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Gubernatorial candidate’s revolutionary money plan holds the key to solving the looming financial disaster

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  • Thu, Jun 10, 2010 - 04:20pm

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    DrKrbyLuv

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    Gubernatorial candidate’s revolutionary money plan holds the key to solving the looming financial disaster

Gubernatorial candidate’s money plan key to his campaign

Like most candidates for public office, Leslie Davis has a position on the issues of the day. Davis, who aims to become the Republican candidate for Minnesota governor by winning a primary on Aug. 10, will talk about his beliefs on guns, reproductive rights and nuclear power.

But the centerpiece of his campaign is an idea for righting the economy that he calls “The Davis Money Plan.”

Davis, along with Austin resident Gregory Soderberg, a candidate for lieutenant governor, was in Austin on Friday to talk with city leaders and the media about his economic plan and candidacy.

If elected, Davis said, he would push for legislation to exempt state-regulated banks from needing deposits to create “new money.” Much simplified, the plan would work like this: Free to create money, state-chartered banks would put funds into the state treasury to pay for construction and maintenance of Minnesota roads and bridges. Those projects would, in turn, create jobs and a boost to the economy.

Benefits, Davis and Soderberg said, would include a balanced state budget, jobs for thousands, increased state revenues and state-of-the-art roads and bridges.

The alternative, they believe, is a looming financial disaster fueled by increasing personal and institutional debt.

I think most of us here recognize the “looming financial disaster” as the exponential growth of debt from the Crash Course.  Finally, solutions are being offered at the state level (five other states are reviewing state banks). 

How “The Davis Money Plan” Will Rescue Minnesota  Part 1

Minnesota’s next governor, and legislature, will face a budget deficit that can be “remedied” without increasing taxes or cutting important programs in Health and Human Services and Education.

To understand the “remedy” you must first know that our current “fractional” banking system allows state-regulated banks (not National banks such as Wells Fargo and US Bank) to create, and lend, nine times more money then they have on deposit.

How is that possible? How can banks create, and lend, nine times more money then they have on deposit and still have the money when the depositor wants it?  If you had one dollar could you lend out nine dollars? Of course not. So how do banks do it?

Banks are allowed, by law, to create as much “new money” as they want as long as their deposits are 10% (a fraction) of their loan totals. Therefore the term “fractional” banking.

In “fractional” banking the banks “create money” as computer entries. Just digits in a computer. That’s what the money is. Digits in a computer. BANKS DO NOT LEND DEPOSITOR MONEY. THEY LEND MONEY THAT IS COMPUTER CREATED BASED UPON A PERCENTAGE OF DEPOSITS.

For example, when a person deposits money with a state-regulated bank, that deposit allows the bank to “create” nine times more money by using its “fractional” banking authority. The bank might pay a depositor 4% interest on a one thousand dollar deposit ($40), and collect 10% interest on nine thousand dollars worth of loans they made from money “created” by that deposit ($900). Thus, the one thousand dollar deposit was the trigger that allowed the bank to create brand new money to lend. BANKS DO NOT LEND DEPOSITOR’S MONEY, THEY LEND MONEY CREATED AS A RESULT OF DEPOSITS.

When a bank makes a loan it simply transfers numbers that it “created” in its computer, to a borrower’s check account. Just numbers. If a borrower wants paper money for the numbers they can simply write a check for it. This information was provided by Minnesota Commerce Commissioner Wilson and depicted in his chart entitled “How State Banks Create Money”.

“The Davis Money Plan” Part 2

“The Davis Money Plan” provides for the construction and maintenance of all Minnesota roads and bridges with no taxes, no loans, and no debt.  “The Davis Money Plan” calls for passing legislation to exempt state-regulated banks from needing deposits in order to create “new money” that will pay for construction and maintenance of all Minnesota roads and bridges.

The “newly created money” will be total and final payment for the production of roads and bridges, and does not have to be paid back. The money, or numbers, eventually enter the general circulation of the economy to help everyone by expanding the money supply without inflation. What causes inflation are taxes and interest on money because they add to the cost of everything.

Bankers love “The Davis Money Plan” because it will benefit them greatly. Bankers envision thousands more people working, depositing money in their banks, paying bills, buying boats, financing new houses, and all the rest that prosperity brings. In a rising economy the banks and other financial institutions will do better than anyone else and that is why they greatly support “The Davis Money Plan”.

Benefits of the “The Davis Money Plan” will be:

  • Balanced state budget
  • Jobs and education for thousands of people
  • Increased state revenue from more people working
  • State-of-the-art roads and bridges with no debt or taxes

I am mailing a copy of the plan to my state legislators and requesting a meeting.  This is an opportunity for all of us to get involved with practical solutions!

Larry

H/T to our Thomas Hedin for his hard work in helping to make monetary reform an issue for the people

  • Thu, Jun 10, 2010 - 09:54pm

    #2
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: Gubernatorial candidate’s revolutionary money plan …

  • The political push to reduce government deficits is economically misguided, based on an irrational “phobia” of deficits.
  • If we want economic growth, we need more spending. Only banks and governments can stimulate spending because (in his words): “Governments and banks are the two entities with the power to create something from nothing.”
  • We shouldn’t worry about the alleged impending bankruptcy of Social Security or Medicare — or of the U.S. government itself. Why? Because the government is the source of money and therefore can’t run out.
  • Government debt is not really a “burden on future generations,” because it never has to be repaid. Each generation can just pass that debt onto the next generation, so there’s no problem.
  • http://www.capitalismmagazine.com/markets/financial-crisis/5999-Defense-Deficits-Beware-James-Galbraiths-Snake-Oil.html

    Money is the tool of men who have reached a high level of productivity and a long-range control over their lives. Money is not merely a tool of exchange: much more importantly, it is a tool of saving, which permits delayed consumption and buys time for future production. To fulfill this requirement, money has to be some material commodity which is imperishable, rare, homogeneous, easily stored, not subject to wide fluctuations of value, and always in demand among those you trade with. This leads you to the decision to use gold as money. Gold money is a tangible value in itself and a token of wealth actually produced. When you accept a gold coin in payment for your goods, you actually deliver the goods to the buyer; the transaction is as safe as simple barter. When you store your savings in the form of gold coins, they represent the goods which you have actually produced and which have gone to buy time for other producers, who will keep the productive process going, so that you’ll be able to trade your coins for goods any time you wish.

