DEFLATION AND THE DECLINE IN DEBT

Becraft's Note: I have had the pleasure of knowing Franklin Sanders since 1982. He's a monetary scholar, noted author, publisher and accomplished speaker, in addition to being the best friend you could ever have. Franklin's character, for some liberty loving reason, often leads him into confrontations with the government. We stood together to battle the IRS in a five month federal criminal trial in which he and all of the other 16 defendants were acquitted. But we were disappointed when we battled the State of Tennessee and suffered a conviction which required Franklin to spend time at the penal farm. Franklin has experienced more "government" than many other Americans and through it all, I know that "guvment" has been the loser; it has utterly failed to rehabilitate him.

What America needs now more than ever is men like Franklin. Perhaps his words will show you this in the following three articles which provide a taste of Franklin's thinking.

"What this country needs is a good five cent nickel."
-- Franklin P. Adams, 1932

Why do I keep talking about deflation? Because it threatens far worse economic destruction than inflation. Over the last 150 years, fractional reserve banking has crept into every crevice of our lives, transforming us from a people who shun debt to a people who live by it.

But believe this, and don't forget it: Neither Alan Greenspan nor Robert Rubin nor any other finance minister nor central banker sweats inflation. Inflation is manageable, but deflation is fatal. Like AIDS, once it attacks the financial system, there is no cure.

GOLD & DEFLATION

Not very many writers seem to know that gold performs much better during deflations than inflations. The primary source for this assertion lies in Professor Roy Jastram's two books, The Golden Constant (1977) and Silver, The Restless Metal (1981).

Jastram shows that contrary to popular notion, neither gold nor silver keep pace with commodity prices during inflations. However, they preserve purchasing power much better during deflations. The last round of inflation beginning (according to Jastram's reckoning) in 1951 broth this pattern. During that inflation, both gold and silver gained value faster than commodities. I think there's an explanation for that, but let me present Jastram's U.S. periods and figures first (from Silver, p. 113 ff.).

This table lays out Jastram's periods with the change in commodity prices, as well as the change in purchasing power of gold and silver.

You don't have to be a statistician to sniff out a significant turnaround in the performance of gold and silver versus commodities from 1933 onward. Before then, both metals severely lost purchasing power during inflations. In the last two periods, silver remained basically flat or gained tremendously. In the very last period, gold's performance mirrored silver's. What was responsible for the change? I will presume to venture an explanation, but must jump back to 1897.

BANKS TRIUMPHANT

What had changed in the world by 1897? The monetary system.

When a war ends economists usually expect a post-war deflation and depression for a few years while the artificial demand of war disappears and the economy adjusts to peacetime. But the deflation that began at the end of the War Between the States persisted thirty-three years! Why? At least in part because a monometallic gold standard was forced on the country while the enormous paper circulation issued during the war was reduced and silver was demonetized (1873). These changes severely deflated the money supply (where "money supply" equals bank & government paper currency, bank credit, gold, and silver). A shrinking money supply necessarily shrinks purchasing power, lowers commodity prices, and slows down economic activity - in other words, deflation causes depression.

THE GOLD PLATED AGE

By 1897 the banks held the U.S. economy by firm reins, having perfected their cartel during the War. The so-called Gold Standard Age opened when governments around the world demonetized silver around the world in the early 1870s, officially adopted gold as their sole standard money (e.g., German Mint Law of 1873 and the US Gold Standard Act of 1900), and installed central banks. It lasted until the frenzied demands of financing World War I forced them off gold. But in truth it wasn't a Gold Standard Age, but a "Gold-Plated" Age, because required bank reserves were never more than 35 - 40% of deposits, and that reserve wasn't all held in gold by any means. In most countries the bulk of reserves was held in government bonds.

