Protocol 20:22 "YOU ARE AWARE THAT THE GOLD STANDARD HAS BEEN THE RUIN OF THE STATES WHICH ADOPTED IT, FOR IT HAS NOT BEEN ABLE TO SATISFY THE DEMANDS FOR MONEY, THE MORE SO THAT WE HAVE REMOVED GOLD FROM CIRCULATION AS FAR AS POSSIBLE."
Man has been on a gold and silver standard since money was first mentioned in the Bible in the days of Abraham about 2000 BC and the Silver Shekel of Tyre. The widespread use of money fits with Revelation's description of money being revealed during the 3rd Seal or 3rd Millennium of man's mortal existence on this Earth (Black Horse).
But the Black Horse of the 3rd Seal isn't primarily about money. The Black Horse represents famine. According to the prophecy, artificial scarcity resulted in a days wages barely purchasing enough wheat or barley for one man to survive. However, luxury items like oil and wine were unaffected. The artificial scarcity of a gold-redeemable currency, has driven nations to plunder and subjugate neighboring peoples for gold for thousands of years.
I believe money should be backed by real assets as well as being fully redeemable for those assets without causing unwanted inflation. But a Constitutional money system should also not need to constrain us to the scarcity of gold, nor cause our banking institutions to be vulnerable to failure due to fractional reserve banking and periodic contractions in the money supply.
Unfortunately, I see an eventual end to the FED and a return to a gold standard. If this happens, will the US confiscates gold from the people again like it did in 1933 or will it confiscate half of Germany's gold supply that is currently being held by the New York FED? (Max Keiser)
SSS is not inflationary. Loans focus on retaining value and would not be approved for inflationary profiteering. Constitutional voluntary fee/tax would also control inflation levied for the use of national credit. Also, the SSS currency is backed by real redeemable assets. And SSS protects banks from their inherent vulnerability to failure due to commodity price fluctuations and the consequences of fractional reserve banking.
What good is it to have gold-redeemable currency when your bank fails, the curency fails, and the economy falls into a deep depression? Why not prevent the bank failure? ****Letting the bank redeem their money following an individual failure is better then letting the people redeem their money following a total banking, currency and total economic failure.*****
Don't fall for the obvious Gold propaganda that is being overplayed in both the mainstream and alternative media. Sean Hannity, Rush Limbaugh, Genesis Communication all preaching gold, gold, gold.
> Money is just a medium of exchange. As long as the parties involved agree upon what the exchange rate. If individuals are free to make private contracts with one another, then they should be free to exchange money. Money, as I see it, could be described as a standardized government contract form approved for use by its citizenry.
>
> The issues with gold is that while it is innert and lasts a long time, there isn't much of it around. This creates a problem of scarcity. And when something is made scarce, then it gets a false value associated with it. On the flip side, you don't want people to be able to counterfeit money either. That goes for the government also. However, with modern technology, we can better create paper currencies that cannot easily be counterfeit.
> Today, we really don't need gold at all because we can create a relatively counterfeit-proof currency that is equally accessible. Thus we can get back to money just being just a contract again and not treated as something of value in and of itself.
>
> I am afraid that just because the FED instituted a fraudulent, inflationary, and destructive fiat currency that we necessarily need to run away from paper back to the inequality and scarcity of gold. That said, money has to be tied to something of value. I agree that the Goverment shouldn't counterfeit either.
> I am of the opinion that it was the HUD/FHA amortized loan and other amortized loans like it that were the major drivers of inflation in our economy. Banks create most of the money in our economy and amortized loans are the tool by which banks create that money. And exactly as the Feidman macroeconomic equation predicts, the amortized mortgage (double death) creates money each time a home is bought and sold for a higher price that does not match an increase in real output. It's the same house as before, just older and now costs more but is not worth more. This is an amazing verification of the Friedman equation. (in fact this point is exactly what woke me up in 2008)
> Despite your opinion that the Freidman Macroeconomic equation doesn't apply to the macroeconomics of inflation, I think I have just shown you a clear example of how a microeconomic mismatch between money creation, velocity, and real output creates macroeconomic inflation. The Amortized Mortgage is an inflation generator by doing exactly what the Freidman equation predicts.
>
> Freidman Monetarism may be ruining this country, but it's not because the equations don't apply or don't work. The equations do apply and the system is working just as the equation predicts.
> I suggest that because the Friedman equation does apply, that it is very possible that the SSS would not produced the unwanted inflation that you are convinced it would produce. Remember, money would never be created out of nothing. Money would only br created if there was a durable good it was being created to purchase or produce. Not unlike your system. Money supply, money velocity would stay proportional to real output.
>
> Again, just like your system. The real asset and the price has been negotiated before the loan is applied for. There is no speculation. if a building is being built, the materials, land, labor etc already exists and has a negotiated price before the money is created. In this system money ceases to be the rate limiting step.
> Again, I don't remember saying this or thinking this. If inflation is controlled, simple interest, fee-based loans can compete in a free market. Anyone is free to charge more and pay more. However in the SSS, local banks make money as they do now by charging a loan origination fee and a monthly service charge. The Gov makes money by charging a prime interest rate and generating revenue on what is a Constitutionally-sound voluntary tax on the entire money supply and not just a fraction of it (could make the income tax obsolete). And then we can get rid of the useless "too-big-to-fail" mega banks who were instituted because of our short but persistent history of small bank failures.
> In the Safety Society System we don't need the unelected wealthy capitalist to decide what to invest in. Our capitalist system tells us we need those few rich guys at the top of the pyramid. In this system we have a free market without a need for the the capitalists (oligarchs). And we can still have our football stadium and aquarium.
