Inflation has set Idaho’s huge pile of debt paper ablaze. Why not gold as a hedge? | Opinion

Idaho Treasurer Julie Ellsworth has the responsibility of safeguarding some $10.4 billion in state and local funds, but her team is dangerously handcuffed.

Because of Idaho’s outdated “idle money” statute, state funds are herded into debt paper instruments whose real value is being slaughtered by inflation recently.

The paltry nominal yields these funds receive are far exceeded by losses in value due to inflation. A negative real return.

That’s why many legislators want to give Idaho’s treasurer the authority to hold gold and silver as a hedge and financial insurance, just like other states are doing.

Accordingly, Rep. Barbara Ehardt and Sen. Phil Hart introduced House Bill 180, and it passed out of the House, 40-29, on Thursday and now heads to the Senate.

Although it’s a long-term problem, inflation is now on the front pages.

The unfolding crisis originates from federal deficit spending and inflationary central bank policies. But Idaho doesn’t have to remain a sitting duck while the real value of its savings bleed away. Others aren’t.

In fact, 35 sound money bills are pending in two dozen states right now. Many state bills continue the trend of removing tax penalties on buying, selling, and holding gold and silver.

But many more — including bills in Wyoming, Montana, Missouri, West Virginia, Tennessee, Maine — seek a modest allocation of state funds to monetary metals to hedge various risks.

Some states have already acquired gold. In fact, Ohio recently followed Texas in setting a 3-5% gold allocation in its public pensions.

Idaho’s massive rolling accounts governed by the “idle money” rules are parked in low-interest debt paper, e.g., U.S. Treasuries, money market funds, corporate debt, repurchase agreements, etc. (The state IDLE Pool holds roughly $5.3 billion, the Local Government Investment Pool has $4.1 billion and the diversified bond fund has $1 billion).

These debt-paper holdings carry both counterparty risk and low nominal yields. With inflation at 6-9%, the real rate of return for Idaho taxpayers is deeply negative, perhaps greater than 5% negative.

A reserve fund trying to maintain value of principal ought to include some of the money actually prescribed to the States in Article 1, Section 10 of the U.S. Constitution.

Gold and silver help preserve purchasing power over the medium to longer term and have a low correlation to other assets, providing important diversification and financial insurance.

The monetary metals are liquid, traded around the clock, and don’t suffer from negative interest rates.

By including physical gold and silver in 67-1210, Idaho Code, House Bill 180 would permit — but not require — the treasurer to hold a portion of funds in the monetary metals to protect Idaho’s “idle moneys” against the risks of inflation and debt default while potentially securing capital gains.

The treasurer’s authority would be limited to holding gold and silver directly and without counterparty risks inherent in virtually all other state holdings. That’s why HB 180 does not empower the state treasurer to use electronic instruments, futures contracts or other gold and silver derivatives.

The authority is confined to physical gold and silver, directly owned by the state of Idaho, unencumbered, and stored in secure bailment in Idaho or a contiguous state.

There are at least five insured, audited depositories from which to choose — two in Idaho, and three more nearby. The treasurer’s diversified bond fund is longer term in nature and is where the precious metals allocation obviously fits.

It’s prudent to provide the state treasurer with options to hedge against the accelerating inflation that’s been foisted upon savers, wage-earners, retirees and the Gem State itself by short-sighted politicians and central bankers in Washington, D.C.

A failure to pass HB 180 could be costly. Inflation is a match that has already set Idaho’s big pile of debt paper ablaze.

Stefan Gleason is president of Money Metals Exchange in Eagle, Idaho, a precious metals dealer recently named “Best Overall” by Investopedia.