[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
                    SOUND MONEY: PARALLEL CURRENCIES
                  AND THE ROADMAP TO MONETARY FREEDOM

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                        DOMESTIC MONETARY POLICY

                             AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             AUGUST 2, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-153


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
KEVIN McCARTHY, California           BRAD MILLER, North Carolina
STEVAN PEARCE, New Mexico            DAVID SCOTT, Georgia
BILL POSEY, Florida                  AL GREEN, Texas
MICHAEL G. FITZPATRICK,              EMANUEL CLEAVER, Missouri
    Pennsylvania                     GWEN MOORE, Wisconsin
LYNN A. WESTMORELAND, Georgia        KEITH ELLISON, Minnesota
BLAINE LUETKEMEYER, Missouri         ED PERLMUTTER, Colorado
BILL HUIZENGA, Michigan              JOE DONNELLY, Indiana
SEAN P. DUFFY, Wisconsin             ANDRE CARSON, Indiana
NAN A. S. HAYWORTH, New York         JAMES A. HIMES, Connecticut
JAMES B. RENACCI, Ohio               GARY C. PETERS, Michigan
ROBERT HURT, Virginia                JOHN C. CARNEY, Jr., Delaware
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO R. CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
FRANK C. GUINTA, New Hampshire

           James H. Clinger, Staff Director and Chief Counsel
        Subcommittee on Domestic Monetary Policy and Technology

                       RON PAUL, Texas, Chairman

WALTER B. JONES, North Carolina,     WM. LACY CLAY, Missouri, Ranking 
    Vice Chairman                        Member
FRANK D. LUCAS, Oklahoma             CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   GREGORY W. MEEKS, New York
BLAINE LUETKEMEYER, Missouri         AL GREEN, Texas
BILL HUIZENGA, Michigan              EMANUEL CLEAVER, Missouri
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
DAVID SCHWEIKERT, Arizona


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    August 2, 2012...............................................     1
Appendix:
    August 2, 2012...............................................    23

                               WITNESSES
                        Thursday, August 2, 2012

Ebeling, Richard M., Professor of Economics, Northwood University     5
Gray, Robert J., Executive Director, The American Open Currency 
  Standard.......................................................     7
Lewis, Nathan, Principal, Kiku Capital Management LLC............     3

                                APPENDIX

Prepared statements:
    Paul, Hon. Ron...............................................    24
    Ebeling, Richard M...........................................    26
    Gray, Robert J...............................................    41
    Lewis, Nathan................................................    50

              Additional Material Submitted for the Record

Paul, Hon. Ron:
    Written statement of Edwin Vieira, Jr........................    62


                    SOUND MONEY: PARALLEL CURRENCIES
                  AND THE ROADMAP TO MONETARY FREEDOM

                              ----------                              


                        Thursday, August 2, 2012

             U.S. House of Representatives,
                  Subcommittee on Domestic Monetary
                             Policy and Technology,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Ron Paul 
[chairman of the subcommittee] presiding.
    Members present: Representatives Paul, Luetkemeyer, 
Schweikert; and Green.
    Chairman Paul. This hearing will come to order. Without 
objection, all Members' opening statements will be made a part 
of the record.
    I also ask for unanimous consent to place in the record a 
letter with an attachment from Dr. Edwin Vieira, who could not 
appear on this panel today.
    Without objection, it is so ordered.
    I will now recognize myself for 5 minutes to make an 
opening statement. First, I want to welcome our panel today to 
discuss a very important issue dealing with monetary policy. We 
have had a series of hearings and discussions in this committee 
dealing with monetary policy, mostly directed around Federal 
Reserve policy and the Federal Reserve.
    Today, there will not be that much emphasis on the Federal 
Reserve itself, but rather on money: on money, the issue of 
what it means; what our history is like on money; whether we 
can have parallel currencies; and what the founders might have 
thought about parallel currencies.
    The world is in the midst of a crisis today, and many of us 
believe it is related to a deeply flawed monetary system, a 
deeply flawed understanding of what money should be, a 
rejection of the notion that money should have real value and 
that money originated in the marketplace rather than 
originating from a computer over at the Federal Reserve.
    And though today the general public, as well as the 
financial markets, have a difficult time wanting to accept that 
or even understand it, ultimately it is the nature of money 
that I believe we will have to come to grips with, and make a 
decision about. Because as we speak, they are meeting in Europe 
and the ECD's are deciding what to do and manipulating their 
money and credit, as well as we here in the United States.
    We in this country have been given some benefits, 
definitely, by being able to issue the reserve currency of the 
world. And because there is no definition to money, and because 
we can create money out of thin air, we have had some 
advantages.
    But the whole world is engulfed in this problem because of 
this lack of determination, a lack of desire to understand what 
money is all about. So today, we want to discuss that, and get 
the testimony from our witnesses to try to further understand 
the nature of money and credit, and whether it is necessary to 
have a precise definition.
    Also, really, we want to talk about parallel currencies, 
concurrencies circulate next to each other. And I think the 
answer is rather clear. They are doing it all the time 
internationally. Currencies are circulating all the time, and 
in the computer age, they adjust their values rather quickly.
    But the question is, can we have parallel currencies within 
the United States? Would it be legal? Does it contradict the 
Constitution? What would the States' role be in this? And what 
can they do? Under these circumstances, it does raise a lot of 
questions, because it raises tax questions and the authorities 
on how they are going to respond and what one can do with 
currencies without having the wrath of Big Brother and Big 
Government coming down on us, and saying, ``No, you can't do 
that.''
    But today, we have an absolute monopoly control over money 
and credit. They are managing a money that they can't even 
define. And then they wonder why we have chaos in the 
marketplace. I see a time coming where there will be a response 
to the problems that we have, a response that I will endorse. 
And that is for monetary reform.
    But it won't happen because of our hearing today. I know we 
are going to have a great hearing and great testimony, and 
there will be lots of words of wisdom. But we are not going to 
walk away and all of a sudden the world is going to say, ``You 
know, that makes a lot of sense. We have to deal with this.''
    The one thing that I am convinced of with the current 
system that we have, because we don't deal with the issue of 
money, is the financial system worldwide is going to get a lot 
worse, because they are not admitting the truth of what is 
happening. Because the system that we have, we have had for so 
many years and so many decades that it has encouraged a system 
of horrendous debt.
    And not only are many of our companies and banks and States 
and countries insolvent, they wonder why we have a problem. But 
if they don't admit to it, and think that, well, the solution 
is just creating more money. So that is an overwhelming task 
for that reform.
    But in the meantime, is there anything that we can do to 
emphasize and to promote the interests of, and the 
understanding of what sound money would be by just permitting 
parallel currencies? Why can't we have the freedom to do this? 
We claim we live in a free country and a free society, but are 
we allowed to have parallel currencies, are we allowed to have 
competition, are we allowed to have something in addition to a 
cartel and a monopoly that has controlled money and credit and 
has created a worldwide monster for which they have no answers?
    That is the reason I think this is a very, very important 
subject. And once again, I want to welcome our panel. I would 
like to know now if any other Members have an opening 
statement. No? Okay, thank you.
    I will now introduce our guest speakers and the members of 
the panel. Our first guest, Mr. Nathan Lewis, is the principal 
of Kiku Capital Management, a private investment firm, and 
author of ``Gold: the Once and Future Money,'' which is now 
published in five languages.
    His writings can be found in the Financial Times, Forbes, 
and Dow Jones Newswires, among others. He has appeared on 
television networks, including Bloomberg TV and CNBC, and has 
been featured in several television documentaries.
    Dr. Richard Ebeling is a professor of economics at 
Northwood University in Midland, Michigan. He is recognized as 
one of the leading members of the Austrian School of Economics. 
He is the former president of the Foundation for Economic 
Education, and author of ``Political Economy, Public Policy, 
and Monetary Economics.'' Dr. Ebeling earned his Ph.D. in 
economics from Middlesex University in London.
    Mr. Robert Gray is founder and executive director of the 
American Open Currency Standard. He is responsible for the 
creation and successful implementation of more than 150 
circulating community currencies and silver-, gold- and copper-
based token fundraising programs.
    Mr. Gray helped issue the official currency of the free and 
independent Lakota Indian Nation, and also founded the Mulligan 
Mint, a full-service mint in Dallas, Texas.
    Without objection, your written statements will be made a 
part of the record, and you will now be recognized for a 5-
minute summary of your testimony.
    I now recognize Mr. Lewis.