Essentially this doesn't differ from today's monetary system, except that it required much greater reserves. (Today's American banking system requires roughly a 1.65% reserve across all classes of reserves, none of which is gold.) Fractional reserve banking had hijacked national monetary systems and created an insatiable engine of inflation that must naturally & inevitably crowd out all competing forms of money. Bank credit and currency naturally force gold and silver out of circulation, because it serves the banks' interest to replace them with its own near-money which it created out of nothing and for which it receives usury. The engine is "insatiable" because it borrows money into circulation; it must keep growing by expanding debt to generate new money to keep on paying the interest burden of the earlier debt. If growth slows, money supply is reduced, constricting the money available to pay the interest burden. Slow down too much, and bankruptcies begin. Too many bankruptcies and credit collapse implodes in a nation-wide deflation. The nature of the system forces it to expand until it smothers the entire nation. It must grow or die.

CREDIT REPLACED GOLD & SILVER

From the War Between the States forward the money supply was continually augmented by forms of money other than gold and silver, near-moneys such as bank credit and bank and government currency. All these near-moneys are issued upon and backed by debt. As long as that nothing happens to call their value into question and they continue to increase and to circulate side by side with gold and silver, you'd expect the value of gold and silver to drop, just as issuing the second paper dollar cheapens the value of the first. Precisely that has happened.

(Think of it this way. At any point in time, all the money in the world could buy all the goods in the world. If you double the amount of money, it won't buy any more goods, it will only raise prices and lower the value of each money unit.

(Sure, I know thing are always changing at the edge - I lose change from my pocket into the sofa and diminish the money supply, or a warehouse burns in Poughkeepsie and reduces the total number of sleds for sale. But at any point in time, all the money equals all the goods.

(The total money supply contains gold, silver, government money [checks, coins, bills, food stamps], bank money [credit, checks, deposits], and private money [Kroger coupons, McDonald's money, etc.]. If you keep increasing the number of units of any one sort, like bank and government money, you cheapen the value of all the rest until somebody panics and rejects those inflated sorts as unreliable. When they do, they flee to the more reliable [gold, silver, Kroger coupons], in effect destroying the rejected forms and reducing the total money supply. That raises the value of every remaining unit.)

But the behaviour of gold and silver before 1897 differs from that afterward because public demand for both has been weakened by silver's official de-monetization and gold's practical de-monetization. The banks' gradual conquest of the monetary system tended to decrease the remaining gold and silver circulation and left the public ignorant and indifferent toward precious metals. Most of all, near-moneys inflated the money supply, and cheapened the metals' values long term. After the global economic crisis of 1929-33, the rise of fascism and communism intensified the tendency to sideline gold and silver. National socialist Germany, Italy, Britain, America, and Stalinist Russia alike adopted the "social construct" theory of money with a vengeance (Money is what we decree it is, not what the market has used thorough all human history.) From then on it wasn't just the banks inflating the money supply, but the banks and government working together.

The scale and scope of the inflation changed the quality of inflation enough to alter the behaviour of gold and silver and the public. For years governments and banks controlled the precious metals markets so tightly that they could fix prices or forbid their citizens from owning and trading them.

Without massive government force and a bank stranglehold on finance, over a certain range gold and silver should lose purchasing power in inflations, and gain purchasing power in deflations. (note the qualifying "over a certain range.")

Logically, "inflation" (an increase in the money supply) causes the value of every unit of money to drop because the units are becoming more plentiful. "Deflation" (a decrease in the money supply) causes the value of the remaining units to rise (because they become scarcer). Unless government by force limits access to gold and silver, an inflation caused by banks over-issuing credit and currency should cheapen the value of all money units until and only until the public identifies that the cheapening is differential. Only bank money isbecoming more plentiful, not gold and silver. When that idea dawns, the bank runs begin and the value of gold and silver stop falling and begin rising -- very rapidly. Until that bank run, however, the price of gold and silver would drop while commodity prices would rise. Hence Jastram's figures.

Under a deflation, panic sends the public scurrying into safety. Because a financial panic breaks out when the value of credit is called into question, the panickers will naturally flee from credit to cash. What is the very best cash? Gold and silver, the only financial assets which are not simultaneously somebody's liability. People flee from all financial assets to gold and silver and reduce spending, which pulls the plug on commodities. Deflation continues until things get so cheap that braver souls recognize irresistible bargains and begin once again to buy and produce.

