasing power, aided and abetted by the Federal Reserve’s loose monetary policy.

Separately, the Japan Automobile Manufacturers Association said auto sales in Japan for the fiscal year through March 2010 were expected to have dropped 8 percent from the previous year to what would be a 32-year low of 4.297 million vehicles.

The last time domestic sales were lower was in fiscal 1977, when 4.23 million vehicles were sold, it said.

“With the Japanese economy weakening and the outlook for employment looking very uncertain, consumers are in no mood to buy a car,” Satoshi Aoki, chairman of the manufacturers’ association, said at a news conference.

Section 125 (42 U.S.C. 12575) is amended to read as follows:

‘SEC. 125. PROHIBITED ACTIVITIES AND INELIGIBLE ORGANIZATIONS.

‘(a) Prohibited Activities- A participant in an approved national service position under this subtitle may not engage in the following activities:

‘(1) Attempting to influence legislation.

‘(2) Organizing or engaging in protests, petitions, boycotts, or strikes.

…

The government at present has the authority to seize only banks.

Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president’s Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.

The administration plans to send legislation to Capitol Hill this week. Sources cautioned that the details, including the Treasury’s role, are still in flux.

Treasury Secretary Timothy F. Geithner is set to argue for the new powers at a hearing today on Capitol Hill about the furor over bonuses paid to executives at American International Group, which the government has propped up with about $180 billion in federal aid. Administration officials have said that the proposed authority would have allowed them to seize AIG last fall and wind down its operations at less cost to taxpayers.

The administration’s proposal contains two pieces. First, it would empower a government agency to take on the new role of systemic risk regulator with broad oversight of any and all financial firms whose failure could disrupt the broader economy. The Federal Reserve is widely considered to be the leading candidate for this assignment. But some critics warn that this could conflict with the Fed’s other responsibilities, particularly its control over monetary policy.

The government also would assume the authority to seize such firms if they totter toward failure.

Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG’s most troubled unit.

The Fed plans to buy $300 billion of Treasury IOUs in the next six months (more to come if needed), pour $1.45 trillion into the mortgage market, and keep interest rates close to zero for “an extended period”. There’s more in the Fed’s “do whatever it takes” arsenal if these steps don’t bring interest rates down so people can borrow more cheaply to buy houses, cars and other durable goods. But so far, so good: interest rates on 30-year mortgages fell below 5%. Whether that will encourage enough creditworthy borrowers to sop up the huge inventory of unsold homes, much less trigger new construction, is difficult to predict.

But the dollar dropped like a stone. Earlier, Chinese premier Wen Jiabao said he was “a little bit worried” that America might cheapen its currency and pay back the $1.2 trillion it owes in depreciated dollars. Now that the Fed has moved, he must be a lot worried.

The Fed’s decision to pump trillions into the money markets comes on top of President Barack Obama’s proposal to drive the federal deficit to 12% of GDP by borrowing trillions to fund a few stimulus projects, universal healthcare, a green energy system and a host of other programmes on his wish list. Obama’s assurance that America will never default on its debt hasn’t completely soothed the markets: The Wall Street Journal reports that it now costs seven times as much to buy insurance against an American government default as it did only a year ago. Besides, America can always inflate its way out of its obligations.

Not to worry, says the president. The economy will soon be growing at an annual rate of about 4%. Along with the tax increases to be imposed on the top 2% of earners, billions from the sale of carbon-pollution permits and reductions in age-related entitlements, the growth will drive the deficit down to 3% of GDP in 2013. Unfortunately, 2% of earners can’t or won’t carry the entire burden, the carbon-permit programme might not produce the predicted revenues after Democratic congressmen from coal-producing states chop away at it, and Congress has told the president that any proposal to reduce the huge entitlement payments due the ageing baby-boomers will be DOA – dead on arrival.

Where China’s Wen sees problems, Paul Paulson (no relation to former Treasury secretary Hank) sees opportunity. Paulson, you will recall, is the hedge-fund manager who made $10 billion in 2007 betting that the subprime mortgage market would implode. The day before Bernanke’s announcement, Paulson made another wager. He shelled out $1.28 billion for a stake in the gold-mining company AngloGold Ashanti. He is betting that by debasing their currencies, governments will trigger inflation that will cause a flight from paper currencies to gold. Within 24 hours of Paulson’s bet, it paid off, thanks to the Fed: the price of gold jumped 7%, one of the many commodities to experience large increases.

So here is where we are at. The combination of the Fed’s surprise attack on the credit markets and the president’s decision to borrow-and-spend will give the economy a lift. My own guess, and that of many economists with whom I have spoken, is that by the middle of next year, if not sooner, the economy will start growing again at a decent rate.

At that point, Bernanke will have to decide whether to start pulling money out of the system by selling off some of the assets on his swollen balance sheet, and the Obama administration will have to decide how to bring down the fiscal deficit. Bernanke is keenly aware that during the Great Depression the Fed tightened the money supply prematurely, nipping a nascent recovery in the bud. So he is likely to stall.

Meanwhile, there is little prospect that Congress will do what is necessary to bring spending and borrowing down to levels that do not trigger inflation. Politicians just don’t worry as much about inflation as about catering to their multiple constituencies. So the Treasury will have more trillions in IOUs to peddle.

But its best customers just might be unenthusiastic about adding significantly to their holdings. Wen already owns trillions in Treasury bills that are depreciating in value. Besides, China’s mounting needs for infrastructure and an improved safety net will sop up funds once used to buy American securities. Japan, another large customer, is now running a current-account deficit, and so it won’t have as many dollars to recycle. Nor will Middle East buyers, no longer receiving a flood of dollars from $140-a-barrel oil. Little wonder that Larry Lindsey, former economic adviser to President George W Bush, says he “cannot figure out what combination of foreign buyers is going to acquire . . . [the] debt” that Obama’s plans will generate.

Which leaves Americans and the Fed as customers. Even if they save more, domestic consumers can’t absorb all the Treasury bonds that will be on offer. And if the Fed keeps buying, it will pour fuel on the inflationary fires.

I have never before doubted the resilience of the American economy – its ability to survive inevitable downturns after periods of excess, and to weather the burdens heaped on it by politicians. Obama, however, has me shaken, perhaps because I am not stirred by his rhetoric.

Porritt’s call will come at this week’s annual conference of the Optimum Population Trust (OPT), of which he is patron.