 STATEMENT OF NATHAN LEWIS, PRINCIPAL, KIKU CAPITAL MANAGEMENT 
                              LLC

    Mr. Lewis. Thank you. The phrase ``parallel currencies'' 
tends to sound rather novel and experimental to us today, 
living in the United States. However, most people in the world 
are using parallel currencies today. U.S. dollars or euros are 
accepted in trade in goods and services.
    In many countries that suffer from low-quality domestic 
currencies, the largest corporations finance themselves with 
dollar-denominated debt. The governments of such countries 
themselves issue dollar-denominated government bonds. By the 
end of World War II, the U.S. dollar, which had been considered 
an emerging market currency in 1900, had proved to be the most 
reliable currency in the world.
    In practical terms, this meant that the U.S. dollar 
remained on a gold standard system while once-prominent 
European currencies were devalued and political situations 
became unstable. The dollar thus became the parallel currency 
of choice worldwide.
    In 1971, the United States abandoned its then-nearly two-
century-old commitment to the gold standard system. At this 
point, historically, currencies were often discarded for 
whatever the highest quality, most reliable alternative was 
which, in practice, meant a gold standard currency from a large 
developed country.
    Despite the U.S.'s poor currency management since 1971, the 
alternatives have been even worse. This why the U.S. dollar 
remains the most popular currency in the world, and serves as a 
parallel currency in many, if not most, countries today.
    Today, there are no particularly onerous barriers against 
using a parallel currency in the United States. People are free 
to do business in euros or Russian rubles if they so choose. 
There are over 150 currencies in the world, all of which could 
conceivably be used as parallel currencies within the United 
States or other countries.
    However, all of them are floating fiat currencies generally 
of lower quality than the U.S. dollar or euro. There is hardly 
any reason to introduce another. Plus, the most meaningful new 
parallel currency to be introduced in the United States or in 
another country would be one based on gold.
    Although the use of other countries' national currencies is 
largely accepted in the United States, the issuance of 
alternative currencies within the United States can run afoul 
of what are collectively known as ``legal tender laws,'' both 
de jure and de facto. The one person who attempted to issue a 
gold- and silver-based parallel currency in the United States 
was arrested in 2009 and convicted of charges related to 
counterfeiting and declared to be a domestic terrorist.
    Gold, today, is regarded as a collectible, and subject to a 
different system of taxation than if one were to do a similar 
transaction using foreign currency such as euros or Canadian 
dollars. In addition, purchases or sales of small quantities of 
gold are subject to sales taxes in many States.
    Thus, in practice, the U.S. Federal Government makes a 
powerful effort to suppress the introduction and use of 
alternative gold- and silver-based currencies today. This state 
of affairs has become intolerable to many. In 2011, the State 
of Utah declared that it would consider U.S. Mint gold and 
silver coins and monetary instruments based on these coins to 
be legal as currency.
    This included the removal of all State-level taxes on 
transactions in gold and silver bullion. Twelve other State 
legislatures have had similar bills proposed. The Utah example 
could serve as a template for similar Federal-level legislation 
to legalize gold- and silver-based currencies within the United 
States. According to a study of 775 floating currencies by Mike 
Hewitt, no floating fiat currency has ever maintained its 
value.
    The average life expectancy of a floating fiat currency was 
found to be 27 years. The U.S. dollar, which has been a 
floating fiat currency for 41 years now, is thus an unusual 
example of longevity. However, today's extreme reliance upon 
easy money approaches to deal with economic problems, with the 
Federal Reserve promising unprecedented zero percent policy 
rates for years, and real interest rates deeply negative, 
suggests to many that the floating fiat dollar does not have a 
long or successful future.
    Governments of China, Russia, Malaysia, Switzerland, the 
Gulf States, and others have complained about the potential 
consequences of today's aggressive easy money techniques not 
only at the Federal Reserve, but also the European Central 
Bank, the Bank of England, and the Bank of Japan, and have made 
preliminary steps toward a future alternative, including 
discussions of new gold-based parallel currencies.
    On the international scale, the parallel gold-based 
currency, or many such currencies, would help ease this 
transition and form the basis of a new monetary order if that 
should become necessary. Each individual would be free to make 
increasing use of the gold-based alternative as it best suited 
their interests.
    It would be no great day of transition, but a smooth, 
extended process, perhaps over years. The existence of a high-
quality alternative could help people avoid much of the 
potentially disastrous consequences if today's floating fiat 
currencies meet the same end as the 599 floating currencies 
that no longer exist.
    Thank you.
    [The prepared statement of Mr. Lewis can be found on page 
50 of the appendix.]
    Chairman Paul. I thank you.
    And now, we will go to Dr. Ebeling.