But since 1933, things haven't quite worked that way, or at least on their face they don't appear to have worked that way. Contrary to previous history, gold and silver produced magnificent returns over Jastram's latest two inflation periods, and have behaved miserably in the past 15 years of "disinflation."

WHY? WHAT CHANGED?

Two things: After usurping vast power over money, governments controlled gold and silver prices, then suddenly gave up on the price fix - officially at least. Next, knowing no other system for years rendered the public monetarily ignorant and complacent for years - until confidence suddenly broke. Another factor skewing the picture is that Jastram's figures present a balance sheet rather than an income statement. They give percentage increase results based on a point in time, not a period of time.

Both gold and silver performed wretchedly for most of the period from 1933 to 1979. Government kept the prices locked at $35 and $1.29 for so many years that gold and silver holders could only rack up losses as inflation drove the value of all monetary units down. However, as soon as inflation and growing public distrust made it impossible to defend fixed prices, pent-up demand sent the price pendulum swinging very much higher. It was like winding up a clock spring tighter and tighter until it exploded. Nothing much happened for 40 years or so, and then the spring exploded.

GOLD vs. THE DOLLAR

Gold's price only began to rise in the early 1960s, when the world began to suspect that the US was using its Bretton Woods-decreed position as reserve currency issuer to export inflation. Governments fought the upward market pressure on gold all through the 1960s, but on August 15, 1971 Richard Nixon finally threw in the towel when he announced the US would no longer redeem paper dollars for gold. That act instructed the alert that all national currencies were henceforth at risk because they would all float without any tie whatever to objective value. Discipline had been ditched. The alert began to accumulate gold as the international bank run on national paper currencies began.

SILVER vs. THE U.S. TREASURY

Increasing industrial use and the popularity of vending machines began pushing up silver demand (and the silver price) in the late 1950s. By 1964 the strain of holding silver at $1.2929 an ounce grew too great for the US Treasury, so in 1965 the US removed silver from its coinage. In 1967 the government's last tie to a fixed silver price was cut when U.S. silver certificate holders were given one year to redeem them.

In silver's case, we aren't just dealing with monetary phenomenon affecting demand. From silver's official 1873 demonetization until 1897, it didn't drop too badly in value, about 26% in 23 years. However, from there until the Great Depression, silver suffered relentless erosion, until was worth only 24.5 cents an ounce in 1932. During that time monetary silver demand was decreasing, but industrial demand had not yet kicked in. After that time increases in photographic, electric, and electronic silver use began stimulating demand. Ironically, it was the US government's attempts to control silver's price that kept it artificially cheap to producers. That boosted silver use and demand even more than technological developments by themselves.

A similar mechanism moved gold's price. The more Treasury and Fed officials told the public that the dollar was stable and they didn't need to own gold, the more people wanted to shuck dollars for gold.

Meanwhile industrial demand kept on goading silver's price. Demand boomed all through the 1970s, causing chronic shortfalls of supply versus demand. Stockpiles continued to erode, and at some point the price had to adjust very much upward to switch users to cheaper substitutes and ration that shrinking supply. When Jastram was writing in 1979, silver's price had only reached about F$4.90, a 380% increase in 28 years. Before the party was over, silver briefly broke $50 an ounce, a 3800% increase.

"The conclusions to be drawn from the American experience are very much like those based on the English analysis.

Gold is a poor hedge against major inflations.

Gold appreciates in operational wealth in major deflations.

Gold is an ineffective hedge against yearly commodity price increases.

Nevertheless, gold does maintain its purchasing power over long periods of time. The intriguing aspect of this conclusion is that it is not because gold eventually moves toward commodity prices, but because commodity prices return to gold [the "retrieval phenomenon"]."

HAS THEIR CHARACTER CHANGED?

