Archives for February 1, 2016

11/30/02

There’s a story going around the Patriot movement, those folks who call Rush Limbaugh and George W. Bush “phony conservatives.” Apparently, some hucksters have been passing around “paper money” from a private company, claiming that it’s worth something even though you can’t redeem it for anything real.

They call themselves “the Federal Reserve System.” Maybe you’ve seen some of their “greenbacks” floating around. Well, in case you haven’t heard it, here’s the story.

The Federal Reserve System has been around since 1913, when the U.S. Congress set it up to distribute money through the Federal Reserve banks. The money is printed by the (U.S. federal government) Bureau of Engraving and Printing, then sold at cost (around 3 cents per bill) to the (privately owned) Federal Reserve banks, which pay for them by buying U.S. government securities, that is, by making long-term loans to the U.S. Treasury Department.

Then the Federal Reserve banks loan their Federal Reserve notes to other banks at an interest rate set by the chairman of the Federal Reserve Board (the “Fed”).

If you get one of these notes, you can’t take it back to a Federal Reserve bank and exchange it for anything else, although they might give you a toaster for opening a new account. The only thing you can do with a Federal Reserve note is use it to pay your debts, and the U.S. government guarantees that your creditors have to accept it in payment. That’s why they print that statement on the front of all the notes: “This note is legal tender for all debts, public and private.” Without that it wouldn’t be worth, well, the paper it’s printed on.

 

Alternatives

Throughout the United States, more than 30 currencies besides Federal Reserve notes are also circulating. Most of these alternative currencies are strictly local, such as the Ithaca Hours, which can be used only in Ithaca, New York. Most of them are also based on intangibles such as a specific number of hours worked. Only one is commodity-based and used nationwide, the American Liberty Dollar.

The Liberty Dollar has a “$10 silver base,” meaning that every 10 Liberty Dollars entitle the bearer to claim one ounce of silver sitting in a vault in Coeur d’ Alene, Idaho.

These Liberty Dollars, in various denominations, look a lot like the bank notes issued in the 1800’s by state-chartered banks, with elaborate filigree artwork around the edges framing an image of the Statue of Liberty and a statement by the issuer. You can also get coins about the size of the old silver dollars but a little thicker.

Liberty Dollars are issued by NORFED, a nonprofit organization based in Evansville, Indiana. NORFED stands for the National Organization for the Repeal of the Federal Reserve Act and the Internal Revenue Code, and the ultimate purpose of this currency is to bring the Federal Reserve System crashing to the ground, along with its “collection agency,” the Internal Revenue Service. According to NORFED’s founder, Bernard von NotHaus, they now have over $300,000 in circulation.

So where are they? Bernard says there are at least 850 Redemption Centers around the country where someone will exchange your debt-backed Federal Reserve notes for silver-backed Liberty Dollars on a one-for-one basis. It isn’t that hard to find a Redemption Center nearby. The hard part is finding someone who will take Liberty Dollars in payment for goods or services.

Why would any business take payments with notes that aren’t “legal tender”?

The only way to answer that question is to visit some businesses that actually accept Liberty Dollars. According to Bernard, the best person in Indiana to talk to is a “flaming patriot” in Peru, Indiana, named Clayton.

 

The Agent

I arrive at Clayton house in Peru at around 10:30 a.m. on Saturday, October 19. The road to Peru is marked by fields and fields of unharvested corn turned brown by an unusually dry summer.

Clayton’s modest ranch house is easily located by watching for the huge, 20-foot diameter fir tree partly obscuring the front. I pull up a slight incline into the open spot in the worn gravel driveway in front of a divided two-car garage painted dark brown. A dirty gray 1993 Honda Accord is parked to the right. It’s adorned with bumper stickers on three sides, saying “I pledge allegiance to one nation under God,” “Pray for America,” and “American Liberty Currency.”

Hiding behind the fir is a narrow wooden-plank-covered walkway leading to the front door. I ring the doorbell and wait. A thin, gray-haired man answers the door.

Clayton is a spry 69-year-old with bifocals, balding, with slightly elongated ears. His wispy gray-and-white hair is combed straight on the right side, while on the left side a lock of gray hair curls down across his temple, and some shorter hair on the side flips up in a cowlick. “I combed my hair this morning, but you can’t tell,” he would later say.