   STATEMENT OF RICHARD M. EBELING, PROFESSOR OF ECONOMICS, 
                      NORTHWOOD UNIVERSITY

    Mr. Ebeling. Chairman Paul, and members of the 
subcommittee, I would like to thank you for this opportunity to 
share some ideas on this important theme of sound money, 
parallel currencies, and the roadmap to monetary freedom.
    To discuss a possible roadmap to monitor a freedom in the 
United States requires us to first determine what may be viewed 
as sound or unsound money. Through most of the first 150 years 
of U.S. history, sound money was considered to be the one based 
on a commodity standard, most frequently gold or silver.
    In contrast, the history of paper, or fiat, monies were 
seen as an account of abuse, mismanagement, and financial 
disaster, and therefore were viewed as unsound monies. The 
histories of our own American Continental notes during the 
Revolution, the assignat during the French Revolution, and the 
greenbacks and the Confederate notes during the American Civil 
War all warned of the dangers of unrestricted and discretionary 
government power over the monetary printing press.
    That result was that in the second half of the 19th 
Century, all of the major countries of the world moved towards 
a monetary standard based upon a commodity, in this case, gold.
    The important matter to be emphasized--that while it 
assured a degree of monetary stability while governments 
basically followed the rules of the gold standard--that is, a 
fixed ratio was established between a unit of gold and the 
amount of notes or account deposits that were extended after a 
deposit was made; the ability to redeem them at that fixed 
rate; the monetary authority of the central banks at that time 
basically following the rules of the road of limiting the 
amount of notes or accounts open to the amount of gold that had 
been deposited, withdrawing notes and accounts when gold was 
withdrawn, the fact remains that it still was a system of 
government-managed money.
    And once the ideologies and philosophies of the time 
changed and the shift was to a more activist government policy 
in the 20th Century of government targeting price levels, 
government attempting to influence and manipulate output and 
employment or inflation targets and so on, the reins of ability 
to manipulate the monetary system were already in the hands of 
the authority given responsibility for money and credit in the 
economy.
    That raises the entire issue as to whether it is desirable 
to have government managing a monetary and banking system at 
all. The free market case for competition in general and, 
therefore, a similar case in the case of money is the fact that 
competition in a market does at least two essential things.
    First, it decentralizes the impact of errors. If a 
businessman makes a mistake in his entrepreneurial judgments, 
it may have a negative effect on himself, some of his 
employees, or a few suppliers of the good that he produces. But 
it is decentralized. It does not affect the entire economy. 
When a central bank makes a mistake, its impact is potentially 
on the entire economy as a whole, since the monetary authority 
influences interest rates in general, affects the supply of 
money in the economy in general, distorts relative prices, and 
impacts the general rate of inflation in the economy as a 
whole.
    Second, it is only through competition that we discover 
innovative and creative ways to give people the things that 
they want. And this, market advocates have argued, is no less 
true in the case of money. If government did not monopolize the 
control of money, individuals in the market would determine 
what commodities such as gold and silver they choose to use as 
media of exchange.
    What type of financial intermediation and forms of 
financial intermediation they found most advantageous and 
profitable to use. And a diversity of such forms--as banks 
offered different features, issuing their own notes based upon 
commodity money deposits--and therefore acting as a check and a 
balance on each other to give consumers what they wanted while 
restraining their ability to abuse their particular individual 
authorities.
    So how would one move towards such a system of free banking 
and competitive choice in currency? I would like to suggest the 
following steps.
    First, the repeal of the Federal Reserve Act of 1913 and 
all complementary and related legislation giving the Federal 
Government authority and control over the monetary and banking 
system.
    Second, the repeal of the legal tender laws, giving the 
government the power to specify the medium of exchange through 
which people will transact and enter into contract.
    Third, repeal all restrictions and regulations on the free 
entry into banking business and the practice of interstate 
banking.
    Fourth, repeal all restrictions on the right of private 
banks to issue their own bank notes and to open accounts 
denominated in foreign currencies or in weights of gold and 
silver.
    Fifth, repeal all Federal and State government rules, laws, 
and regulations concerning bank reserve requirements, interest 
rates, and capital requirements.
    And sixth, abolish the Federal Deposit Insurance 
Corporation. Any deposit insurance arrangements and agreements 
between banks and their customers and between associations of 
banks should be private, voluntary, and market-based. In the 
absence of government regulation of this type, we would 
naturally move towards a system of competitive currencies and 
free banking.
    Thank you.
    [The prepared statement of Dr. Ebeling can be found on page 
26 of the appendix.]
    Chairman Paul. I thank the gentleman.
    And now, we will go to Mr. Gray.