I believe it is dangerous and erroneous to use Jastram's performance figures for gold and silver to argue that their behaviour has changed. Rather, a special discontinuity, the special one-time circumstance of lifting government price controls after many years, created the extraordinary gains for silver and gold at the end of the 1933-1980 inflationary period.

Despite Jastram's demonstration that gold and silver aren't very good inflation hedges, both metals remain indispensable investments. When he says that gold and silver under-performed in periods of inflation, somebody ought to ask the question, "Compared to what?" You can't buy a box car of commodities and take it home and call it a "hedge against inflation." Compared to a wide range of other choices, gold and silver do not lose purchasing power during inflations as rapidly, and at the end of that inflation they catch up and overhaul other contestants. Prices don't move in a straight line, but by fits, starts, & spurts.

For most people in most circumstances, gold and silver do offer a hedge against inflation over the very long term, i.e., they preserve purchasing power. Perhaps not as perfectly as some other instrument, but not every person has recourse, for example, to buying 1,000 acres of farmland and holding it until development makes him rich. If Jastram's "retrieval phenomenon" means anything, it is that the price of gold versus a basket of commodities tends to return to the same level over time, i.e., gold preserves purchasing power over long periods of time.

I, for one, am not, but then again, I don't recommend gold and silver solely as inflation hedges. (Although it's not such a bad idea, like owning land. They're not making any more of it, or of gold or silver, either. Whatever it does in the meantime, sooner or later it will be valuable.) A whole string of other reasons for owning metals comes first.

Financial System Hedge: First, I want to own gold and silver as a hedge against another extraordinary discontinuity, primarily the collapse of the fractional reserve banking system. No matter how rock-hard and iron-tough it appears today, it is fragile and vulnerable. Suffering its collapse without some ace-in-the-hole of value threatens a personal financial annihilation too total to risk unhedged. Entering that collapse with some immune form of value offers a financial opportunity too magnificent to miss. It could fund a family's wealth for generations to come.

Crisis and Chaos Hedge: Second, I want to own gold and silver coin as an emergency money of last resort. Whether the catastrophe is an earthquake knocking out banks, the Millennium Bug knocking out the financial system, or government agents knocking down my door, gold and silver will always give me something in hand to provide for my family. Whether gold and silver preserve purchasing power is one question, whether they preserve wealth is quite another. Through the centuries they have passed that latter test as the money of last resort.

Investment Bonus: Third, gold and silver offer an exceptional risk-reward ratio right now. Silver has passed through eight years of supply shortfalls without a significant price increase, while supply keeps dropping and demand keeps rising. Both gold and silver are trading at the bottom of their 15-year ranges, while financial assets are in a bubble begging for wrath of Old Testament proportions. If the stock market crashes, can the economy be far behind?

Deflation Hedge: Gold & silver's profitable performance under so many past deflations strongly argues that they will perform well in future deflations. Under a regime of debt money a deflation means a collapse (implosion) of debt. Unlike any other financial assets, gold and silver are not backed by debt. Whenever creditworthiness is called into question, demand for gold and silver will rise.

Now that metals markets have been freed and 25 years has passed to allow them to adjust, these metals should no longer operate as they did coming out from under price controls 1951-1979. The "snap-back" effect of lifting price controls at the period's end, which caused the price pendulum to overcompensate for years of artificially low prices, accounted for most of that outstanding performance. You can't expect gold and silver to explode as they did in 1980 without some similar stimulus. Is there any candidate on the field?

But wouldn't the Federal Reserve simply flood the system with liquidity if a credit implosion threatened? Good theory, but pitiful practice. You can't make people borrow money, and only by borrowing can new money be brought into existence. Fed Chairman Alan Greenspan admitted last January in Leaven, "With leveraging there will always exist a remote possibility of a chain reaction, a cascading sequence of defaults that will culminate in financial implosion if it proceeds unchecked."