>
> In the SSS, If an individual is credit worthy and there is a real asset to purchase, the local bank would extend the loan and the loan would be repaid with interest and fees. And when the owner resold the asset, he would have equity from day 1 such that he wouldn't need to inflate the asking price to his neighbor.
>
> Furthermore, if a community wants a museum or an aquarium, they can qualify for a loan to build the aquarium or museum. And they don't need Billionaire ultra-elite capitalists to fund these building projects. Other financial institutions would fill the niches for venture capital and other speculative activities. SSS is about being full reserve and staying safe.
Monday, December 26, 2011
Tuesday, December 20, 2011
Milton Freidman Monetarism and Inflation
A friend was arguing that the Community Safety Society Banking and Loan System would generate unwanted inflation. This friend also said that the macroeconomic inflation equation did not apply or predict inflation on the microeconomic scale.
#1. MV = PQ. (money supply x velocity = price x real value
g(m) + g(v) = infl + g(y) . (growth rate of money supply + velocity = inflation + real output)
This equation says that as long as the growth rate of real output matches the growth rate of the money supply the system will not produce inflation.
#2. Mega FED-member Banks create most of the money in the US money supply through making loans via fractional reserve banking. The FED creates some money by selling bonds and then loans that money to a FED-member bank. The Mega Bank then can loan out 10 times that amount as home or business loans. Thus Banks create over 90% of the money supply out of thin air. This 10:1 ratio is called the money multiplier which was expanded (leveraged) to 50:1-100:1 via derivatives until the Basil 2 Accords (Basil 1 ruined Japan) contracted the money supply in 2007 busting the housing bubble.
#3. The HUD/FHA amortized mortgage produces inflation because the banks collect interest up front and the creditor doesn't build appreciable equity on the house unless they charge the next home owner a higher price for the same asset that has now depreciated in value or at least not changed in value. By definition, the amortized loan generates inflation. (increased money supply but not an increase in real output)
#4. The Safety Society System is a full reserve banking system. 100% of what is deposited is kept by the bank and not lent out. Banks become insolvent because they are fractional reserve and not full reserve. That means they only keep 10% of deposited money in the bank. And they don't keep the reserves as cash because of inflation but are forced to speculate and invest in bonds, stocks and volitile derivatives. If the derivatives or stocks crash then the banks lose their reserves and cannot lend and cannot pay depositors. The bank is then insolvent and goes bankrupt.
#5. SSS would have a totally separate credit and loan system from the deposits thus the depositors are not subjected to the risk of the borrowers. The SSS is full reserve and immune from stock market crashes and bank runs.
#6. The US Constitution Article 1 Section 8 says that Congess via the US Treasury is to "coin " all the money and regulate its value. Therefore, under SSS, an individual, community, corporation would go to their locally run and owned SSS to be approved for a loan to purchase or build or produce a real asset, real estate, land or commodity. The price would be negotiated beforehand and then the loan applied for. The money would then be created via the US Treasury and administered via the Community SSS. This new money doesn't need to be backed by gold because it is backed by the real asset, land, real estate, or commodity it is being used to buy, build, and produce.
#7. A gold standard is undesirable because gold is too rare, and it makes money scarce. Thus those with the gold have unelected Machiavellian power over the rest. Now that we can use technology to create paper currency that is difficult to counterfeit, we don't need to use the scarcity of gold as a medium of exchange. With paper, money can be produced and made available as much as is needed and is qualified for by credit-worthy individuals, communities, and corporations. Money would only be created in an "ask-and-ye-shall-receive" basis where value is assessed and price is negotiated and preceeds the money creation.
#8. In a perfect system, SSS would never create money that did not result in real output. Thus according to the Friedman equation, no inflation is generated. But in the inefficiencies of a real-world system there would be a small rate of inflation. Inflation can be easily controlled by taxation by the Federal Government through simple interest rates. Increased interest rates would take excess money out of the system.
#9. Local SSS would make money the same way local banks do today. SSS would charge a loan origination fee and a monthly loan service charge. These banks could operate as non-profits and collect enough fees to cover their overhead. Loan fees are how local banks make their money today as they immediately resell the loan to a bigger bank almost immediately who created the money out of thin air. If the SSS were allowed to compete, we wouldn't need the too-big-to-fail mega banks which were only allowed to back up the smaller fractional reserve banks who continually went bankrupt even in the days before the FED when US currency was gold-redeemable.
#10. The Federal Government generates revenue on these SSS loans by charging a prime simple interest rate. This Constitutional voluntary tax could supply the Federal Goverenment with all the money they could ever need because they would collect simple interest on all the money created in the money supply and not just a fraction of it as they do now. With the collection of prime interest on all money created in the US money supply, the Federal Government could do away with the involuntary income tax.
#11. In Capitalism, getting bank loans is such a bad deal, we need wealthy super-elite who amass huge amounts of money who we then turn to for loans for venture capital and for humanitarianism. We also depend on politicians for favors and pork-barrel money put into bills. If the Safety Society System were allowed to compete, and inflation were controlled, we wouldn't be as dependent on the ultra-wealthy elite or corrupt politicians to get monies for what we want to do or what we need. SSS is free-market without the capitalism. With SSS, we don't need to become financial sharecroppers and debt slaves to an ultra-wealthy elite class.
#12. SSS does not speculate or make money on money. Individuals and other financial institutions would do the business of venture capital and speculation. SSS is about being safe, full reserve, weathering any economic storm, and providing an equitable credit and loan system. Making money on money shouldn't be illegal but isn't right. Money shouldn't have any intrinsic value of itselt, it is just a contract, and its value is in the redeemable asset, good, or commodity that is backing it. In the SSS, all money is backed by something. But money should not be used to back more money creation. When money can be leveraged to make more money, it divides the people and pits the wealthy class against labor.