 STATEMENT OF ROBERT J. GRAY, EXECUTIVE DIRECTOR, THE AMERICAN 
                     OPEN CURRENCY STANDARD

    Mr. Gray. Thank you, Mr. Chairman, and members of the 
subcommittee. My name is Rob Gray, and I was asked to testify 
today on the theory of competing currencies and the practical 
challenges that make such a theory difficult or impossible to 
implement.
    For nearly 5 years now, I have successfully directed the 
American Open Currency Standard, the standard for private 
voluntary silver, copper, and gold currencies that compete with 
each other, not against the U.S. dollar. Allow me to clarify. 
We do not consider AOCS-approved medallions produced and traded 
in our private barter marketplace competition at all to the 
U.S. Federal Reserve note.
    Because fair competition, as one would find in the free 
market, assumes the existence of a level playing field, 
existence of a standard set of rules. Those players who wish to 
compete honestly do so by simply relying on the merit of the 
value that they bring to the market.
    Well, no fair challenge can be made between honest men and 
thieves. Now let me be clear that when I say, ``thieves,'' I 
refer directly to the current private central bank and the men 
in government who allow it to exist. It brings us to a critical 
point. According to your employee handbook, article one, 
section eight says that Congress shall have the power to coin 
money and regulate the value thereof.
    I would argue that since 1913, Congress has failed to do 
the job with which it has been tasked. In the free market, 
since our inception, the Open Currency Standard has enjoyed 
nearly 5 years of growth and success, and our mission of 
issuing a means that allows valuable exchanges among those who 
produce.
    In the next 5 years, we expect to expand our offerings and 
to increase our ability to keep up with the demand for our 
private currency. We are doing the job today that Congress 
would not. But back to theory. The use of community currencies 
here in the United States became popular back in the early 
1930s.
    At the time, the theory was that a group of the world's 
most powerful men were intentionally and systematically 
removing currency from circulation, creating artificial 
scarcity of money across the country. Small cities and towns 
felt it worse than anyone, but life did go on.
    Then, during the greatest economic depression the country 
had ever seen, individuals across the country developed their 
own mediums of exchange. They still needed things like food, 
clothing, and daily essentials; they still needed to live. And 
they didn't have time to sit around and wait for the government 
to fix the problem.
    And so, according to historical records, thousands of 
community currencies were created, circulated, and traded in 
places where the scarcity of dollars was interfering with 
humans' desire to live. Individuals took it upon themselves 
back then to secure the means for their own survival and 
potential prosperity.
    More recently, community currencies have sprung up across 
Europe, as the euro and other national currencies become 
increasingly unavailable and undependable. Today, communities 
all across the eurozone trade their own money instead of the 
euro. Community currencies today are not simply a good idea in 
theory.
    Right now, alternative and complementary currencies 
circulate widely across the country in many different forms. 
Ithaca, New York, has Ithaca Hours that are loosely based on 
the value of time. Berkshire, Massachusetts, uses a fiat-backed 
fiat system. And many more communities circulate gold, silver, 
and copper AOCS-approved barter tokens as a medium of exchange.
    As for the practical challenges in the issuance and 
circulation of complementary currencies, there are plenty. In a 
voluntary system, those that participate in the trading of 
private currencies must deal with the possibility of 
counterfeiting, fraud, scarcity, acceptance, accounting, 
storage, and other issues, all without the luxury of Big 
Brother holding a gun to anyone's head to ensure their success.
    But even with all these risks, the market still moves on. 
As in any free market, good ideas circulate with success and 
bad ones eventually fade away. Participants voluntarily choose 
to accept and circulate the highest quality currencies in 
exchange for their best production.
    Merchants accept complementary currencies based on the 
premise that someone else is willing to do the same thing 
later. Issues arise and are worked out by the market with only 
one light to guide them--the mutual exchange of value. No guns, 
no laws, nor force, just the willingness to think outside the 
box and act on principle.
    Complimentary currencies are not new, in theory or in 
practice. Private currencies circulated long before governments 
erected themselves to interfere. But what is new, however, is 
the public's apathy towards the government and the Federal 
Reserve, and their policies. You have managed somehow for the 
last 100 years to convince the citizens of this country that 
you are relevant.
    But now, just recently, we are beginning to see the tides 
change on this. And once it catches on, you will be rendered 
completely obsolete. The greatest hurdle you will face over the 
next 100 years is trying to convince We the People that you are 
still necessary in spite of your failure to get the job done.
    Sure, some will rely on your for handouts. That is what 
they have always known their entire lives, and they will be 
slaves right up to the point of their own destruction. But they 
don't know any better, and I don't blame them for their 
ignorance. In the future, you will not have to worry about 
Million Man Marches or citizen journalists trying to catch you 
on camera.
    What you need to fear is no one paying attention to you. 
The next American revolution will be fought not with bullets 
and bombs, but instead it will be won with the opposite 
consciousness. To that end, I am here today to propose a 
solution. My understanding of this committee is that you want 
to be part of the solution.
    You want to believe that you are doing something good for 
the country. And so today, the greatest gift that you can offer 
to the people that you clearly represent--not to the 
legislature, but directly to the public--is what I call ``IR-
1207,'' Individual Resolution 1207, commonly referred to as 
``Ignore the Fed.''
    Store your wealth in silver, bank with non-fractional banks 
that pay real money on deposits, use the card service network 
to satisfy dollar obligations, do not try to compete with the 
Federal Reserve system; simply ignore them.
    I ask you to leave the Fed their Federal Reserve notes and 
leave us our gold, silver, and copper. Do not push to redefine 
whatever representations we choose for our wealth. Let the Fed 
do what it wants with their legal tender, so long as they leave 
our money alone. I warn you, honest money legislation is a wolf 
in sheep's clothing.
    The greatest thing this body can do is exactly what it has 
done so far: absolutely nothing. All I ask is that you stay out 
of the market's way. The people in our world are very happy to 
go right along saving you from your own destruction by 
producing value against all odds, regulations, codes, and 
challenges that you throw our way, but leave our money alone.
    It doesn't belong to you, and it never will. The bottom 
line is very simple. Humanity is not going to wait for 
permission to survive. Things that cannot go on forever simply 
won't. The market will move on with or without you. And based 
on your rate of success to date, our preference is certainly 
without you.
    Thank you for the time.
    [The prepared statement of Mr. Gray can be found on page 41 
of the appendix.]
    Chairman Paul. Thank you. I will now yield myself 5 minutes 
for questioning.
    First off, I would like to talk about the legal tender laws 
a little bit more. I want to pose a question for all three of 
you. It was mentioned in your testimony about how important 
legal tender laws are and whether or not we can ignore them.
    How important are the legal tender laws, and how important 
is it that we get rid of the legal tender laws if we really 
want to have a parallel currency and be assured that we can do 
it? Can we ignore it? Should we work to repeal it? How far can 
you go without dealing with this issue?
    Because it does provide the monopoly that will not go away 
easily. So if each one of you could expand your thoughts on the 
importance of legal tender laws and what we should try to do, 
and is it absolutely necessary that we do something before we 
can advance the cause of competition or parallel currencies?
    Mr. Lewis?
    Mr. Lewis. Although I think that some communities are using 
small-scale metallic currencies, more or less under the radar, 
if a large corporation--let us take Ford Motors, for example--
would begin to do business in gold and silver coins or related 
currencies, they would immediately come under Federal scrutiny 
and basically be prevented from doing so.
    What I would like to see is basically for gold and silver, 
and currencies based on gold and silver, to be treated as legal 
currency within the United States. In practice, this will 
require a declaration of some sort to make it effective. And 