Credit collapse panic will call into question the value of every financial instrument, including the dollar. From there it is an easy jump from the paper dollar into gold. While at deflation's beginning paper dollars might possible become more valuable against gold, at some point demand would shift to gold (and to a lesser extent silver). This would cast doubt on the entire financial and monetary system and could cause a fundamental re-ordering. The concatenation described above is what Greenspan calls "systemic risk," i.e., the threat that the whole system collapses.

Radically rearranging monetary institutions, like lifting government price controls in 1967 and 1971, would create a momentous discontinuity and opportunity. Like a tidal wave, monetary demand would displace toward gold and silver. That sudden and gigantic burst of demand, especially under deflationary conditions, would up-value gold and silver toward historic norms.

What are "historical price norms"? In Memphis, ammunition plants were paying supervisors about $4.50 a week in 1861. That's 0.2177 troy ounce of gold, not even a quarter ounce - 11.3198 ounces of gold per year! $234.00 gold dollars a year equals about 181 ounces of silver. In New Testament times, prices were relatively higher so a days wages was only one denarius, 0.16 troy ounce of silver, or about two US 90% silver dimes. Twenty cents in silver.

"Back up to historical norms" doesn't necessarily mean back to the norms of Biblical times. That would be ignoring 2000 years of technology lowering the cost of producing everything. Still, it does mean values far, far above anything we're used to seeing in gold and silver, say, ten times the present gold price and forty times the present silver price.

Pose this question to a federal government or Federal Reserve official and he will run you around the bush for months, mumbling blather like, "The value of the dollar depends on the productive capacity of the U.S. economy" or "Dollar currency is backed by the full faith and credit of the United States Government." They may even read to you from a dollar bill, "This note is legal tender for all debts, public and private" -- perhaps adding to the mystification by citing some public law of such and such date.

Ask this question in a state court (say, when a judge assesses a fine) and you will most likely land in jail. "Judge, I want to pay all my debts, not just discharge them, but the law makes conflicting statements about what a dollar is. Can you tell me what this state has declared a dollar to be, pursuant to the U.S. Constitution at Article I, Section 10? Then I can be sure I have paid the fine in dollars."

You will set off on a hilarious, rollicking journey through numerous damp penal institutions as the judge and every other state official from Governor to Second Assistant Tire Checker ducks, dodges, and weaves to avoid answering your question. They all know that every state violates Article I, Section 10, enforcing payment in "dollars" of bank credit or Federal Reserve (bank)notes, but they surely won't be the ones to admit it. The emperor has no clothes, but I don't want to be the one to tell him.

Under the common law, which is still our right, nothing but gold and silver was money. The United States Constitution at Article I, Section 8 granted congress power to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures."

The Constitution at Article I, Section 10 withdrew from the states power to declare anything other than gold or silver a tender in payment of debts. "No State shall *** emit Bills of Credit [legal tender paper money]; make any Thing but gold and silver Coin a Tender in Payment of Debts."

Pursuant to the Constitution, congress later enacted the Coinage Act of April 2, 1792⁽¹⁾ which forever set and immutably fixed the standard dollar as a weight of silver equal to 371.25 grains (0.7734 troy ounce or 24.0565 grams) or 1.292929 dollars of silver to the ounce. The same act provided for gold coins valued but not denominated in dollars ($10 eagles, $5 half-eagles, and $2.50 quarter eagles). Once a standard has been set, it cannot be changed, any more than congress could declare that present "foot" measure should comprise ten inches rather than twelve. The only constitutional standard money of the United States is the 371.25 grain dollar of silver.

At first dimes, quarters, and halves were simply the tenth, fourth, or half weight of a silver dollar. However, the Act to Devalue the Subsidiary Silver Coinage of February 21, 1853⁽²⁾ reduced the weights of the dime, quarter and half dollar to 173.61 grains (0.3617 troy ounce), 86.805 grains (0.1808 troy ounce), and 34.722 grains (0.07234 troy ounce), respectively, and made them legal tender for $10.00 only.