Clayton is wearing a green t-shirt over an ivory oxford button-down shirt, open at the collar, one lapel sticking out a little. On the front of the t-shirt, block letters spell out, “ASK ME ABOUT THE MONEY BACKED BY GOLD & SILVER”; the back says, “DO NOT STEAL-THE FEDERAL RESERVE AND THE IRS DO NOT LIKE COMPETITION-BOTH ARE ILLEGAL AND PRIVATELY OWNED.” He’s wearing greenish-gray faded cotton cargo pants and brown leather shoes with black soles.

Clayton leads me through an unlit living room to a small kitchen. He motions for me to sit down at a round table, facing toward the refrigerator, while he sits down at the opposite side.

Clayton looks over a paper with a list of NORFED Liberty Merchants on it, planning our itinerary. Of the 13 on his list, 5 have been crossed off. Three from one family moved to North Carolina; another moved to Lasalle, Kentucky; yet another had recently died.

Clayton has been busy promoting himself as an independent candidate for Miami County sheriff, as indicated by a flyer on the table printed in block letters reading, in part, “RUNNING FOR OFFICE, NOT BUYING IT”. Clayton finishes the itinerary and goes back out through the living room.

As we leave, Clayton shuts the door without locking it, and leaves one garage door open. We get in his Honda, which has a NORFED brochure taped to the rear passenger-side window.

Noticing a Liberty Dollar on the passenger-side floor, I hand it to him and he casually tosses it on the dashboard, where there are a couple of envelopes, one of them an open #9 envelope containing a sheaf of Liberty Dollars. Some Federal Reserve notes are rolled up in a white plastic cup in the cupholder. An open bag of Starburst Fruit Chews sits between the seats.

 

The Contractor

Just after turning north out of his housing development onto State Road 19, Clayton turns sharply left down a freshly graveled driveway. At the bottom of a small hill down from the road, the area in front of an double-wide freestanding garage is filled with vehicles: an ATV, a small boat on a trailer, and at least four pickup trucks. Clayton pulls hard to the right behind a small one-story house with white siding.

Clayton opens the rear door into a cluttered enclosed back porch. Among the many coats hanging up to the left, a couple of camouflage hunting jackets stand out, and a piece of a hunting bow lies on the floor. He knocks on the inner door and a blond woman in a bathrobe appears through the curtained windowpane. Opening the door, the gaunt, bleary-eyed woman recognizes Clayton and shouts behind her, “It’s Clayton!”

As we step in, she returns to cooking breakfast at the stove to our right. Clayton steps to the right of the kitchen table as a burly man with short blond hair, somewhere in his 30’s, appears from the left and greets us. After shaking hands, Bill and I sit down at the table in the center of the room.

Over Bill’s shoulder, a giant boar’s head stares straight at me from the far wall of the living room, and I notice a bearskin splayed across another wall over the TV.

Bill and his wife have just gotten up, after coming home late last night from a funeral down in Kentucky. The enticing smell of bacon and eggs frying starts to fill the room.

Bill owns a construction firm and NORFED calls him a “Liberty Merchant” because he advertises that he accepts Liberty Dollars as payment for services. In fact, he has written a letter to the editor of the Peru Tribune urging other merchants to accept Liberty Dollars.

Bill says that a lot of people still don’t know about it, even though it has had positive write-ups in the local newspaper. To this, Clayton sardonically notes that the problem is that “50% of the county doesn’t take the local paper,” and Bill agrees.

Bill supports the Liberty Dollar because it’s backed by gold and silver, unlike the Federal Reserve notes. He would take them as full payment for a job, but he doesn’t think there are really enough in circulation yet. “The thing I had a problem with is most people only want the silver,” he complains. They trust the coin, an ounce of .999 pure silver, more than the paper; but people mostly want them as souvenirs.

Clayton interjects that about $3,000 of the silver is out in the county, as well as about $2,000 of the silver certificates, but not much of it is being circulated.

In fact, the only way a currency can be sustained is by constantly using it. In some places, merchants won’t accept the Liberty Dollar because they can’t use it to pay their own expenses. However, Peru has a wide variety of Liberty Merchants, including a hardware store, a grocery, a sub shop, a florist, a computer store, a furniture store, and a car repair shop.

The sizzling on the stove stops, signaling that it’s time to say goodbye.

 

The Hardware Store

Other Liberty Merchants are less enthusiastic about promoting the Liberty Dollar, as we find at the hardware store, the florist, and the meat market.

The hardware store, an older brick building fronting Peru’s main north-south street, is owned by Dave. After parking in the back alley and wandering among the crowd of customers and sales clerks for several minutes, we finally find Dave stocking shelves near a doorway.