ultimately, at the very least, to be able to treat gold and 
silver the same way we treat euros or Canadian dollars today.
    We can all do business in them in the United States, even 
though they are not necessarily declared as legal tender, and 
so on and so forth. It would be better to have a more official 
declaration to say, yes, we accept gold and silver as a 
legitimate means of monetary transaction and a legitimate 
foundation for business.
    Chairman Paul. Thank you.
    Dr. Ebeling?
    Mr. Ebeling. Yes. Anyone who has traveled in a country that 
has been experiencing severe, or even hyperinflation knows that 
in spite of official legal tender laws--that is, the government 
declaring a certain money or its currency the lawful money--
people start using alternative currencies that they view, given 
their circumstances, as having more confidence in shorter 
certain value.
    So in spite of laws and regulations, at the end of the day 
what people will choose to use as money, even when it breaks 
the law, they will follow what they view as most effective and 
self-interested for themselves in the marketplace to secure 
their wealth and their transaction opportunities for themselves 
and their families.
    But the fact remains that while the market, in a sense, 
finally supersedes and no longer recognizes government laws 
when it becomes serious enough, it is crucially important if we 
could eliminate the legal tender restrictions in the United 
States. Because basically, it would say that now individuals--
and the law, the government, the courts--will respect the 
contracting and the exchanging of any form of medium of 
exchange that the individual citizens of the society choose to 
use.
    That would go a long way. For example, a well-known Nobel 
Laureate, Austrian economist Friedrich Hayek, once made the 
case for what he called ``choice in currency.'' He was doing 
this before the euro in the context of Europe. But he said one 
way to tame the inflationary tendencies of government is to 
allow citizens within their own country just to use the 
currencies of other countries within their domestic exchanges 
if they choose.
    To be able to say I don't trust, and have confidence in, 
the monetary authority to restrain itself in issuing excessive 
quantities of that money. Also, if you eliminated the legal 
tender laws, then the people themselves would decide do we want 
to use dollars, do we want to use alternative to dollars, how 
much do we want to use notes, how much do we want to use, 
actually, coins of various sorts?
    And it would be basically saying consumer sovereignty, 
consumer choice. But if we could do that, that would be the 
essential roadway, and path, to restoring a system of monetary 
freedom. But if, in the United States, we were to ever 
experience--and, of course, we hope we never do--a serious and 
hyperinflation, the market would basically tell the government 
what it thinks of its money because people will choose to use 
alternative currencies of choice.
    Chairman Paul. Thank you.
    Mr. Gray?
    Mr. Gray. Mr. Chairman, before addressing or issuing the 
answer to that question, can you please summarize for me your 
understanding of the legal tender laws as they exist today?
    Chairman Paul. Not at this moment. I would like you to 
answer the question first.
    Mr. Gray. My answer is, very simply, leave them alone. My 
understanding of the legal tender laws is that the U.S. dollar, 
the Federal Reserve note, can be used to satisfy debt 
obligations. We don't need to change that at all. There is no 
law that restricts us from privately minting coinage--tokens, 
medallions as we refer to them.
    There is no law that restricts us from engaging in private 
barter transactions with other men. And so, we don't need to 
change anything about the legal tender laws in order to do 
exactly what we are doing right now.
    Chairman Paul. Okay.
    I now yield 5 minutes to Mr. Luetkemeyer from Missouri.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    As you talk about the different parallel currencies, I 
think we have a parallel currency situation over in Europe 
right now that is pretty obvious. How is the euro working over 
there, in your judgment, all three of you?
    Mr. Ebeling. I will begin by saying I think it is an 
unmitigated disaster. The fact is, this was not a choice by the 
people either making their demonstrated choice in market 
exchanges or even in a political vote or a referendum. This was 
basically imposed upon many of the E.U. countries as a 
discretionary choice of the politicians.
    Some of the more prominent countries wanted to have a 
unified currency so as to be able to have the political clout 
to look down the dollar in the eye, to be explicit. That is my 
view of why the French were pushing it. The result is that this 
currency has been imposed upon systems that follow different 
regulatory paths, different fiscal paths in terms of debt and 
deficits, all of which has created this problem.
    A lot of people in Europe are saying, ``Oh, it would be 
disastrous if the Greeks pulled out and reestablished the 
drachma,'' for example, or ``the Spaniards were to reestablish 
a peso,'' for instance. I think that would be the path to 
denationalize, or rather deinternationalize this monetary 
system because it is not working.
    And it is dependent upon a central bank in one location to 
make the monetary choices and decisions for all of the hundreds 
of millions of people who participate in this system, rather 
than allowing even the competition of the national central 
banks, as had existed before. Because if you felt that the lira 
was being inflated, people escaped into marks.
    That was the pattern in the post-war period. Where does an 
Italian escape to now as easily as into the market as was 
historically the case? So even in terms of competitive national 
currencies, the unification under the euro has been a disaster, 
and certainly for the freedom of the people there.
    Mr. Luetkemeyer. Mr. Lewis?
    Mr. Lewis. I would generally agree with Dr. Ebeling. I 
don't think the euro is a case of a parallel currency so much 
as a shared monopoly currency. With parallel currency, the idea 
is having the choice of two highly viable alternatives. For 
example, the euros, maybe, in Turkey, where the Turkish lira 
has a rather poor history, often people use Deutsch Marks in 
the past and now use the euro.
    So I think that is probably a bad example of a parallel 
currency. Thank you.
    Mr. Luetkemeyer. Mr. Gray?
    Mr. Gray. I think the key thing to consider with what is 
going on right now in Europe, besides the fact that there is 
just no confidence whatsoever in the banking system is that 
still, in our country here today, we do have confidence in our 
currency, we do have confidence, for the most part, in the 
banking system, for whatever reason.
    And that is very different over in Europe right now. As 
soon as money shows up and the banks are unfrozen, the people 
make a run on the bank. They pull out as much currency as they 
can, they turn it into anything they can get their hands on 
that is valuable; whether that is another currency, or hard 
goods, or gold and silver.
    It is the same thing that we are seeing now that we saw in 
hyperinflation just before World War II, where the race was on 
to get rid of the currency as quickly as possible. The 
advantage we have right now is that we don't have that yet in 
our country. And I think the opportunity that lies before us is 
to help the people of this country get out of that system, 
deleverage the system, so that they don't have to experience 
the panics and the fear that are being experienced right now in 
Europe today.
    Mr. Luetkemeyer. You had a key word there that really 
describes all monetary systems and, basically, even economics. 
And that is ``confidence.'' If people don't have confidence 
that the money that they are exchanging for goods is worth that 
amount of money, or whatever it is, there is very little 
transaction that takes place.
    And so really, even at the highest levels of the biggest 
banks, we found in 2008 that it wasn't necessarily the entity 
that they were dealing with. It was the confidence in that 
entity to be able to transact business.
    And so basically, you have a fall-back on confidence, which 
leads me to the question with regards to what we are talking 
about this morning, sound money and parallel money. If you work 
in a different monetary system parallel to another one, where 
is the level of confidence going to come from that allows that 
business to be transacted in a parallel currency?
    Mr. Gray. The simple answer to that question is the 
confidence comes from the fact that the currency is not based 
on debt. Every national fiat currency is put into circulation 
through loans and debt.
    And so people today are starting to understand that there 
is so much money out there that people owe in loans, mortgages, 
credit card bills, all these derivatives out there--trillions 
and trillions of dollars--and all that money has to be paid 
back eventually.
    That is where the lack of confidence comes from. And so 
when you start thinking and talking about alternative 
currencies, especially those that are issued in gold, silver, 
copper, and something real, some sort of commodity, people who 
understand the concept begin to realize that those are debt-