#13. SSS loans are simple interest, free-based loans and not compound loans that blow up exponentially. The borrower begins earning equity from the down payment and first monthly payments. In this way, with inflation controlled, the owner of the home loan doesn't need to charge the next home owner a higher price for the same home. SSS is about preserving value.
#14. Many people want to replace the FED and our current corrupt fiat currency system. But I would be careful not to act too emotionally and reactionary against what the corrupt Federal Reserve has done with paper currency. Going back to a gold-redeemable currency is not the best idea. We had this system before and we forget that the gobal elite still own most of the gold and have a De Beers-like monopoly on gold production. Thus gold prices can easily be inflated and crash just as they did beginning with the 1300's failure of the Gold Florin, up to the creation of the FED. By returning to a gold standard, the scarcity of gold would result in greatly limited economic growth potential. In a real way, returning to gold would would be like unwittingly accepting austerity measures.
#15. Others have suggested a system which requires that money-redeemable assets be sitting in a wearhouse first before money is created. However, this zero-sum system is, in the real world, slightly deflationary, and is a form of fractional-reserve lending. Also, the bank can only lend out enough money for people to re-purchase the goods in the wearhouse. So, its a kind of Merchantile Exchange and Bank at the same time. There really isn't enough money left over for other economic activity. Also, there is a problem of price fluctuations, regional price variation, and trading currencies with other banks that could make the bank vulnerable to failure. Money in this system would be very scarce, which would greatly hinder economic growth.
#16. Since the borrower builds equity from day 1, if the borrower misses a payment, the 1 missed payment does not result in the immediate default on the loan. Usually borrowers have paid faithfully for years and then come upon hard times, lost job, illness, and can't make their mortgage payments. In our current system, one missed payment means a family can lose their home and forfeit all the equity they have made. In the SSS, the borrower has equity from day one and a missed payment is just simply deducted from the individual's equity. Default does not occur until the borrower has lost all equity in the asset. The bank then would repossess, lease, operate, or resell the asset. So, the SSS loan becomes an immediate reverse mortgage at any time. In a way, it is a sort of insurance policy for the borrower and the bank. Added fees could also be assessed for missed payments if needed.
#1. MV = PQ. (money supply x velocity = price x real value
g(m) + g(v) = infl + g(y) . (growth rate of money supply + velocity = inflation + real output)
This equation says that as long as the growth rate of real output matches the growth rate of the money supply the system will not produce inflation.
#2. Mega FED-member Banks create most of the money in the US money supply through making loans via fractional reserve banking. The FED creates some money by selling bonds and then loans that money to a FED-member bank. The Mega Bank then can loan out 10 times that amount as home or business loans. Thus Banks create over 90% of the money supply out of thin air. This 10:1 ratio is called the money multiplier which was expanded (leveraged) to 50:1-100:1 via derivatives until the Basil 2 Accords (Basil 1 ruined Japan) contracted the money supply in 2007 busting the housing bubble.
#3. The HUD/FHA amortized mortgage produces inflation because the banks collect interest up front and the creditor doesn't build appreciable equity on the house unless they charge the next home owner a higher price for the same asset that has now depreciated in value or at least not changed in value. By definition, the amortized loan generates inflation. (increased money supply but not an increase in real output)
#4. The Safety Society System is a full reserve banking system. 100% of what is deposited is kept by the bank and not lent out. Banks become insolvent because they are fractional reserve and not full reserve. That means they only keep 10% of deposited money in the bank. And they don't keep the reserves as cash because of inflation but are forced to speculate and invest in bonds, stocks and volitile derivatives. If the derivatives or stocks crash then the banks lose their reserves and cannot lend and cannot pay depositors. The bank is then insolvent and goes bankrupt.
#5. SSS would have a totally separate credit and loan system from the deposits thus the depositors are not subjected to the risk of the borrowers. The SSS is full reserve and immune from stock market crashes and bank runs.
#6. The US Constitution Article 1 Section 8 says that Congess via the US Treasury is to "coin " all the money and regulate its value. Therefore, under SSS, an individual, community, corporation would go to their locally run and owned SSS to be approved for a loan to purchase or build or produce a real asset, real estate, land or commodity. The price would be negotiated beforehand and then the loan applied for. The money would then be created via the US Treasury and administered via the Community SSS. This new money doesn't need to be backed by gold because it is backed by the real asset, land, real estate, or commodity it is being used to buy, build, and produce.
#7. A gold standard is undesirable because gold is too rare, and it makes money scarce. Thus those with the gold have unelected Machiavellian power over the rest. Now that we can use technology to create paper currency that is difficult to counterfeit, we don't need to use the scarcity of gold as a medium of exchange. With paper, money can be produced and made available as much as is needed and is qualified for by credit-worthy individuals, communities, and corporations. Money would only be created in an "ask-and-ye-shall-receive" basis where value is assessed and price is negotiated and preceeds the money creation.
#8. In a perfect system, SSS would never create money that did not result in real output. Thus according to the Friedman equation, no inflation is generated. But in the inefficiencies of a real-world system there would be a small rate of inflation. Inflation can be easily controlled by taxation by the Federal Government through simple interest rates. Increased interest rates would take excess money out of the system.
#9. Local SSS would make money the same way local banks do today. SSS would charge a loan origination fee and a monthly loan service charge. These banks could operate as non-profits and collect enough fees to cover their overhead. Loan fees are how local banks make their money today as they immediately resell the loan to a bigger bank almost immediately who created the money out of thin air. If the SSS were allowed to compete, we wouldn't need the too-big-to-fail mega banks which were only allowed to back up the smaller fractional reserve banks who continually went bankrupt even in the days before the FED when US currency was gold-redeemable.