Dave is medium-height, with a thin face and black hair receding from his brow. As he speaks to us, his face is framed by the bright light from the door behind him. Despite being listed by NORFED as a Redemption Center, Dave has nothing to say about Liberty Dollars.

Clayton stands quietly, looking down at the floor, while Dave explains tensely that he doesn’t really do much business in Liberty Dollars and doesn’t really know anything about them. Dave keeps looking down at something in his hand, then over at a silent, expressionless Clayton, then to me. He admits that he will accept Liberty Dollars, but he insists that he doesn’t really believe in them, doesn’t do much with them, and was reluctant to get into it in the first place. So, why does he accept them if he doesn’t believe in them or know much about them?

“Because of him,” Dave snorts, pointing at Clayton.

We thank him and leave. On the way out, Clayton remarks that the NORFED brochure disappeared from Dave’s counter awhile ago. Clayton had also recently asked a couple of clerks he didn’t know whether they took Liberty Dollars, and they had said no.

We go out to Clayton’s car parked in the back alley. Once in the car, we make small talk.

“For all I know, you could be CIA and setting me up,” he says to me at one point. I try to reassure him by telling him that I had once considered working for the National Security Agency, but I was too lazy to finish their 20-page application.

 

The Flower Shop

Clayton guns the engine as we zip around the corner, then down a residential side street to a florist shop, a tiny A-frame storefront beside a white-roofed greenhouse.

Inside, we make our way through a jungle of plants to a service counter with a cash register. Under the counter’s glass top are several informational items about gypsy moths. “Don’t give a gypsy moth a free ride,” one says prominently.

About ten feet back from the counter, a middle-aged woman named Tracy is bending over a large pot arranging flowers. She agrees to talk while she works. She first became interested in taking Liberty Dollars last summer, in 2001, after talking to Clayton.

Clayton later tells me how he had first learned about Liberty Dollars at an anti-tax rally in summer 2001, then he brought some back home to show people. The local newspaper, The Peru Tribune, featured him in a story about Liberty Dollars and named him as a distributor, even though he wasn’t at the time. But after the article, people started asking him about it, so he signed up. Tracy immediately shows her concern that accepting Liberty Dollars is seen as a tax protest.

“I think that more people would get involved in it if they wasn’t so scared of the IRS. I just finished up my audit last month, and it started last year.” The IRS agent had shown up unannounced at the shop just recently. “She didn’t look like no IRS person . . . they look pretty normal.” Clayton remarks that it must have been around that time that Tracy took the NORFED brochure and sample Liberty Dollar off her counter. After some more small talk, we say goodbye.

Later, I ask an economics professor, Steven H. Russell, if there is any tax advantage to using an alternative currency, or if it is even a viable tax evasion strategy. He said that most people trying to evade taxes do all their transactions in cash, and that they could do so just as well with Federal Reserve notes as with an alternative currency.

 

The Meat Market

Around the corner and down Main Street is a meat market, an unassuming white building with three soda machines out front. Inside, it is small, but clean and attractively lit. A meat display counter takes up most of the center of the store. Bill is middle-aged, with a receding black hairline and a fairly intense look as he portions out ground beef behind the counter.

He is too busy to talk, he says, and besides, he hasn’t taken any Liberty Dollars in six months. He took it for awhile, but it didn’t work out. Bill has the same tension in his voice that Dave had.

Clayton remarks that it was mainly Bill’s mother who took the Liberty Dollars, when she was running the cash register. I thank Bill for his time and we leave.

Outside, Clayton expresses skepticism that Bill has not taken any Liberty Dollars in six months, since he just redeemed 22 Liberty Dollars from Bill a few days ago. He notes that the meat market is important because it is the only independent grocery in town. Besides, he says, they have the best beef.

 

The Sub Shop

From Bill’s, Clayton drives east on Main, then south on Broadway, back toward the hardware store. At first noting that there are no parking spaces on either side of the street, he suddenly pulls a U-turn to the left and whips into an open space on the east side of the street across from the hardware store. Thankfully, I’m wearing my seatbelt.

“I probably shouldn’t have done that,” he says. “Although sometimes I’ll see a cop down the street and I just want to piss them off.”

The parking spot is directly in front of a sub shop, a narrow storefront with a haphazardly lettered sign above it. Inside, behind a long deli counter, we find Shirley, a short, round-faced woman. Her answers are terse but friendly, with just a hint of a smile over her calm demeanor.