free currencies that don't need to be paid back at some point 
to some bank.
    Think about all the money that the people of America owe to 
the banks. Think about all the people who are in debt, all the 
States and the municipalities, the colleges, universities. 
Everyone is in debt. The real question is, who owns the other 
side of that debt?
    And that is where the lack of confidence comes from. The 
fact that people are starting to ask that question, and realize 
that there is really no money out there to begin with.
    Mr. Luetkemeyer. I see my time is up.
    Thank you, Mr. Chairman.
    Chairman Paul. Thank you.
    If the gentleman from Arizona is ready, he could be 
recognized. If not, we can wait a couple of minutes. Are you 
ready? Okay, thank you. I will go on and have a second round of 
questions.
    The question of taxation comes up with money, as well, 
because we think money is a commodity. And our government tends 
to think that any time you have a commodity transaction, you 
pay taxes on it. You have sales taxes and you have capital 
gains taxes. And that, I think, curtails this development of 
parallel currencies.
    And I don't know how we could ignore this if we really want 
to promote some competition or allowing another currency. 
Because if you tax one currency but not another one, it is 
hardly a parallel currency. It is at a tremendous disadvantage.
    So if a parallel currency really got off the ground, 
because of the conditions or the people became knowledgeable 
and they thought it was wise to do it, the people in Washington 
don't like to have their powers undermined. So they have the 
power of the IRS.
    Isn't this a significant concern, or do you think we can 
just sort of bypass it, and say, ``Well, it's a problem, but 
not a big problem. We will just go do our thing, and it can 
work.'' What is your opinion about the tax issue when it comes 
to a parallel currency, all three of you?
    Mr. Lewis. I think there are--just as you can have under-
the-table transactions in U.S. dollars, small-scale that maybe 
you don't report to the IRS, you can also do so. And maybe 
people are doing so with gold and silver coins or copper coins 
today. But as soon as you get the business of any scale, you 
can't break the laws that easily.
    I think that ultimately, just as you say, we have taxes 
that apply to transactions in dollars, capital gains taxes, for 
example. We have taxes that apply to transactions in euros and 
Canadian dollars and many other currencies. We have many 
thousands of corporations doing business in many currencies 
worldwide.
    I think we should recognize that because gold and silver 
and related instruments are not recognized as currencies, they 
are under a different system of taxation. Gold, for example, 
has a different tax rate because it is a collectible. But I 
think more importantly, let's just take a very simple 
transaction. I wanted to buy a car from the Ford Motor Company, 
I wanted to pay them in gold coins, U.S. Mint American Eagles 
produced by the government.
    When I give the gold coin to the auto dealer, that would be 
considered basically a sale of the coin and you would have to 
pay capital gains tax, taxes on what the dollar value of the 
coin was when you acquired it and when you dis-acquired and so 
on and so forth. Which is very different than if I were to, for 
some reason, do the same transaction in euros where that would 
not apply.
    So I think that at the very minimum, we should endeavor to 
treat these the way we would treat other national currencies 
today, which we are actually doing business in. Not so much in 
the United States, but what American citizens, the American 
corporations are doing every day and accountants are very 
familiar with how this works.
    So I think that there is definitely something for the 
Federal Government to do there to legitimize that and treat it 
as the same way we treat other national currencies today.
    Thank you.
    Mr. Ebeling. Yes, I would argue that the parallel way of 
thinking about this is, in international trade, what we call 
the most favored nation clause. Any agreement that you reached 
with country X, you give the same best-favor treatment with 
import duties and so on to all other countries with which you 
trade.
    The parallel argument would be that the government should 
recognize that anything that people use as a medium of exchange 
in transactions should be viewed as anything that they have 
historically viewed as a transaction. Basically, that there 
shouldn't be these extra taxes. That was just pointed out.
    So that if people are now using gold and silver coins, the 
transaction should be more taxed or treated in a different way 
than any transaction with the Federal Reserve's own note. That 
gives a level playing field with neither an advantage nor 
disadvantage for the use of one currency versus the other.
    Because otherwise, the government creates stumbling blocks 
and hurdles to give people those fair and level playing field 
choices. So the parallel should be some taxing of media of 
exchange along this notion of the most favored nation clause.
    Chairman Paul. Mr. Gray?
    Mr. Gray. First of all, Mr. Chairman, I want to clarify 
that we are not tax experts and we are not allowed to give tax 
advice, nor do we give tax advice to anyone who participates in 
our system. Our job is, very simply, to issue the currency and 
make sure we guarantee the weight and the purity. So we are 
just keeping an eye on what is going out there.
    But tax applications vary from State to State, municipality 
to municipality. Some States, some cities and towns, allow you 
to barter. They say, well, you can do 100 barter transactions 
per month or per year, and they don't look at is as being under 
the table or underhanded. They look at it as just being private 
trade that is not a taxable event.
    Certainly, my understanding is that the Federal Government 
would like us to report the profit or gain from any 
transaction. That is kind of strange because in a barter 
transaction, there is not really any profit or gain on either 
side of it. But in our voluntary system, we encourage the 
participants to explore and decide for themselves based on 
their own morals and values what their tax obligation is, and 
to report and to remit accordingly.
    Chairman Paul. Thank you.
    Now, I recognize Mr. Luetkemeyer from Missouri again.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Following up again on my comments earlier with regards to 
the confidence in the system and the ability to protect the 
citizens whenever you transact business like this, Dr. Ebeling, 
I think in your testimony you abolish the Federal Deposit 
Insurance Corporation. While you may not like it, that is also 
one of the things that adds confidence to the person who 
deposits money in the bank. To realize that if they deposit the 
money there, they are going to be able to get it back. Without 
that, the consumer is going to have to do an awful lot of work.
    And as you gentlemen have described this morning, parallel 
monetary systems--you are going to put a tremendous onus on the 
individual to make sure that they get value back for whatever 
they exchange their money for, and that that money will have 
value down the road so they will not lose value and business 
continue to be transacted in that same form.
    And so, I think one of the advantages of the system we have 
now is that it takes a lot of the work in trying to find ways 
for the money to be able to be secured and have confidence in 
away from the consumer. Am I wrong in that, or do you agree 
with that statement?
    Mr. Ebeling. I think that the problem with deposit 
insurance is that it creates a degree of confidence, but a 
false sense of security. The fact is, is that the impression is 
made that the bank is serving as a depository for your money 
and that it is always guaranteed to be gotten back.
    The fact is, you put money into a bank to earn interest. 
The bank can pay you interest only through one way, and that is 
extending it and pooling your savings with others to worthy 
borrowers. They pay interest for the loan, the bank receives 
that loan. They take what they view as their service charge for 
financial intermediation, and then you as the depositor receive 
your interest, whether it be a savings account or most forms of 
checking accounts which pay interest now.
    The fact is, you are putting your money at risk. You are 
lending it to others through the bank's good services. Federal 
Deposit Insurance has created this impression as if there is no 
risk with your money. And the fact is, I think the people would 
be more cautious and more attentive to the nature of the bank 
that they are doing business with, what the track record of the 
bank is in managing your funds, along with those of other 
depositors.
    And on that basis, seeing what private insurance or 
guarantees or other forms of assurances bank competitively 
would establish. We take for granted that when you go in and 
buy, for example, a microwave or an oven or a refrigerator, 
what if it doesn't work?
    Most large companies, for brand name reputation, give you 
various warranties and guarantees. And it is important for the 
company's success to stand by and guarantee that warranty and 
guarantee. Various banks, for competitive advantage, would 