Because congress set the silver price of gold too low in the Coinage Act of 1792 (15 to 1), gold fled the U.S. to other world markets where it bought more silver. Thus in 1834 congress finally had to adjust the weight of the gold coins to reflect their market value in silver. The Coinage Act of 1834⁽³⁾ reduced the gold coins' weight slightly. The Coinage Act of 1837⁽⁴⁾ minutely reduced the weight of gold valued at one dollar to 23.22 grains of fine gold (0.04375 troy ounce or 1.5046 grams), 20.6718 dollars to the ounce.

The Gold Standard Act of March 14, 1900⁽⁵⁾ defined a dollar of gold as a weight of fine gold (24 karat) of 23.22 grains (0.04375 troy ounce or 1.5046 grams), 20.6718 dollars to the ounce, no different from the Coinage Act of 1837.

Federal Reserve notes are not "dollars," but they are "legal tender." Whenever a contract payable in "dollars" fails to specify payment in a certain form of "dollars," the payee must accept whatever sort of "dollars" are defined in the law as "legal tender." The law states, "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts. Foreign gold or silver coins are not legal tender for debts."⁽⁶⁾

The law defines Federal reserve notes as "obligations of the United States *** receivable for all taxes, customs, and other public dues."⁽⁷⁾

The Gold Bullion Coin Act of 1985⁽⁸⁾ provided for the American Eagle gold coins containing one troy ounce (denominated "$50"), one-half troy ounce (denominated "$25"), one-fourth troy ounce (denominated "$10" [sic]), and one-tenth troy ounce (denominated "$5").

The Liberty Coin Act of 1985⁽⁹⁾ provided for 0.999 troy ounce (not 1.0000 troy oz.) silver coins denominated "one dollar" and "one Oz. Fine Silver." Although their official name is "Liberty [silver] coins," they are commonly but erroneously called "silver American Eagles."

Since 1985 congress has provided the United States with a complex multiple legal tender monetary system composed of many sorts of "dollars": irredeemable United States notes⁽¹⁰⁾, irredeemable Federal Reserve note "dollars,"⁽¹¹⁾, base metal token coins and debased silver coins⁽¹²⁾, 1792-standard dollars of silver⁽¹³⁾, 1900-standard "dollars" of gold⁽¹⁴⁾, American Eagle gold "dollars" and silver Liberty 0.999 troy ounce "dollars"⁽¹⁵⁾. All are denominated in "dollars" although markets value these various "dollars" at vastly different rates.

The last time this situation prevailed was after the War Between the States when United States notes, national bank currency, U.S. silver coins, and U.S. gold coins were all legal tender denominated in "dollars" and all valued at differing rates. In 1878 the United States Supreme Court construed these contradictory laws as meaning that "a dollar is a dollar is a dollar" for legal tender purposes.⁽¹⁶⁾

One owing a debt may pay it in gold coin or legal-tender notes of the United States, as he chooses, unless there is something to the contrary in the obligation out of which the debt arises. A coin dollar is worth no more for the purposes of tender in payment of an ordinary debt than a note dollar. The law has not made the note a standard of value any more than coin. It is true that in the market, as an article of merchandise, one is of greater value than the other; but as money, that is to say, as a medium of exchange, the law knows no difference between them.⁽¹⁷⁾

The implications, especially in accounting for revenue and paying taxes, are staggering but untried and unproven in court. In personal business you are unquestionably free to write contracts specifying payment in legal tender gold⁽¹⁸⁾

or silver coin and thus contract out of the paper money system. But one point is clear: the only thing that gives the government and the Federal Reserve power over our economic system is our own willingness to use their irredeemable paper notes in our daily lives. If you are a slave of the paper money system, you are forging your own chains. Franklin Sanders
July 4, 1994

The Moneychanger
P.O. Box 341753
Memphis, Tennessee 38184
(901) 853-6136

Who could possibly call Franklin Sanders "the most dangerous man in the Mid-South? He lives in the country near Memphis, Tennessee with his wife and seven children. He writes and publishes a monthly financial newsletter, The Moneychanger, "to help Christian people prosper with their morals intact in an age of monetary and moral chaos." In Sanders' own words,

"Almost 30 years ago, just a few weeks before I got married, on a drugstore bookstand I found a strange book: Capitalism, the Unknown Ideal. It was a collection of essays about a philosophy of freedom. Two dealt with the American monetary system. The author explained that nothing -- no gold or silver -- backed our currency. He argued that sooner or later, this fiat money system would lead to disaster, and that only a money backed by real value -- gold -- could last.