Shirley has taken Liberty Dollars for almost two years. She does it because “they’re backed . . . and the Federal Reserve notes aren’t.” She occasionally walks across the street and uses them to buy trash bags at the hardware store. The hardware store is about as far as Shirley would go for anything, anyway.

We thank her and say goodbye. On the way out, I pick up a business card promoting Clayton’s campaign for sheriff. On the back it says, “Support the U.S. Constitution-Serve and Protect the People-No Interference from Outside.”

Clayton is running against a Republican and a former Republican who, spurned by the Democratic Party, is running as an independent. The Republican wins, and Clayton ends up with about 173 votes. Based on the cost of flyers and business cards, Clayton later figures he spent about 30 cents per vote.

 

The Furniture Store

Clayton drives south on Broadway to a furniture store. The sign on top is in disrepair, but inside the showroom floor is crowded with furniture.

We had stopped here earlier in the day, but they had been too busy. Now, Danny is just finishing with a customer. Looking around, it’s hard to miss several water-damaged ceiling tiles scattered over the showroom.

Danny’s mother, a late-middle-aged woman with blonde hair in an elegant wave, comes over to greet us. She engages in small talk with Clayton for a few minutes, but after casually remarking that the government is controlled by Satan, she looks straight at me and says self-consciously, “Now you’re probably thinking that this is the most conservative place you’ve ever been in.”

I assure her it isn’t, citing my familiarity with shortwave talk radio hosts like Alex Jones, who has a lot worse things to say about the government. It turns out that Danny is a big fan of shortwave talk radio, especially Alex Jones and John Stadtmiller.

Danny comes over, dressed in a green knit shirt and black dress pants, and we start a spirited discussion of various populist and constitutionalist topics. At one point his father, a small, gray-haired man who has been moving mattresses across the showroom floor, stops and tells Danny to keep it down while customers are around.

While we are talking, Clayton notices the time, then opens up a little black pouch on his belt. Taking out a finger-sticker, he pricks the side of his left forefinger, then holds a small glucose meter to the blood droplet. Clayton later tells me that he was diagnosed in June 2002 with diabetes.

Danny has taken Liberty Dollars since the summer of 2001, because “it’s the perfect currency,” since it’s backed by gold and silver. Once he took 90% of the purchase price of a chair in Liberty Dollars, from Jesse, who runs a car repair shop.

Danny is about six feet tall, with mostly black hair and a little gray, swept back, and he has a slight overbite. Occasionally when he’s talking, he’ll draw uncomfortably close and his brown eyes get very intense. After expressing his concern about the state of the world, he concludes by saying, “out of all this debris chaos, maybe we can get back to where we were.”

As more customers start to come into the store, we make our way to the front door, then thank Danny and say goodbye.

 

The Car Repair Shop

It would be another three weeks before I speak to Jesse, owner of an auto repair shop. By then the corn has been harvested, and the fields are full of broken brown cornstalks. Jesse’s place is south of town on State Road 19, in the middle of the brown cornfields.

On the way to Jesse’s place, Clayton had handed me a printout of an email from Ron Paul, a Republican congressman from Texas’ 14th district. Clayton doesn’t own a computer, but a friend printed it out for him. Rep. Paul goes on at length against war in Iraq, the U.S.A. PATRIOT Act, and of course, the Federal Reserve and the IRS. Rep. Paul is obviously not popular among Republicans, despite having the distinction of the “most conservative voting record in Congress,” according to a conservative watchdog group.

A similar disdain for the U.S.A. PATRIOT Act is found in an essay by Bernard von NotHaus, on the “Nazi-ification of America.” It is Bernard’s only writing on the NORFED website that briefly veers away from monetary policy, but curiously, there are no links to it from the home page. You have to search for it with Google.

Clayton pulls into a long gravel driveway running alongside a large two-story white house, then parks along the left side in the grass, just past a U.S. flag on a 20-foot flagpole. Walking toward the large double-bay mechanics’ garage, I notice the same 40-foot TV antenna tower that everyone else in this area seems to have. Yet, there is also a large satellite dish behind the garage.

We walk around a red truck parked in front of the open south bay. Its hood is up and a heavyset middle-aged man in a blue jacket is directing a taller, thin young man in forcing water through the truck’s cooling system.

No one acknowledges us as the older man hurries back and forth between the truck and the tool chests in the shop. The younger man, in worn, faded Carhartt jeans, busies himself over the truck. Finally the older man stops to talk with Clayton, barely glancing at me. He is about six feet tall, with a large pot belly covered by an IU t-shirt showing through an unzipped blue Carquest quilted jacket. His beefy face is topped with a faded gray striped Snap-On knit cap pulled down over his ears, and he’s wearing medium-sized chrome frame glasses.