offer various types of, perhaps, guarantees and warranties on 
deposits, but with the understanding that nothing is certain.
    In a money market mutual fund, you realize that the value 
of your account may go up or down depending upon the value of 
the portfolio of the company with which you are dealing. The 
fact is, that is the case of a bank, too.
    Mr. Luetkemeyer. You are mixing apples and oranges here. 
You are talking about an investment account, where you know 
that the money is going to be invested and it has the ability 
to go up and down, versus a deposit where you put the money in 
and you are going to write checks on that account.
    And I think the deposit insurance takes some of the risk 
away. Over the last 4 years, we as a society have been educated 
to the fact that banks manage risk. That is what they do. 
Before, people thought they just take deposits, make loans, and 
turn around and pay out dividends and interest and whatever.
    That is not what happens. They manage risk. And so, the 
deposit insurance actually minimizes the risk. It doesn't take 
it all away, but it minimizes it so that it gives some level of 
confidence to that investor. And I don't think you can sit 
there and say that somebody who invests in a money market 
account or some sort of investment account at the bank, that is 
a totally different relationship between the bank and the 
individual customer.
    I have some concerns about that.
    Mr. Ebeling. If I could just sort of follow up on that, the 
mistake is that people view their checking accounts--I have a 
checking account, as I know you have--you feel as if, well, I 
have deposited my paycheck and I can draw that money down by 
writing checks or using my debit card, etc.
    The fact is, that is not a warehouse deposit or like a 
safety deposit box. The fact is, under our current banking 
system that money is then taken--which you are viewing as 100 
percent accessible to you--and using it as part of their 
investment funds to lenders. It is at risk as much as a savings 
account is, where you know that during the period of like a 
time deposit your money is being lent out to a lender.
    The fact is, to a borrower, the same things applies with 
our checking accounts. People are given a false sense of 
security that this is not an investment account, when it is. It 
is as much of a risk as when you put your money in the bank and 
a savings account and you more consciously know the bank is 
using your money for a period of time with a risky loan.
    Checking accounts are, in fact, with our system no 
different. And if you didn't have deposit insurance, I would 
suggest that people would become more aware of it and be more 
cautious, informed and intelligent in what type of banking 
institution they did business with.
    I am talking about the long-run, institutional incentives 
of a system.
    Mr. Luetkemeyer. I see my time is up. Thank you, Mr. 
Chairman.
    Chairman Paul. Thank you.
    I now recognize the gentleman from Arizona, Mr. Schweikert.
    Mr. Schweikert. Thank you, Mr. Chairman. This may be a 
slightly more ethereal question, but I am trying to also 
understand how much of this is actually going on around us. And 
actually, also, if you have ever looked at the differential in 
high transaction cost jurisdictions: high sales tax; the barter 
economy; some of these things I now see on the Internet.
    What was one of them called? Something ``coin,'' where you 
can actually develop--what was it?
    Mr. Gray. Big Coin, I believe?
    Mr. Schweikert. Yes. And I think there are two or three 
versions of that, where, because of certain transactions or 
uses of Web sites or these things, you actually build accounts. 
How much of this is there already, even though in the scale it 
may be very small?
    Is there actually, in sort of the barterer of economy, of 
this Internet exchange of value that is out there? I remember 
there was an explosion of it in the early 1980s, very early 
1980s, when inflation--so I would trade something with my 
dentist for this. And even though inflation and other things, I 
knew I was getting a certain service for a certain service.
    What is out there today?
    Mr. Gray. It is pretty substantial. The first thing to take 
a look at is the gray and black economics of the world which, 
right now, are really the only segment of the global 
marketplace that is actually growing. A lot of that is done 
with barter, direct trade. Some of it is done with alternative 
community currency, some of it is done with gold and silver.
    So it is happening right now across the globe in a very big 
way. In the United States, there are probably 400 to 600 
different community currencies in circulation right now. The 
total value of the currency in circulation is probably 
somewhere between $1 billion and $5 billion, I would estimate.
    So it is small, but it is consistently growing.
    Mr. Schweikert. I don't think a lot of folks even 
understand. My little sister was part of a baby-sitting 
exchange. She puts in so many hours, and she gets so many hours 
over there. In many ways, that was a barter economy, and folks 
don't realize they were basically transacting value for value.
    What happens if we wake up tomorrow and a handful of our 
trading partners, competitors move to a basket or currencies? 
And so China and a couple other countries say, ``We are going 
to do this new blended currency.'' Does that actually now 
create a new method of exchange?
    I have been trying to figure out if that actually creates 
an additional value of exchange with which we would have to 
deal.
    Mr. Gray. I think on the macro level in the global economy, 
yes, it does. As far as the micro level and the baby-sitters 
and the pet groomers and people in small towns and cities 
across the country, I don't think they would notice that any 
more than they notice, and are affected by, the international 
currency problems we have right now.
    So I think, yes, globally sure.
    Mr. Schweikert. But where that more comes from, Mr. 
Chairman, and to whoever would like to answer this, I don't 
know how often you see this, but I used to see it in the old 
days. A contract would have a gold clause in it, particularly 
contracts that were coming out of the late 1970s, very early 
1980s when there was high inflation, saying, ``Hey, we are 
going to write the contract denominated in U.S. dollars, but 
there will be a gold peg on it so if somehow inflation might--
by the time we are going to do the take-down.''
    I am curious if we are seeing any more of that type of 
hedging. And that is actually what a blended commodity currency 
would do, also. I told you this was going to be a bit ethereal.
    Mr. Ebeling. I think what is sometimes being proposed, the 
Chinese and the Russians have talked about this instead of the 
dollar as an international currency for a lot of transactions. 
What this idea of a basket of commodities or series is, is to 
try to have an index of what currency A, let us say the U.S. 
dollar, is worth as sort of an index, or composite, of these 
other currencies to determine some value.
    But the fact is that what would still be traded is actually 
some currency A for currency B. But the market estimate of what 
currency A is worth in relation to currency B would be that the 
currency B would, in fact, have its value based upon some 
composite index. It is a way of determining the exchange ratio, 
not so much that you would be trading the basket of the 
currencies for this other good, or this other currency.
    Mr. Schweikert. And my fear is, often--and my good friend, 
Mr. Luetkemeyer, I think, that was also part of the dialogue of 
it--sometimes, it is not only you get back your dollar-for-
dollar invested, but what was the actual ultimate purchasing 
power of that dollar when you get it back.
    And I think that is actually a much more honest way to look 
at the value of a transaction.
    Mr. Ebeling. Right. And see, what happens--again, as I 
mentioned in an earlier question--is that if you have traveled 
in a country that is dealing with a severe or a hyperinflation, 
the uncertainty and instability of that nation's own currency 
has reached such a point that people no longer either use that 
currency, or they calculate its real value in another currency, 
whether it be, let us say, a dollar or an ounce of gold.
    And they say that based upon this other currency, that is 
what we are going to view as the value of my own currency in 
buying commodities.
    Mr. Schweikert. Mr. Chairman, I know I am way over time. 
But if you have done lots of traveling, particularly in the 
third world, you will often see, here is the price in the local 
and here is the price, as I had an experience in Myanmar. There 
was a price for green, which was U.S. currency.
    So thank you, Mr. Chairman.
    Chairman Paul. Thank you.
    We will be having a vote shortly, but I believe we have 
time for another round of questions. I have a question for Dr. 
Ebeling. And it is a more generalized and philosophic question. 
Under the system we have today, it is very unfair to one group, 
where another group, I think, benefits.
    And if you look at runaway inflation, it is not usually 
those who have been able to park their money overseas and 
escape the harm. Many times it is the average person who had 
