Money gone rogue

Ottumwa, Iowa. As the last rays of a basketball-sized sun bathe the main square of this gritty industrial town in yellow, local Tea Party members are busily preparing for a reading of the Declaration of Independence, setting up the microphones and passing out literature as the sound system blares “We’re Not Gonna Take It” by Twisted Sister.

Like many in the small crowd gathered under the trees, Clinton Gray is one of the converted.

A slightly built man with wire-rim glasses and an intense gaze, Mr. Gray is a long-time Republican who believes that the United States has departed from the vision of the Founding Fathers and been ruined by years of corruption and mismanagement at the highest levels. Unemployment, skyrocketing debt and inflation have brought the country to its knees.

According to Mr. Gray, it may already be too late to avert disaster.

“I can’t say what source I’ve heard this from but if the dollar collapsed and [society slipped into chaos], in six months you would have approximately 50-million people die of starvation,” he says cryptically. “With paper money, it’s going to be worth nothing.”

Once upon a time such views would have been considered extreme even here in the U.S. heartland, where strong currents of religion and libertarianism come together,but as the United States stares into the face of fiscal disaster — President Barack Obama and key members of Congress are meeting this weekend in a last-ditch effort to raise the U.S. Treasury’s borrowing authority in order to stave off a debt default — such views are becoming more common.

Like many Americans, Mr. Gray doesn’t trust the U.S. government or its handling of the monetary system, and whether or not the system goes into meltdown, he believes the country will return to the gold standard. He is not alone.

In Utah, a law went into effect in May making gold and silver coins legal tender and exempting the exchange of coins from income or sales tax liability. At least 15 U.S. states including Iowa, South Carolina and New Hampshire are considering bills that would legalize gold as currency or are lobbying the federal government to reform the Federal Reserve System to consider alternative forms of currency.

The rising interest in gold may not be surprising considering the fiscal nightmare facing the United States and news on Friday of an unemployment rate that hit 9.2%. If Mr. Obama and Congress cannot come to a deal to cut the deficit a raise the borrowing authority by Aug. 2, the U.S. could actually default on its debt.

Up until the previous century most major countries had monetary systems based on the gold standard – in which the currency was fixed against a measure of gold. This provided the benefit of limited inflation and stability, as it was always clear what the currency was worth.

But President Nixon took the United States off the gold standard in 1971 as a way to gain flexibility in paying down its debt. With no need to maintain a gold supply, the government was able to print money at will. So called fiat money was regarded as a better system, more responsive to government policy and the needs of the economy. If growth started to slow, all the central bank needed to do was print more money and lower interest rates. Ditto if the country needed to pay off debt.

But 40 years later the legacy of fiat money is manifest in the catastrophic problems facing the United States today, conservatives say.

At least three prominent Republicans seeking nomination to run in the 2012 presidential election have advocated a return to gold, including Ron Paul, former New Mexico Governor Gary Johnson, and former Kansas City Federal Reserve Bank chairman Herman Cain.

In June Steve Forbes, chief executive of Forbes Inc., put out a press release declaring his support for gold-backed currency. “It’s a very, very simple system,” he said. “We cannot continue doing what we are doing. We have to make the change.”

Now the Tea Party has taken up the cry. With the help of funding from the American Principles in Action, a Washington-based lobby group, the Tea Party dispatched a bus-load of speakers to tour Iowa, in advance of the all-important Iowa caucuses, the major poll in the process of nominating candidates for U.S. president in the 2012 election.

At each of the 18 stops in towns and villages across the state over the course of three weeks in June and July, Tea Party operatives gave motivational speeches and workshops.

The public face of the Tea Party’s gold standard campaign is Jeff Bell, policy director at American Principles in Action and a long-time political strategist.

On the podium in the town square of Ottumwa, Mr. Bell comes across as a venerable voice of experience, explaining to grass roots audiences how politicians and the wealthy have taken advantage of the monetary system to enrich themselves to the detriment of working people. After weeks on the road, he moves a little stiffly but he approaches his subject with gusto.

“Quantitative easing is just what they tell you when they mean printing money,” he declares, his eyes brightening as the crowd responds with scattered applause.

Mr. Bell’s support of the gold standard goes back almost to the beginning of his career in the 1960s and he got a chance to bring some attention to the idea during one of his stints on Ronald Reagan’s campaign when he organized a television commercial with the president endorsing a gold-backed dollar. The ad never ran but Mr. Bell says it still exists and could finally get aired as part of the current campaign.

Many Americans are a little baffled by the subject of monetary policy, but as the recession grinds on and the price of gasoline and food surges higher, people are starting to get it.