#10. The Federal Government generates revenue on these SSS loans by charging a prime simple interest rate. This Constitutional voluntary tax could supply the Federal Goverenment with all the money they could ever need because they would collect simple interest on all the money created in the money supply and not just a fraction of it as they do now. With the collection of prime interest on all money created in the US money supply, the Federal Government could do away with the involuntary income tax.
#11. In Capitalism, getting bank loans is such a bad deal, we need wealthy super-elite who amass huge amounts of money who we then turn to for loans for venture capital and for humanitarianism. We also depend on politicians for favors and pork-barrel money put into bills. If the Safety Society System were allowed to compete, and inflation were controlled, we wouldn't be as dependent on the ultra-wealthy elite or corrupt politicians to get monies for what we want to do or what we need. SSS is free-market without the capitalism. With SSS, we don't need to become financial sharecroppers and debt slaves to an ultra-wealthy elite class.
#12. SSS does not speculate or make money on money. Individuals and other financial institutions would do the business of venture capital and speculation. SSS is about being safe, full reserve, weathering any economic storm, and providing an equitable credit and loan system. Making money on money shouldn't be illegal but isn't right. Money shouldn't have any intrinsic value of itselt, it is just a contract, and its value is in the redeemable asset, good, or commodity that is backing it. In the SSS, all money is backed by something. But money should not be used to back more money creation. When money can be leveraged to make more money, it divides the people and pits the wealthy class against labor.
#13. SSS loans are simple interest, free-based loans and not compound loans that blow up exponentially. The borrower begins earning equity from the down payment and first monthly payments. In this way, with inflation controlled, the owner of the home loan doesn't need to charge the next home owner a higher price for the same home. SSS is about preserving value.
#14. Many people want to replace the FED and our current corrupt fiat currency system. But I would be careful not to act too emotionally and reactionary against what the corrupt Federal Reserve has done with paper currency. Going back to a gold-redeemable currency is not the best idea. We had this system before and we forget that the gobal elite still own most of the gold and have a De Beers-like monopoly on gold production. Thus gold prices can easily be inflated and crash just as they did beginning with the 1300's failure of the Gold Florin, up to the creation of the FED. By returning to a gold standard, the scarcity of gold would result in greatly limited economic growth potential. In a real way, returning to gold would would be like unwittingly accepting austerity measures.
#15. Others have suggested a system which requires that money-redeemable assets be sitting in a wearhouse first before money is created. However, this zero-sum system is, in the real world, slightly deflationary, and is a form of fractional-reserve lending. Also, the bank can only lend out enough money for people to re-purchase the goods in the wearhouse. So, its a kind of Merchantile Exchange and Bank at the same time. There really isn't enough money left over for other economic activity. Also, there is a problem of price fluctuations, regional price variation, and trading currencies with other banks that could make the bank vulnerable to failure. Money in this system would be very scarce, which would greatly hinder economic growth.
#16. Since the borrower builds equity from day 1, if the borrower misses a payment, the 1 missed payment does not result in the immediate default on the loan. Usually borrowers have paid faithfully for years and then come upon hard times, lost job, illness, and can't make their mortgage payments. In our current system, one missed payment means a family can lose their home and forfeit all the equity they have made. In the SSS, the borrower has equity from day one and a missed payment is just simply deducted from the individual's equity. Default does not occur until the borrower has lost all equity in the asset. The bank then would repossess, lease, operate, or resell the asset. So, the SSS loan becomes an immediate reverse mortgage at any time. In a way, it is a sort of insurance policy for the borrower and the bank. Added fees could also be assessed for missed payments if needed.
Monday, December 19, 2011
Community Safety Society Banking and Loan System
You indicated in your response that the Community Safety Society would result in unwanted inflation. I agree that inflation is undesirable. However, I am not yet convinced that the Saftey Society would produce inflation. And I would like to explore this a bit more with you.
I am not opposed to the idea of all US currency being fully backed by gold and silver. I also recognize that the banking profession needs to cover its overhead. So, I have no problem with banks issuing fee-based and simple interest loans. The Catholic Church probiltion against the collection of any interest created a credit black market in the Middle Ages that led to all sorts of abuses. (Lombards, Templar Houses, Florentine and Venetian Banks)
However, I do not believe that it is not right nor necessary for money to make money. This divides the people and pits wealth against labor. Furthermore, full-reserve banks shouldn't issue loans based on depositor's gold; even by contract: 1. extending loans based on gold deposits subjects depositors to risk by the creditors. 2. Loaning deposits is another type of inherently risky fractional-reserve system 3. According to the Constitution, only the Federal Government should have the power to coin the money and regulate its value. In our current system, fractional reserve banks create a large majority of our money. How is extending loans based on private deposits any different?
Therefore, in my opinion, If we decide to create an inflationless economy, we need a banking system that focuses on preserving the value of our deposits as well as being immune from banking failure (full reserve). At the same time, we must create a credit system where credit is so readily and equitably accessible, there is no need to subjugate ourselves to a wealthy class. To do this, It is my opinion that we need a credit system that operates independently from the deposit system.
A locally owned and operated Community Safety Society would be full-reserve. The bank would hold 100% of its deposits in reserve. Money for new loans would come from the US Treasury. This money could also be gold-backed. If an individual, corporation, or community, demonstrates credit-worthiness, then they should be granted a fee-based, low, simple interest loan to go towards the purchase of or production of real estate, real assets, durable goods, and commodities. (money never lent for speculation).
According to my very limited economics understanding, "real demand" should not produce inflation. According to g(m) + g(v) = infl + g(y). As long as the growth rate of the money supply = growth rate of real output, then inflation = 0. It's only when the money supply exceeds real output that inflation is produced.
