Paul builds campaign on doomsday scenarios

Republican presidential candidate U.S Representative Ron Paul (R-TX) speaks during a town hall meeting in Ft. Madison, Iowa December 21, 2011.

WASHINGTON, Iowa (Reuters) - The man who might win the Republican Party's first presidential nominating contest fears that the United Nations may take control of the U.S. money supply.

Campaigning for the January 3 Iowa caucuses, Ron Paul warns of eroding civil liberties, a Soviet Union-style economic collapse and violence in the streets.

The Texas congressman, author of "End the Fed," also wants to eliminate the central banking system that underpins the world's largest economy.

"Not only would we audit the Federal Reserve, we may well curtail the Federal Reserve," Paul told a cheering crowd of more than 100 in this small Iowa city last week.

Paul, 76, is facing questions for racist writings that appeared under his name two decades ago, which he has disavowed as the work of "ghost writers."

But Paul's dark-horse presidential bid ultimately could founder, analysts and others say, because of increasing questions about how his unorthodox vision of government would work in the real world.

Republican rivals criticize his anti-war, isolationist approach to foreign policy as dangerously naive, and object to his plans to slash the Pentagon's budget and pull back U.S. troops from overseas.

Non-partisan analysts say his economic proposals - drastic spending cuts, elimination of the Federal Reserve and a return to the gold standard - would plunge the country back into recession.

"Paul appeals to people whose knowledge of major issues is superficial (and) he sees conspiracies where there are none," said Greg Valliere, chief political strategist at Potomac Research Group, an analysis firm. "If he does well in Iowa, which is likely, it will be an enormous embarrassment to the Republicans."

However, Paul's calls for a dramatically limited government and a hands-off foreign policy are resonating among voters who have grown deeply alienated from Washington after a decade of war and nearly five years of economic malaise.

"Obama got into office and I can't tell the difference between him and Bush," said Deanna Pitman, a homemaker from Bloomfield, Iowa, citing President Barack Obama's support for policies such as the Wall Street bailout and the war in Afghanistan that began under George W. Bush.

Polls show Paul jockeying for the lead in the Iowa caucuses, and political observers say his organization in the state is unmatched. His campaign stops draw hundreds of enthusiastic supporters, along with undecided voters who are giving him a look.

On the campaign trail, he reaches out to Tea Party supporters on the right and Occupy Wall Street supporters on the left.

Some potential supporters from the left have been put off by Paul's uncompromising support for the free market.

At a campaign stop in this small city of about 7,000, Paul told breast cancer survivor Danielle Lin that insurance companies should not be required to offer coverage to people who are already sick.

"It's sort of like me living on the Gulf Coast, not buying insurance until I see the hurricane," said Paul, whose Galveston-based district was devastated by a hurricane in 2008. "Insurance is supposed to measure risk."

The response left Lin in tears. While her insurance covered her treatment, she said, several of her friends were not so fortunate.

"I watched three friends die because they didn't have insurance," said Lin, a registered Democrat who is looking for a Republican candidate to support this time.

"Nobody can afford private insurance, nobody can. And they're dead."

APOCALYPTIC SCENARIOS

Paul can wax apocalyptic as he warns of the dangers of a diluted currency and a deeply indebted government. His doomsday scenarios often are incomplete, leaving listeners room to fill in the blanks.

He draws parallels between the current situation in the United States and that of the former Soviet Union, whose economy collapsed amid the union's breakup and civil unrest in 1991.

Paul acknowledges that his proposal to avoid that outcome - an immediate, $1 trillion spending cut that would slash the federal budget by more than one-third and eliminate the departments of Education, Energy, Commerce, Interior, and Housing and Urban Development - could have some unpleasant side effects.

"I'm afraid of violence coming," he told a crowd of more than 600 in Bettendorf, Iowa. "When you see what the government is preparing for, and the arrests and military law, and the demonstrations in the streets, some people aren't going to be convinced so easily that you don't owe them a living."

At the earlier stop in Washington, he said the Federal Reserve was poised to "bail out" the Euro zone, a move that he said ultimately would cause the United States to surrender control of its own currency to the United Nations.

"This monetary crisis is well known by the international bankers. They want the U.N. to come in and solve this problem," he said. "The dollar will probably eventually disintegrate and be taken over. But I don't want the U.N. issuing that currency."

Economists note that Paul's long-standing proposal to return the dollar to a gold standard would force the United States to relinquish control of its currency.

"We would still have monetary policy - it would be set by gold miners in South Africa and Uzbekistan, rather than bureaucrats in Washington," said Michael Feroli, chief U.S. economist with JPMorgan Chase.

"If you like what OPEC means for oil prices, you'd love what the gold standard would do to financial markets."

(Editing by David Lindsey)