“People are losing their homes in this town because they can’t pay the mortgage,” says Gregg Cummings, a founder of the Iowa Tea Party who lives in Lamoni, a small Iowa farming community close to the border with Missouri.

“Just walk up and down our main street and look at the stores, they’re either shut down or they have a sign in the window saying they’re not open for business.”

Over the years, the great plains of the central United States have fallen into decline as prices for corn and other commodities sunk lower and lower. Farms got bigger as smaller players packed it in and moved to find better jobs elsewhere.

The commodity boom changed the industry over night, providing farmers with some of the biggest profits they’ve ever known, but given the changes in the industry there are relatively few people left to enjoy the good times. The majority of the Iowans aren’t involved in farming any more. They work in banks, fast food restaurants, and factories and they’re struggling to make ends meet.

“It’s pretty hard for people around here,” says the waitress at JT’s Bar and Grill in Ladd, Illinois, a small community about an hour and a half west of Chicago. “All it takes is for one of the plants around here to lay off a few people and then the restaurants start to feel it and they start laying off staff too. A lot of families can’t make ends meet.”

The town of Ottumwa is a prime example. Surrounded by fertile cornfields stretching almost to the horizon, it was once a thriving coal mining centre. But the population has been shrinking since the 1950s. Now the main street is filled with vacant buildings and potholes that appear to have gone unrepaired for years. Only the local funeral home has a full parking lot.

Canteen Lunch, the local diner, is an institution with its own Wikipedia page but there’s only a smattering of customers on a recent weekday afternoon. Tucked underneath a parking garage, it has heavy bars across the windows and the elderly waitress serving up the renown Canteen sandwiches of hamburger and grated cheese warily declines to give her name. But she’s happy to explain that she doesn’t share the opinions of the people who’ve taken over Ottumwa’s main park.

“Has the Tea Party come to town?” she asks. “What do they want here?”

As the standard bearer for what’s known among proponents as “sound money,” Mr. Bell’s challenge has always been to win the attention — and support — of power brokers in Washington, as monetary policy is a federal jurisdiction, despite what some state lawmakers would like to believe. For years, the elite in the capital have rejected the idea “because the politicians don’t want to deal with it… They’re afraid to get into it,” he says.

So he tried a different tack. Teaming up with the Tea Party, he’s been going after the grassroots across the country, using a sort of bottom-up approach to push the issue onto state agendas, ultimately making it impossible for federal politicians to continue to turn their backs on gold.

Finally he’s getting some traction. The Tea Party and Mr. Bell’s group, American Principles in Action, played a key role in building support for gold standard legislation in many of the states including Utah.

Now the focus is on Iowa because of the upcoming Caucuses. Would-be presidential candidates for 2012 are working to win support in the state and thanks to the efforts of Mr. Bell and the Tea Party, they know coming out in favour of the gold standard may give them that crucial edge.

At the stop in Lamoni, a town on the border with Missouri, Mr. Bell stirs up the crowd.

“The dollar has been collapsing against every other currency,” he tells a small crowd curious onlookers. “The dollar used to be the pride of the American people. When [Federal Reserve Chairman Ben] Bernanke was asked about why this is happening, his answer was, ‘Well, I can’t answer that question. The U.S. Treasury is in charge of maintaining the value of the dollar.’ What a joke. Mr. Bernanke is driving down the dollar, he has no interest in ending the zero interest rate policy.”

The problem, according to Mr. Bell, is that the eggheads are running the show and the common sense people are sitting on the sidelines, too afraid to act because they think the problem is beyond their understanding.

“I think what’s most complicated is the present system [of fiat money], Mr. Bell says in an interview. “People get the gold standard, people know what gold is all over the world but the present system is opaque.”

But Mr. Bell and the Tea Party have an uphill climb. Critics argue that a return to the gold standard would be virtually impossible, as there isn’t enough gold in the world to meet all the demand if major countries moved back to a gold-based system. The price of yellow metal would rise, causing huge currency volatility. And the volatility would likely continue for years as the world readjusted. Simply put, the main benefit identified by proponents — price stability — would not exist, experts say.

But it is due to efforts by people like Mr. Bell that the issue is finally gaining traction at higher levels of government.

So where from here? Much depends on whether Congress agrees to lift the debt ceiling. It’s safe to say that the more strained things get in Washington and the rest of the world, the stronger the push for gold.

Back in Ottumwa, Mr. Gray has been preparing himself for the coming collapse, learning how to preserve foods and stocking up on gold.

“I got a lot of it from the Glenn Beck program [on TV],” he explains, adding that he knows that some of his beliefs and practices might be seen as a little unusual by many Americans. But he has no qualms.

“It’s also about dependency on no one else but yourself. It’s about getting us back to where we were,” he says.