savings in accounts and they lose everything. I think what we 
are dealing with on a monetary system is a reflection of a 
bigger philosophy.
    And that is the philosophy of government, big government, 
and why we spend so much money. And money is not so much a 
means of exchange, like it should be. It is the vehicle for 
taxation. Because we have big government for various reasons 
and there is never enough tax money. But there is also the 
printing press and there is the printing of money.
    Which is really a tax on the people, the middle class and 
the poor. Many people endorse that system because they have 
been convinced that the current system is helpful to the poor. 
We can have housing programs and we can provide welfare, and 
they really like the system. They don't want to give up on it.
    Now, we might agree that a sound monetary system would be 
more fair and it wouldn't be beneficial to the very, very 
wealthy and to the Wall Streets and the bankers. But what about 
if we got a little further along on parallel currencies?
    Do you see any way this could give a temporary reprieve, or 
would it once again been seen oh, this is just another gimmick 
to protect the rich, and the poor don't know anything about 
this, they can't use this currency, and it is really not a 
solution; it doesn't even address the subject of this inequity 
in the system that we have today.
    Do you have any thoughts on that at all?
    Mr. Ebeling. Yes, I think that is an important point. We 
can see the problem sort of magnified as one reads about it in 
the press, for example, is what has happened in Greece right 
now. The fact is, is that for years, decades, the Greek 
government promised more than it has turned out it can pay for, 
either with taxes or with continuing borrowing.
    That is one of the reasons some in Greece want to return to 
a drachma so they can just print the money that they need to 
cover the promises for which the real resources in the society 
are not available. It is the long run versus the short run.
    In the short run, if the government can tax, borrow or 
print money, it can create the illusion of generating wealth 
and benefits and special opportunities for various segments of 
the society. But in the longer run, the problem is that 
eventually the piper has to be paid. The tax money runs out.
    Or it can't borrow anymore, or it becomes very expensive, 
as the Spanish and the Italians are now finding, as well as the 
Greeks. Or they resort to printing money. But at the end of the 
day printing money dilutes the value of every unit of money in 
people's pockets. It destroys savings, it undermines the 
ability to undertake exchanges. It diminishes the ability for 
profit-making decision-making. And therefore, it is most 
devastating on the poor.
    The analogy is like the kid who goes to the circus and he 
eats too much cotton candy. And his Uncle Bob who took him 
said, ``Gee, I am sorry that you have a tummy ache, so to make 
you feel better here's more cotton candy.'' That is just 
exacerbating the problem. At the end of the day, the boy gets 
home and he has a big tummy ache.
    And that is what has to be emphasized, the illusion--
    Chairman Paul. Okay, I want to interrupt for a minute 
because I want to know about whether the parallel currencies 
affect this in any way, positively or negatively. Or does it 
help this inequity and this disadvantage over the kind of 
system we have today?
    Mr. Ebeling. Yes, I would argue that if people had a choice 
in currency--whether they be rich, middle-income or poor--they 
would have a way to park their income and wealth in an 
alternative medium of exchange, a unit of account, that they 
could have greater security of, that its value is more certain 
and more stable based upon their fears and expectations about 
the trend their own national currency is following.
    Chairman Paul. So there is even an advantage to 
incrementalism in moving in this direction if it is available 
to the people rather than saying, ``Well, we can't do a thing 
until we repeal the Federal Reserve Act,'' and that sort of 
thing.
    Mr. Ebeling. Absolutely.
    Chairman Paul. Okay, very good.
    Now, I want to go to Mr. Luetkemeyer, if he has another 
question.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    To follow up on that, how do you protect the citizen to 
make sure that they don't get slipped up on with going to 
alternative or parallel currencies? How do they have, how can 
they enable--we have a whole group of folks here this morning. 
How can each one of them know that if they want to transact 
business and each one of them a different currency, it is going 
to be something that they will be able to trade down the road?
    Mr. Lewis. This relates to your previous comment about 
confidence. In practice, it will be a process of some 
institution establishing a track record. And also the 
institution being sort of visibly considered to be a long-
term--
    Mr. Luetkemeyer. So in other words, whether it is a country 
or city or a state, whatever entity produces the currency there 
will have to be a certain level of confidence in that entity to 
be able to--
    Mr. Lewis. Right.
    Mr. Luetkemeyer. There would--
    Mr. Lewis. And it will have to be earned. You can't decree 
it. You can't have an advertising campaign. We are kind of 
talking about these very small kind of neighborhood currencies. 
And on a larger scale, that might be where we would begin.
    On a larger scale, it could be Citibank, it could be the 
State of Utah. I know some of my colleagues here would be 
appalled at the idea of the U.S. Federal Government issuing a 
parallel gold currency. But I think it is an interesting idea.
    Or it might be the state of Russia. In practice, the one 
that has the most confidence will be the one that people use. 
The reason that people used the U.S. dollar after World War II 
is because it had a long history, over 100 years, of sticking 
to the gold standard. It had a stable political system, it was 
militarily impervious.
    And that is why they used that instead of the currency of 
China or what have you. It will be, ultimately, a process of 
track record, and probably very large organizations will 
dominate.
    Mr. Luetkemeyer. Okay, Mr. Lewis, we have before us this 
morning your book. I was trying to read the cover and the back 
of it here, as well as the inside slips. Can you just briefly 
tell me how you would like to see us--or could be enabled to be 
able to move over to the gold standard? What are your thoughts 
on it?
    Mr. Lewis. Ideally, you would all have an epiphany and 
understand that this is the best system for all of us. However, 
in practice, one of the reasons we are here today, I think, is 
that typically, people have these epiphanies after a tremendous 
catastrophe. It happened many, many times in the past.
    Usually, things go all the way. You don't stop halfway and 
say, ``Oh, I think I know where this is going. Let us stop now 
and switch to a gold standard system.'' Usually, you end up in 
disaster. Whether it be China in 1949; the hyperinflation, 
Japan in 1949; hyperinflation, United States in 1784; 
hyperinflation, Germany 1923.
    Hyperinflation, you tend to end up with some kind of 
catastrophe beforehand. One of the nice things about the 
parallel currency idea is maybe you can avoid that process, 
that political cycle. You could establish something, even by 
the Federal Government or by very many means, and you could 
have the two options available.
    So when people simply decide to do business in one currency 
or another--say I am going to write the contract in U.S. gold 
dollars, not U.S. Bernanke bucks, they will start to buy and 
sell and do business in that way. And then over a period of a 
few years, perhaps, people will just naturally decide which 
system they like better, the Bernanke system or the gold 
system, and they can migrate and, eventually, have a very 
smooth, non-disruptive transition between one and the other, 
ideally.
    Mr. Luetkemeyer. But even in your system of moving over to 
the gold standard, there still has to be a level of confidence 
and that as the backup, as the standard, would it not?
    Mr. Lewis. You would have to have--ultimately every 
currency has an issuer. And ideally, that issuer will have a 
track record of managing the currency correctly. And will 
likely probably be, in my opinion, a large institution, maybe a 
national government, maybe a State government, maybe a--maybe a 
large bank, maybe some other large institution that emerges.
    We are simply not going to have the entire United States do 
business in a currency that is issued by something in--a little 
storefront in Miami or something of that sort when we get to 
that scale. So the institution will earn the confidence.
    Mr. Luetkemeyer. All right, thank you.
    Thank you, Mr. Chairman.
    Chairman Paul. I thank the gentleman.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for Members to submit written questions to these 
witnesses and to place their responses in the record.
    This hearing is now adjourned. I appreciate your appearance 
today. Thank you very much.
    [Whereupon, at 11:08 a.m., the hearing was adjourned.]


                            A P P E N D I X



                             August 2, 2012


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