In the Safety Society System, money is only ever created and credit extended for the projected production and/or purchase of real assets on an "ask and ye shall receive" basis. Money is never created without real demand and projected real output in some sort of Keynesian injection of liquidity.
Our current system produces inflation because the money is created first and the price comes second. In this system, price precedes money creation. An example of money creation preceeding price is the FHA/HUD amortized loan. With interest collected up front, the only way to earn equity is to charge the next buyer a higher price. Thus, this loan has money creation built into it which drives an inflating price for a depreciating asset. In the Safety Society System, a borrower earns equity from day 1 and is free to sell the asset for its real price.
In conclusion, have no objections to the Federal Government creating only "gold-backed" currency. However, we don't change our history of perpetual banking failures unless we establish a full-reserve system, control inflation, and establish an equitable and available credit system.
Furthermore, Constitutional money is more than just gold and silver, but it is about the Federal Government doing one of the few things enumerated in the Constitution; which is to coin "all" of the money and not just a fraction of it.
With such an equitable and available credit system, there would be much less need for companies to "go public", sell stock, have their boards infiltrated, and then risk getting bought out in a hostile takeover. Also, the Safety Society System could mean a great reduction or even an end to pork barrel politics.
P.S, these are a few quotes that are some of the basis for the Safety Society System. I'm not sure they are even authentic. But they make the point about the importance of controlling our currency, credit, and inflation.
"If that mischievous financial policy which had its origin in the North America Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe."
“That is simple. In the Colonies, we issue our own paper money. It is called ‘Colonial Scrip.’ We issue it in proper proportion to make the goods and pass easily from the producers to the consumers. In this manner, creating ourselves our own paper money, we control its purchasing power and we have no interest to pay to no one.”. -Benjamin Franklin
"The Colonies would gladly have borne the little tax on tea and other matters had it not been the poverty caused by the bad influence of the English bankers on the Parliament (The Currency Act of 1751), which has caused in the Colonies hatred of England and the Revolutionary War." -Benjamin Franklin.
Hopefully, the last time. I know we have beat this to death. Thank you for your responses . I think I better understand where you are coming from and I hope you understand where I am coming from. I'm not set on convincing you, I just want to feel like you understand what the concept. I am keeping an open mind but I'm happy you would take the time to discuss this issue.
I get the gold idea. Ending the FED and fiat and a return to "gold redeemable" money and a continuation of fractional reserve banking is very popular. Zeitgeist and many "white hat" are pulling for it. It seems every other commercial on the radio is selling gold. When we finally see the end of the FED and the end of the dollar, I'm sure we'll all think we just won some great battle. We've had gold redeemable currencies before.
I can appreciate your added idea that money creation be completely decentralized. Its a great idea. However, this idea could be a bit reactionary (pendulum swinging too far opposite the FED). But, I guess your bank could also be your store that made loans based on the value of its inventory. People could take out loans from the Merchantile Exchange and then return that money to the same Merchantile Exchange for whatever goods they wanted. Interesting idea.
The Merchantile Exchange Bank could have a problem I think. It seems to me that the Exchange would only ever be able to lend out the exact money to purchase the inventory in its wearhouse. If the bank can only lend out enough money for the people to buy out its inventory, how is there any money left over to do any other economic activity? How do you import anything? What do you do with price fluctuations? How would
Hopefully, the last time. I know we have beat this to death. Thank you for your responses . I think I better understand where you are coming from and I hope you understand where I am coming from. I'm not set on convincing you, I just want to feel like you understand what the concept. I am keeping an open mind but I'm happy you would take the time to discuss this issue.
I get the gold idea. Ending the FED and fiat and a return to "gold redeemable" money and a continuation of fractional reserve banking is very popular. Zeitgeist and many "white hat" are pulling for it. It seems every other commercial on the radio is selling gold. When we finally see the end of the FED and the end of the dollar, I'm sure we'll all think we just won some great battle. We've had gold redeemable currencies before.
I can appreciate your added idea that money creation be completely decentralized. Its a great idea. However, this idea could be a bit reactionary (pendulum swinging too far opposite the FED). But, I guess your bank could also be your store that made loans based on the value of its inventory. People could take out loans from the Merchantile Exchange and then return that money to the same Merchantile Exchange for whatever goods they wanted. Interesting idea.
The Merchantile Exchange Bank could have a problem I think. It seems to me that the Exchange would only ever be able to lend out the exact money to purchase the inventory in its wearhouse. If the bank can only lend out enough money for the people to buy out its inventory, how is there any money left over to do any other economic activity? How do you import anything? What do you do with price fluctuations? How would currency exchange from bank to bank? Seems like you would have to get in line for a loan. I'll have to give this some more thought.
Another idea I would love to see is to actually do as the Constitution suggests. Unfortunately, because of fractional reserve lending, we've always had banks creating a majority of our money in this country and not Congress.
I seriously think it is possible that the FED instituted a corrupt paper currency to drive us away from paper and back to gold. Thinking on the London Times comment, I think there may be something about paper currency that TPTB are hoping we miss as we run away from it.
#####"it can't have gold unless it buys it from those who produce it, or taxes it away from people. That's not a costless transaction"####
I suggested gold redeemable currency attempting to be conciliatory. But you make a good point here. I agree that the government taxing away the people's gold would add unwanted cost. So, I will repent on this idea. Let's forget gold all together.
####"True money has to be a certificate of value for durable goods in a warehouse, "####
Money is just a medium of exchange. As long as the parties involved agree upon what the exchange rate. If individuals are free to make private contracts with one another, then they should be free to exchange money. Money, as I see it, could be described as a standardized government contract form approved for use by its citizenry.