"That author was Alan Greenspan.

"Since then our careers -- Alan's and mine -- have taken very different paths.

"In 1967, Alan Greenspan was already a fairly well known economic consultant. In the 1970s, President Ford appointed him to his Council of Economic Advisors. In 1987, Alan Greenspan was appointed Chairman of the Federal Reserve Board of Governors.

"Funny, he doesn't talk much about gold anymore."

MONETARY GUERRILLA

For the past 20 years, Franklin Sanders has fought the fractional reserve banking system as a monetary guerrilla - and been liberally mauled in the process. Working for monetary reform and a return to sound, constitutional metallic money, he opened a gold and silver bank in Memphis in 1984. Although this was perfectly lawful and constitutional, this earned him an IRS criminal investigation (beginning in 1985) with a "case worker" all his own. On account of the bank, the IRS finally had him indicted for criminal conspiracy to defeat the IRS in collecting taxes and for several counts of willful failure to file income tax returns on December 21, 1989 (Four days before Christmas, in case you weren't paying attention. The Grinch has nothing on the IRS.).

Although well-known as a non-violent Christian man, when IRS arrested him on January 9, 1990, they sent out a SWAT team and twenty heavily-armed government thugs and trolls to arrest him. Were they trying to precipitate another Ruby Ridge confrontation, hoping they could goad Sanders into shooting back? Were they just trying to generate "SWAT Team Pre-Dawn Raid" headlines to cower the rest of the sheep? Or were they just stupid? If you know much about the IRS, you'll know how hard it is to pick a conclusion.

What is certain is that although IRS and Department of Justice officials well-knew that Sanders represented no threat of violence whatever, they willfully and recklessly endangered not just his life, but the lives of his seven children (age 15 down to 3) and his wife. Sanders still thanks God the IRS was only trying to arrest him. If they had been trying to "save his children" that day, who knows what might have happened.

In that "conspiracy," IRS indicted twenty-five others, including Sanders' wife, pastor, assistant pastor, and 7 more members of the church he attended. (As of this date it is not yet known why the IRS did not indict Sanders' dog, Sparky, although some defendants speculate that the government had reserved him as an "unindicted co-conspirator.")

Sanders, his former business associate Michael Osborne, and Sanders' wife, Susan, were, according to the government's imaginative theory, at the centre of a conspiracy to defeat the IRS by "laundering checks" through the "secret bank." Sanders himself wondered how his wife, the home-schooling mother of seven children, had enough time to sleep, let alone conspire with anybody, but he speculates that the kindly US attorney and benevolent comrades of the IRS had her indicted so they could force him to plead guilty to save her. Whoops, IRS and the Department of Injustice underestimated Susan Sanders, whose great-grandfather fought with General Robert E. Lee's glorious Army of Northern Virginia until the last bitter day at Appomatox. Even facing 19 years in a modern-day Yankee prison, separated from her young children, Susan Sanders was no quitter.

Of the 25 indicted, some pled guilty before the trial ever began, terrorized by the thought of spending 10 to 15 years in jail and well aware of the government's 97% conviction rate. On the witness stand, one confused man who had pled out was asked who he had conspired with, and a look of utter confusion covered his face. He thought for a minute, and finally responded, "I dunno. Myself, I guess!"

Some of the defendants who went to trial regularly filed income tax returns, but many of them had not filed income tax returns for years. Sanders isn't sure, but thinks he last filed in 1975.

