Thursday, December 15, 2011

Monetary and Economic Solution for the World

Dear Ben,

I was listening to one of your recent interviews, and I was just amazed at your description of a monetary a banking solution.  I have been thinking exactly along the same lines. I especially liked your comments on gold and gold production; how it can be and is manipulated just as easily as fiat currency.  (eg 1300's Florentine banking failure). I have been making these same arguments.  

1: Gold and gold production can be and is manipulated just as easily as fiat currency.  (eg 1300's Florentine banking failure).

2: Money and Credit need to be created by the US Treasury and administered locally based on projected production of commodities and not what is already warehoused.

Critics in the media are a dime-a-dozen, but it's rare to hear people talk about solutions.  I wanted you send you my thoughts with regard to a US Constitutional-based banking and Monetary System called the "Safety Society System."

According to Article 1, Section 8 of the Constitution the Congress of the US is charged with the duty, privilege, and responsibility to "coin" or create the money as well as borrow and lend based on the credit of the United States. So, knowing that "coining" money is part of the duty of Congress, I wonder just how much our Senators and Representatives know about how our economy works. With the passage of the Federal Reserve Act in 1913, the Congress has abdicated this sacred responsibility to a privately owned central bank. Now, it's time for Congress to take this privilege back.

The money supply is broken up into constituent parts (m0-m3). Many opponents of the Federal Reserve System advocate a return to a gold standard where circulating money (m0-m2) must be backed by gold and other precious metals. Unfortunately, as you are already well aware, the same "special interests" that own the banks own the domestic gold production with a DeBeer's-like Monopoly. But, in addition to backing circulating money with gold, a large portion of the money supply could be backed with land and and other "real" assets, commodities and durable goods. To protect gold production, Congress may need to regulate domestic gold production by exercizing anti-trust legislation in addition to giving back to the states Federal Lands and the corresponding mineral rights.

Instead of allowing the mega-banks to create 90% of the money supply via Fractional Reserve Lending, why not allow the US Treasury create/coin all the money in the money supply? Why not cut out the super-mega, too-big-to-fail banks and allow non-profit local and banks direct access to US Treasury capital for the purpose of issuing simple-interest, fee-based loans for credit-worthy borrowers, for non-depreciating assets like land and real-estate, commodities and durrible goods? Under such an equitable, risk-free system; capital is no longer an artificial scarcity and the unelected, ultra-elite, banking corporatocracy who control huge capital pools no longer wield Machiavellian power over the rest of society.

Therefore, I propose the creation of local and state non-profit "community safety society" banks. These locally controlled and administered institutions would have direct access to US Treasury capital for the purpose of issuing simple-interest or fee-based loans for non-depreciating assets such as land, and real-estate purchases. These "safety societies" would generate revenue for the Federal Government and to cover overhead costs by charging a loan origination fee, as well as modest monthly loan servicing fees (simple interest).

Under the "Safety Society" System, any citizens who can demonstrate regular employment and income can qualify for a loan. Groups, co-ops, and corporations can qualify for business loans to purchase and develop land. Communities can pass referendums for a sales tax increase and qualify for larger loans based on the projected tax revenue.  

Many monetary solutions which call for a commodity-backed currency require the commodities to be wearhoused before the money is created and the loan extended.  In the Safety Society System, money is created and loans extended for projected growth and production.

The benefits of this system are that home and business owners will be able to build equity immediately unlike the FHA/HUD amortized loans we have now that collect interest up front. Amortized loans are a major driver of inflation because the only way to earn equity in the first 10 years is for the price of the home to go up. So, you have a 10-year-old home that is now $30,000 more expensive. Consequently, the amortized loan has been a major contributer to the devaluation of the dollar since 1934.

I claim that such an equitable lending system would protect our "safety society" bank from risk by only issuing simple-interest/fee-based loans for non-depreciating assets. In the event that a borrower (citizen, co-op, corporation, community) were unable to make a payment, that missed payment would be deducted from the equity in the property. In this way, the loan would operate as an instant reverse mortgage at any time. Therefore, missed payments actually become extra revenue for the Federal Government Foreclosure would not occur until the borrower had lost all equity in the asset unlike today when a bank has the right to foreclose after 1-2 missed payment resulting in the borrower forfeiting any and all equity in the property.

Currently, the Federal Government only collects revenue (prime interest) on a fraction of the money created because the Federal Government only creates a fraction of the money supply in the system. Under the "Safety Society" system, all new money created would generate revenue. Under our current system, the FED generated less than 50 Billion dollars a year. The "Safety Society" collecting 1% fee on all new money creation could generate trillions via an equitable and voluntary taxation of the people.

An important aspect of the "Safety Society" Banking System is its ability to control inflation but immediately respond for the need for liquidity in the economy. When capital is plentiful, and individuals can pay cash and not borrow, new money will not be needed and not created. On the other hand, when capital is in short supply, money can be created and loaned interest free as needed.

The non-profit "Safety Society" Banking System would be a type of full reserve banking. The Bank would borrow from the US Treasury 100% of what it would lend. Accordingly, customer deposits would not be used to make new loans, but could be kept at the bank in electronic form until withdrawn making "Safety Societies" immune to failure following a "run" on the bank. Full Reserve "Safety Societies" would also be immune to stock market crashes and economic downturns that cause banking assets to lose value, leading to the loss of fractional reserves, which then leads to the inability of banks to make new loans or reimburse depositors.

Under our system, our "Safety Societies" would reduce but not eliminate the need for businesses and communities to raise money via the sale of stocks and bonds. Stock and Bond sales would be unnecessary because no-interest loans could be easily obtained. However, despite the cheapness of capital, the "Safety Society" would never be used to loan money for the purchase of stock, bonds, or other speculative financial instruments. "Safety Society" monies cannot be used to generate other money, but only can be used in exchange for "real" assets with non-depreciating value for at least the life of the loan. Stock sales may be brokered by other institutions and private individuals to raise capital for more speculative endeavors such as for the purposes of research and development and business creation. Government programs will also continue to assist with these capital needs as they do currently.

The goal in our full reserve "Safety Society" banking system is not to use capital to create capital. In our system, the US Treasury under the direction of the Congress creates money, so there is no need for money to create money. The main goal in our system is to maintain the value of the money that has already been created and implement an equatable economic and monetary system where money is backed by real assets, where the money supply can be expanded as needed; eliminating artificial scarcity, and where economic power is returned to individuals and communities, and not consolidated into the hands of an unelected money masters. Under the "Safety Society" Banking System, the people will no longer be economic sharecroppers to a small minority of elite capital controllers and special interests.

Best Regards,

David D Brosnahan MD, MS
Martinez, GA

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