Mad Money: With Right-Wing Fears Rising over the Federal Reserve's Monetary Policy, Republican State Legislators Want to Create Their Own Currencies

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In January 2011, the advocacy group Utah Sound Money released a 30-second ad designed to stir up support for a new bill in the state legislature. "The almighty dollar's not looking so almighty these days," the announcer intones as storm clouds fill the screen. "The feds have us tap-dancing at the edge of financial ruin." A small map of the U.S. totters along a rising red graph of debt. Suddenly, blue skies open as a giant gold coin floats down, using the Constitution as a parachute. "Restoring an inflation-proof, sound-money option offers a time-tested option," the announcer concludes over the laughter of children at play. Viewers are then urged to support the Utah Sound Money Act.

Sponsored by Representative Brad Galvez, a Republican, the bill would make gold and silver coins from the U.S. Mint legal tender in the state. Although no businesses or individuals are compelled to use them, Galvez's bill requires the state to accept the coins for tax payments or any government fees. Galvez says he was motivated by a fear that the nation's mounting debt could lead to a loss of faith in the dollar, resulting in hyperinflation and possibly a currency collapse. He wanted to protect Utah, he says, from this calamity by creating an alternative to "flat" currency, under which the dollar is backed by the "faith and credit" of the U.S.--not, as it once was, by gold reserves.

The Utah measure might sound like one of the many thousands of fringe bills that get filed in state legislatures and then are never heard of again--except occasionally as a punch line on late-night TV. But Galvez's bill became law last year. Now he's working on new proposals to make silver and gold easier to use. While Utah is the first state to pass such a law, others are trying. In the 2011-2012 legislative cycle, bills were introduced in 17 states to either recognize gold and silver coins or study the options for alternative currencies.

Ian Millhiser, a policy analyst for the liberal Center for American Progress (CAP), says that these bills come not from an organized national effort but from "people who are sympathetic with the Ran Paul vision of the world going out on their own."

For years, Paul--the long-serving Texas congressman and three-time presidential candidate--has claimed that the Federal Reserve and its paper currency will eventually doom the U.S. to insolvency. Reviving silver and gold was long a concept relegated to conspiracy theorists, survivalists, and extreme free-marketeers. But the 2008 financial crisis, along with the bank bailout and stimulus bills, lent further credence in far-right circles to the idea that the U.S. was dashing headlong toward financial ruin. The hard right turn of the Republican Party, combined with the Tea Party surge in statehouses in 2010, has further inflamed Fed hysteria.

Paul's persistent warnings of an unchecked Federal Reserve recklessly printing too much money--the grand theme of his campaigns for president--have found a growing audience. At least six of the state legislators sponsoring gold bills have endorsed him for president. While Paul has focused on auditing (or abolishing) the Federal Reserve, these measures assume its eventual demise and offer, according to their sponsors, a survival plan.

The believers paint a scary picture. "If the value of the dollar falls precipitously, society in a sense becomes unglued, and it can even result in riots and chaos," says Mark Thornton, a senior fellow at the Alabama-based Ludwig von Mises Institute, a libertarian think tank where Paul has lectured. "You can really destroy a civilization very, very quickly."

To mainstream economists, the notion of returning to the gold standard is not only laughably impractical but also economically perilous. James K. Galbraith, a professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas, dismisses gold-standard talk as "nonsense. …