Eventually, satisfied with the younger man’s work on the truck, Jesse heads to the back of the shop, followed closely by an old white hound dog named Molly. He enters a tiny, 6′ x 10′ office, just wide enough to fit an old, green, steel desk pushed to the back. A Compaq Presario monitor and keyboard sit on the cluttered desk, with the CPU tower on a short file cabinet to the right. Above the CPU, hanging from a vertical pipe, is a sign stating, “We supported 4-H Livestock Sale-Miami County 4-H Fair.”

Jesse is poring over a computer printout showing hotels along the route from Peru to Frederick, Maryland. Jesse and Clayton discuss various options for lodging near the county fairgrounds, where a rally is to be held before a protest march in Washington, D.C. This is to be the grand finale of a cross-country “Freedom Drive” protesting the Federal Reserve System, the Internal Revenue Service, the U.S.A. Patriot Act, and the war against Iraq.

Jesse asks Clayton if I’m going, and I shake my head no. Jesse turns to me and addresses me for the first time. He tells me to sit down, pointing to an open five-gallon paint bucket serving as a trash can. I hesitate, noting that it has no lid; not wanting to seem discourteous, I sit down.

Of course, now I’m lower than Jesse in his office chair, and I’m somewhat uncomfortable perched on the edge of the lidless bucket. Jesse looks directly at me with his broad face and steel-gray eyes and asks why I’m there.

After I explain that Clayton has the largest collection of Liberty Merchants in the state, Jesse seems satisfied. He says he has been taking Liberty Dollars for about one and a half years, because he wants “to try and eliminate the IRS.”

He tells several stories of his run-ins with the IRS, including one that details why they owe him $23,000 that he intends to get back. Jesse has various epithets for the IRS, including “scumbags,” “ruthless,” “evil,” and “the devil in disguise.”

Out in the open garage bay, a family of four shows up and asks Jesse for some coffee and hot chocolate. Jesse ushers them into a mini-mart attached to the garage. After the family leaves, I ask Jesse the price of a fountain Coke.

“Sixty cents,” he says. I hand him a Liberty Dollar. He gives me forty cents.

“We don’t collect sales tax,” he says, then goes back out into the shop.

Later, at the the sub shop, Shirley refuses to add state sales tax to the list price on a bag of chips. “Just a dollar,” she says. “A lot of people try to give me the five cents, but I don’t take it.”

 

The Economics Professor

Sitting in his cramped office at Indiana University-Purdue University Indianapolis, Associate Professor of Economics Steven H. Russell is a little bemused by the story of the Liberty Dollar. He has never heard of it before, and he is surprised that it is legal, particularly with regard to banking laws.

Although NORFED specifically addresses questions about legality from the point of view of the Secret Service and the Treasury Department, it doesn’t refer to banking regulations. In fact, the promotional video that Bernard von NotHaus distributes to Redemption Centers shows him holding a sign saying, “Be your own bank!”

Of course the Federal Reserve banks are privately owned, but they supposedly return most of the profit from loaning out Federal Reserve notes back to the U.S. Treasury Department.

Steven Russell is also surprised that American Liberty Currency is not “fully backed,” that is, that $10.00 in Federal Reserve notes buy only one ounce of silver, or less than $5.00 worth.

“That aspect of it shocks me. I would think that if you were serious about trying to create an alternative currency, and your philosophy was, well, we want to have a silver standard or a gold standard, you’d want to have a currency that was fully backed.”

Of course, NORFED is doing more than just putting a currency into circulation; they are also lobbying for the repeal of the Federal Reserve Act and the Internal Revenue Code. Is that the only way to get rid of the Federal Reserve System?

“The Federal Reserve System was created by Congress, so it’s not in the Constitution (the Federal Reserve Act of 1913), so if Congress ever got sufficiently upset at what the Federal Reserve was doing, they could change the Federal Reserve Act or they could even get rid of the Federal Reserve System.”

He acknowledges that with a currency system that is not on a gold standard, inflation rates can be arbitrarily set by the Federal Reserve System. If the inflation rate were to get up to, say, 20%, a commodity-backed alternative currency might become very popular. Until then, he thinks it will be restricted to those who are using it for ideological reasons.

That includes Clayton, who believes that he can change the system from the ground up.