The issues with gold is that while it is innert and lasts a long time, there isn't much of it around. This creates a problem of scarcity. And when something is made scarce, then it gets a false value associated with it. On the flip side, you don't want people to be able to counterfeit money either. That goes for the government also. However, with modern technology, we can better create paper currencies that cannot easily be counterfeit.
Today, we really don't need gold at all because we can create a relatively counterfeit-proof currency that is equally accessible. Thus we can get back to money just being just a contract again and not treated as something of value in and of itself.
I am afraid that just because the FED instituted a fraudulent, inflationary, and destructive fiat currency that we necessarily need to run away from paper back to the inequality and scarcity of gold. That said, money has to be tied to something of value. I agree that the Goverment shouldn't counterfeit either.
I am of the opinion that it was the HUD/FHA amortized loan and other amortized loans like it that were the major drivers of inflation in our economy. Banks create most of the money in our economy and amortized loans are the tool by which banks create that money. And exactly as the Feidman macroeconomic equation predicts, the amortized mortgage (double death) creates money each time a home is bought and sold for a higher price that does not match an increase in real output. It's the same house as before, just older and now costs more but is not worth more. This is an amazing verification of the Friedman equation. (in fact this point is exactly what woke me up in 2008)
Despite your opinion that the Freidman Macroeconomic equation doesn't apply to the macroeconomics of inflation, I think I have just shown you a clear example of how a microeconomic mismatch between money creation, velocity, and real output creates macroeconomic inflation. The Amortized Mortgage is an inflation generator by doing exactly what the Freidman equation predicts.
Freidman Monetarism may be ruining this country, but it's not because the equations don't apply or don't work. The equations do apply and the system is working just as the equation predicts.
I suggest that because the Friedman equation does apply, that it is very possible that the SSS would not produced the unwanted inflation that you are convinced it would produce. Remember, money would never be created out of nothing. Money would only br created if there was a durable good it was being created to purchase or produce. Not unlike your system. Money supply, money velocity would stay proportional to real output.
Again, just like your system. The real asset and the price has been negotiated before the loan is applied for. There is no speculation. if a building is being built, the materials, land, labor etc already exists and has a negotiated price before the money is created. In this system money ceases to be the rate limiting step.
####"you can't create anything from nothing ... and not be inflationary"####
As I said, I agree that currency needs to represent something of value. I never said that I supported the Federal Government just printing money out of nothing as we do now. In the Safety Society System, money is backed by the real durrable assets it is being created to purchase, or being created to produce.
####"Just because the Constitution gave congress the right to coin and regulate money doesn't mean it's right "####
I say, let's follow our inspired Constitution first before deciding if it's "right" or not.
####"no cost loans"####
Again, I don't remember saying this or thinking this. If inflation is controlled, simple interest, fee-based loans can compete in a free market. Anyone is free to charge more and pay more. However in the SSS, local banks make money as they do now by charging a loan origination fee and a monthly service charge. The Gov makes money by charging a prime interest rate and generating revenue on what is a Constitutionally-sound voluntary tax on the entire money supply and not just a fraction of it (could make the income tax obsolete). And then we can get rid of the useless "too-big-to-fail" mega banks who were instituted because of our short but persistent history of small bank failures.
####"It's also wrong to say compound interest is illegal. "####
I don't remember saying or even thinking this. But if we control inflation, and simple interest, fee-based loans are available, I'm sure they would compete very well in a free market. Again, I haven't proposed making anything illegal. I just would like to see these ideas compete in a free market.
What I did say is that I don't agree that money needs to be used to make more money. I wouldn't make this illegal, my system would make loan sharks obsolete.
####"There is no free lunch on loans, much as you persist in trying to make it so."####
In the Safety Society System we don't need the unelected wealthy capitalist to decide what to invest in. Our capitalist system tells us we need those few rich guys at the top of the pyramid.
In the SSS, If an individual is credit worthy and there is a real asset to purchase, the local bank would extend the loan and the loan would be repaid with interest and fees. And when the owner resold the asset, he would have equity from day 1 such that he wouldn't need to inflate the asking price to his neighbor.
Furthermore, if a community wants a museum or an aquarium, they can qualify for a loan to build the aquarium or museum. And they don't need Billionaire ultra-elite capitalists to fund these building projects.
Other financial institutions would fill the niches for venture capital and other speculative activities. SSS is about being full reserve and staying safe.
I am not opposed to the idea of all US currency being fully backed by gold and silver. I also recognize that the banking profession needs to cover its overhead. So, I have no problem with banks issuing fee-based and simple interest loans. The Catholic Church probiltion against the collection of any interest created a credit black market in the Middle Ages that led to all sorts of abuses. (Lombards, Templar Houses, Florentine and Venetian Banks)
However, I do not believe that it is not right nor necessary for money to make money. This divides the people and pits wealth against labor. Furthermore, full-reserve banks shouldn't issue loans based on depositor's gold; even by contract: 1. extending loans based on gold deposits subjects depositors to risk by the creditors. 2. Loaning deposits is another type of inherently risky fractional-reserve system 3. According to the Constitution, only the Federal Government should have the power to coin the money and regulate its value. In our current system, fractional reserve banks create a large majority of our money. How is extending loans based on private deposits any different?
Therefore, in my opinion, If we decide to create an inflationless economy, we need a banking system that focuses on preserving the value of our deposits as well as being immune from banking failure (full reserve). At the same time, we must create a credit system where credit is so readily and equitably accessible, there is no need to subjugate ourselves to a wealthy class. To do this, It is my opinion that we need a credit system that operates independently from the deposit system.