Simple. There is no law that makes anyone liable for an income tax. Defendant after defendant challenged the court, the prosecution, and the IRS to bring into court the statute that makes anyone liable for the income tax, but they remained silent.

After the second longest criminal tax trial in American history (four and a half months in which Larry Becraft defended Sanders), a jury declared Sanders and all the other 16 defendants "not guilty" on July 9, 1997.

Later, one jury member said that the defendants were like men who climbed up on a chair and put their necks in a noose, then dared the government to kick the chair out from under them. To "kick the chair" and hang them, IRS only needed to bring into court the liability statute. They couldn't do it.

But acquittal in federal court did not end Sanders' ordeal. The IRS had sent an agent to work for the Tennessee Revenue Department (Sanders contends) to cook up some state charge against him. Shortly before the federal indictment on December 21, 1989, the state had indicted Sanders (and him alone) on two counts of "delaying & depriving the state of revenue to which it was entitled at the time it was entitled thereto."

If that sounds like criminal imprisonment for debt, that's probably because it is. The felony statute had been on the laws nearly two decades, and the state had never before used it. But since Sanders (in the words of one local assistant US attorney) was "the most dangerous man in the Mid-South," drastic measures were necessary.

Once again in May, 1992 Sanders went to trial, with Larry Becraft defending. The bulk of the state's case against Sanders was that he had exchanged gold and silver money, legal tender coin of the USA, for paper money without charging sales tax. By their logic, every time you walk into a bank and exchange a ten dollar bill for forty quarters, the bank ought to charge sales tax. Whoops - the state forgot to indict the banking system and Alan Greenspan.

This time the jury convicted Sanders. He was sentenced to a year on each count at 30% service (i.e., 108 days ). The judge suspended all but 30 days of the sentence, on the condition Sanders would accept an "alternative sentence" of seventy-two months of probation and pay the state $1,000 a month during the 72 months.

The appellate court overturned one count of his conviction for double jeopardy. In May, 1996 the Tennessee Supreme Court rejected Sanders' money issue arguments and upheld the other count of the conviction. On June 28, 1996 he was dragged off to serve the 30 days. In November, 1996, rather than submit to impoverishing his family for the next six years, Sanders voluntarily reported back to jail and finished out his sentence. He was released December 20, 1997. Currently he is battling the state's civil tax assessment of $1.5 million in state court, and has appealed his Tennessee conviction into federal court.

Heiland (a novel of the future, $10 postpaid),

The Greening (with Larry Abraham, exposing the environmental movement, out of print),

The Witness of Buchenwald (translation of the life of German pastor Paul Schneider whom the Nazis killed in Buchenwald, $12 postpaid), and most recently,

Silver Bonanza: How to Profit from the Coming Bull Market in Silver (with Jim Blanchard, the best investment book ever written on silver. $33 postpaid).

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2. U.S. Statutes at Large, Vol. X, p. 160, as amended by the Act of February 12, 1873, Statutes at Large Vol. XVII, p. 424.

6. Public Law 97-258 of September 12, 1982, § 5103, codified at Title 31, United States Code, § 5103.

8. Public Law 99-185 of December 17, 1985; U.S. Statutes at Large, Vol. 99, p. 1177, codified at 31 United States Code § 5101 & 31 United States Code § 5111 & § 5112(a)(7) - (10).

9. Public Law 99-61 of July 9, 1985; U.S. Statutes at Large, Vol. 99, p. 115; codified at 31 United States Code § 5112(e)-(h).

10. Act of February 25, 1863, U.S. Statutes at Large, Vol. XII, p. 345, codified at 31 United States Code § 5115.

16. See also 31 United States Code § 5118(d)(2), "An obligation [payable in United States money] containing a gold clause is discharged on payment (dollar for dollar) in United States coin or currency that is legal tender at the time of payment. This paragraph does not apply to an obligation issued after October 27, 1977."

17. Thompson v. Butler, 95 U.S. 694, at 696 (1878), emphasis added. See also Bronson v. Rodes, 74 U.S. (7 Wall.) 299 (1869).