A locally owned and operated Community Safety Society would be full-reserve. The bank would hold 100% of its deposits in reserve. Money for new loans would come from the US Treasury. This money could also be gold-backed. If an individual, corporation, or community, demonstrates credit-worthiness, then they should be granted a fee-based, low, simple interest loan to go towards the purchase of or production of real estate, real assets, durable goods, and commodities. (money never lent for speculation).
According to my very limited economics understanding, "real demand" should not produce inflation. According to g(m) + g(v) = infl + g(y). As long as the growth rate of the money supply = growth rate of real output, then inflation = 0. It's only when the money supply exceeds real output that inflation is produced.
In the Safety Society System, money is only ever created and credit extended for the projected production and/or purchase of real assets on an "ask and ye shall receive" basis. Money is never created without real demand and projected real output in some sort of Keynesian injection of liquidity.
Our current system produces inflation because the money is created first and the price comes second. In this system, price precedes money creation. An example of money creation preceeding price is the FHA/HUD amortized loan. With interest collected up front, the only way to earn equity is to charge the next buyer a higher price. Thus, this loan has money creation built into it which drives an inflating price for a depreciating asset. In the Safety Society System, a borrower earns equity from day 1 and is free to sell the asset for its real price.
In conclusion, have no objections to the Federal Government creating only "gold-backed" currency. However, we don't change our history of perpetual banking failures unless we establish a full-reserve system, control inflation, and establish an equitable and available credit system.
Furthermore, Constitutional money is more than just gold and silver, but it is about the Federal Government doing one of the few things enumerated in the Constitution; which is to coin "all" of the money and not just a fraction of it.
With such an equitable and available credit system, there would be much less need for companies to "go public", sell stock, have their boards infiltrated, and then risk getting bought out in a hostile takeover. Also, the Safety Society System could mean a great reduction or even an end to pork barrel politics.
P.S, these are a few quotes that are some of the basis for the Safety Society System. I'm not sure they are even authentic. But they make the point about the importance of controlling our currency, credit, and inflation.
"If that mischievous financial policy which had its origin in the North America Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe."
“That is simple. In the Colonies, we issue our own paper money. It is called ‘Colonial Scrip.’ We issue it in proper proportion to make the goods and pass easily from the producers to the consumers. In this manner, creating ourselves our own paper money, we control its purchasing power and we have no interest to pay to no one.”. -Benjamin Franklin
"The Colonies would gladly have borne the little tax on tea and other matters had it not been the poverty caused by the bad influence of the English bankers on the Parliament (The Currency Act of 1751), which has caused in the Colonies hatred of England and the Revolutionary War." -Benjamin Franklin.
Hopefully, the last time. I know we have beat this to death. Thank you for your responses . I think I better understand where you are coming from and I hope you understand where I am coming from. I'm not set on convincing you, I just want to feel like you understand what the concept. I am keeping an open mind but I'm happy you would take the time to discuss this issue.
I get the gold idea. Ending the FED and fiat and a return to "gold redeemable" money and a continuation of fractional reserve banking is very popular. Zeitgeist and many "white hat" are pulling for it. It seems every other commercial on the radio is selling gold. When we finally see the end of the FED and the end of the dollar, I'm sure we'll all think we just won some great battle. We've had gold redeemable currencies before.
I can appreciate your added idea that money creation be completely decentralized. Its a great idea. However, this idea could be a bit reactionary (pendulum swinging too far opposite the FED). But, I guess your bank could also be your store that made loans based on the value of its inventory. People could take out loans from the Merchantile Exchange and then return that money to the same Merchantile Exchange for whatever goods they wanted. Interesting idea.
The Merchantile Exchange Bank could have a problem I think. It seems to me that the Exchange would only ever be able to lend out the exact money to purchase the inventory in its wearhouse. If the bank can only lend out enough money for the people to buy out its inventory, how is there any money left over to do any other economic activity? How do you import anything? What do you do with price fluctuations? How would
Hopefully, the last time. I know we have beat this to death. Thank you for your responses . I think I better understand where you are coming from and I hope you understand where I am coming from. I'm not set on convincing you, I just want to feel like you understand what the concept. I am keeping an open mind but I'm happy you would take the time to discuss this issue.
I get the gold idea. Ending the FED and fiat and a return to "gold redeemable" money and a continuation of fractional reserve banking is very popular. Zeitgeist and many "white hat" are pulling for it. It seems every other commercial on the radio is selling gold. When we finally see the end of the FED and the end of the dollar, I'm sure we'll all think we just won some great battle. We've had gold redeemable currencies before.
I can appreciate your added idea that money creation be completely decentralized. Its a great idea. However, this idea could be a bit reactionary (pendulum swinging too far opposite the FED). But, I guess your bank could also be your store that made loans based on the value of its inventory. People could take out loans from the Merchantile Exchange and then return that money to the same Merchantile Exchange for whatever goods they wanted. Interesting idea.
The Merchantile Exchange Bank could have a problem I think. It seems to me that the Exchange would only ever be able to lend out the exact money to purchase the inventory in its wearhouse. If the bank can only lend out enough money for the people to buy out its inventory, how is there any money left over to do any other economic activity? How do you import anything? What do you do with price fluctuations? How would currency exchange from bank to bank? Seems like you would have to get in line for a loan. I'll have to give this some more thought.
Another idea I would love to see is to actually do as the Constitution suggests. Unfortunately, because of fractional reserve lending, we've always had banks creating a majority of our money in this country and not Congress.
I seriously think it is possible that the FED instituted a corrupt paper currency to drive us away from paper and back to gold. Thinking on the London Times comment, I think there may be something about paper currency that TPTB are hoping we miss as we run away from it.
#####"it can't have gold unless it buys it from those who produce it, or taxes it away from people. That's not a costless transaction"####
I suggested gold redeemable currency attempting to be conciliatory. But you make a good point here. I agree that the government taxing away the people's gold would add unwanted cost. So, I will repent on this idea. Let's forget gold all together.
####"True money has to be a certificate of value for durable goods in a warehouse, "####
Money is just a medium of exchange. As long as the parties involved agree upon what the exchange rate. If individuals are free to make private contracts with one another, then they should be free to exchange money. Money, as I see it, could be described as a standardized government contract form approved for use by its citizenry.
The issues with gold is that while it is innert and lasts a long time, there isn't much of it around. This creates a problem of scarcity. And when something is made scarce, then it gets a false value associated with it. On the flip side, you don't want people to be able to counterfeit money either. That goes for the government also. However, with modern technology, we can better create paper currencies that cannot easily be counterfeit.
Today, we really don't need gold at all because we can create a relatively counterfeit-proof currency that is equally accessible. Thus we can get back to money just being just a contract again and not treated as something of value in and of itself.
I am afraid that just because the FED instituted a fraudulent, inflationary, and destructive fiat currency that we necessarily need to run away from paper back to the inequality and scarcity of gold. That said, money has to be tied to something of value. I agree that the Goverment shouldn't counterfeit either.
I am of the opinion that it was the HUD/FHA amortized loan and other amortized loans like it that were the major drivers of inflation in our economy. Banks create most of the money in our economy and amortized loans are the tool by which banks create that money. And exactly as the Feidman macroeconomic equation predicts, the amortized mortgage (double death) creates money each time a home is bought and sold for a higher price that does not match an increase in real output. It's the same house as before, just older and now costs more but is not worth more. This is an amazing verification of the Friedman equation. (in fact this point is exactly what woke me up in 2008)
Despite your opinion that the Freidman Macroeconomic equation doesn't apply to the macroeconomics of inflation, I think I have just shown you a clear example of how a microeconomic mismatch between money creation, velocity, and real output creates macroeconomic inflation. The Amortized Mortgage is an inflation generator by doing exactly what the Freidman equation predicts.
Freidman Monetarism may be ruining this country, but it's not because the equations don't apply or don't work. The equations do apply and the system is working just as the equation predicts.
I suggest that because the Friedman equation does apply, that it is very possible that the SSS would not produced the unwanted inflation that you are convinced it would produce. Remember, money would never be created out of nothing. Money would only br created if there was a durable good it was being created to purchase or produce. Not unlike your system. Money supply, money velocity would stay proportional to real output.
Again, just like your system. The real asset and the price has been negotiated before the loan is applied for. There is no speculation. if a building is being built, the materials, land, labor etc already exists and has a negotiated price before the money is created. In this system money ceases to be the rate limiting step.
####"you can't create anything from nothing ... and not be inflationary"####
As I said, I agree that currency needs to represent something of value. I never said that I supported the Federal Government just printing money out of nothing as we do now. In the Safety Society System, money is backed by the real durrable assets it is being created to purchase, or being created to produce.
####"Just because the Constitution gave congress the right to coin and regulate money doesn't mean it's right "####
I say, let's follow our inspired Constitution first before deciding if it's "right" or not.
####"no cost loans"####
Again, I don't remember saying this or thinking this. If inflation is controlled, simple interest, fee-based loans can compete in a free market. Anyone is free to charge more and pay more. However in the SSS, local banks make money as they do now by charging a loan origination fee and a monthly service charge. The Gov makes money by charging a prime interest rate and generating revenue on what is a Constitutionally-sound voluntary tax on the entire money supply and not just a fraction of it (could make the income tax obsolete). And then we can get rid of the useless "too-big-to-fail" mega banks who were instituted because of our short but persistent history of small bank failures.
####"It's also wrong to say compound interest is illegal. "####
I don't remember saying or even thinking this. But if we control inflation, and simple interest, fee-based loans are available, I'm sure they would compete very well in a free market. Again, I haven't proposed making anything illegal. I just would like to see these ideas compete in a free market.
What I did say is that I don't agree that money needs to be used to make more money. I wouldn't make this illegal, my system would make loan sharks obsolete.
####"There is no free lunch on loans, much as you persist in trying to make it so."####
In the Safety Society System we don't need the unelected wealthy capitalist to decide what to invest in. Our capitalist system tells us we need those few rich guys at the top of the pyramid.
In the SSS, If an individual is credit worthy and there is a real asset to purchase, the local bank would extend the loan and the loan would be repaid with interest and fees. And when the owner resold the asset, he would have equity from day 1 such that he wouldn't need to inflate the asking price to his neighbor.
Furthermore, if a community wants a museum or an aquarium, they can qualify for a loan to build the aquarium or museum. And they don't need Billionaire ultra-elite capitalists to fund these building projects.
Other financial institutions would fill the niches for venture capital and other speculative activities. SSS is about being full reserve and staying safe.
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."
ENUMERATED PRIVILEGE
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.
MONEY SUPPLY
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.
MONEY CREATION
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.
SAFETY 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.
AMORTIZATION AND INFLATION
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.
LOW RISK
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.
REVENUE
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.
INFLATION CONTROL
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.
FULL RESERVE BANKING
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.
VENTURE CAPITAL
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.
RETAINING VALUE
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
dbrosnahan@gmail.com
Martinez, GA
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."
ENUMERATED PRIVILEGE
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.
MONEY SUPPLY
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.
MONEY CREATION
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.
SAFETY 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.
AMORTIZATION AND INFLATION
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.
LOW RISK
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.
REVENUE
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.
INFLATION CONTROL
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.
FULL RESERVE BANKING
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.
VENTURE CAPITAL
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.
RETAINING VALUE
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
dbrosnahan@gmail.com
Martinez, GA
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