    Now project what would happen to your community of a hundred hard-working, prosperous, forward-moving people, if one man were allowed to trade on your market, not by means of gold, but by means of paper—i.e., if he paid you, not with a material commodity, not with goods he had actually produced, but merely with a promissory note on his future production. This man takes your goods, but does not use them to support his own production; he does not produce at all—he merely consumes the goods. Then, he pays you higher prices for more goods—again in promissory notes—assuring you that he is your best customer, who expands your market.

    Then, one day, a struggling young farmer, who suffered from a bad flood, wants to buy some grain from you, but your price has risen and you haven’t much grain to spare, so he goes bankrupt. Then, the dairy farmer, to whom he owed money, raises the price of milk to make up for the loss—and the truck farmer, who needs the milk, gives up buying the eggs he had always bought—and the poultry farmer kills some of his chickens, which he can’t afford to feed—and the dairy farmer can’t afford the higher price of alfalfa, so he cancels his order to the blacksmith—and you want to buy the new plow you have been saving for, but the blacksmith has gone bankrupt. Then all of you present the promissory notes to your “best customer,” and you discover that they were promissory notes not on his future production, but on yours—only you have nothing left to produce with. Your land is there, your structures are there, but there is no food to sustain you through the coming winter, and no stock seed to plant.

    http://www.givemeliberty.50megs.com/An%20Economics%20Lesson.htm

    • Fri, Jun 11, 2010 - 12:42am

      #3
      Peak Prosperity Admin

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      Re: Gubernatorial candidate’s revolutionary money plan …

    Some highlights from the “The Davis Money Plan.”

    “The Davis Money Plan” Part 2

    “The Davis Money Plan” provides for the construction and maintenance of all Minnesota roads and bridges with no taxes, no loans, and no debt.  “The Davis Money Plan” calls for passing legislation to exempt state-regulated banks from needing deposits in order to create “new money” that will pay for construction and maintenance of all Minnesota roads and bridges.

    The “newly created money” will be total and final payment for the production of roads and bridges, and does not have to be paid back. The money, or numbers, eventually enter the general circulation of the economy to help everyone by expanding the money supply without inflation. What causes inflation are taxes and interest on money because they add to the cost of everything.

    Bankers love “The Davis Money Plan” because it will benefit them greatly….

    Benefits of the “The Davis Money Plan” will be:

    • Balanced state budget
    • Jobs and education for thousands of people
    • Increased state revenue from more people working
    • State-of-the-art roads and bridges with no debt or taxes

    The important point is that this money is not going to be paid back.  That fact makes this a completely different idea than the one you advocated in Banks Profit from Near-zero Interest Rates thread.

    Because the half life of getting useful information on monetary threads is usually fairly short, I will get staight my point.  This seems like a very bad idea to me beacuse it will be inflationary.  For a more through discussion of why I think that is, see the MTA thread.  I am aware that you have a different opinion on how this would work and I have some questions which never seemed to get answered.

    What I want to understand what exactly you believe.  It seems to be that either this is inflationary or it is not.  If you believe it is inflationary, you may not have a problem with it, because you believe it is legitimate for a government to redistribute societies finite resources when needed. 

    However I assume you agree with Mr Davis and do not believe this is inflationary.  If so then why?  Is it because…

    1. Money that is not created as debt is not inflationary.
    2. Money that the government spends into existence is not inflationary.
    3. Some other reason?

    I really don’t understand how you could think this would not be inflationary.  Is the reason for this belief have something to do with it being check book money verses actual cash?   Would it be different if the government had a printing press and started paying bills with fleshly printed cash?  I know that your explaination for revolutionary war Continental inflation is counterfeiting, so you must believe that the quantity of money does have an effect.  Clearly overpaying a government contractor would be at least somewhat inflationary wouldn’t it?

    Definately count me as a sceptic when it comes to the idea that there is such a thing as a free lunch, especially when it is the government that is going to provide it.

    • Fri, Jun 11, 2010 - 01:50am

      #4
      Peak Prosperity Admin

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      Re: Gubernatorial candidate’s revolutionary money plan …

    If the newly created money is consistent with new goods and services entailed with infrastructure projects, then it is not inflationary by definition. 

    Banks create money through a monopoly to monetize debt so why not allow states to break the monopoly and monetize the benefit (wealth) of new transportation projects that reduce energy consumption while improving public safety

    Humanity is confronted with the harsh reality of peak oil and peak debt.  We have ample technology available to reduce our energy usage by 50% while increasing the use of clean and sustainable alternatives dramatically (geothermal, fuel cells, better insulation, etc.).  The problem is that we don’t have the money to mobilize our society and make the changes needed to prevent a catastrophe.

    Unemployment is rising and becoming a human tragedy.  We have a lot of work to do but yet people are sitting idle because there is no money in the economy. 

    The total money supply as measured as M3 has been contracting at an alarming rate – US money supply plunges at 1930s pace 

    The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

    The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.

    The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

    “It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.

      Shadow Government Statistics

    Every day money is being destroyed (extinguished) by banks as debt principal is being repaid.  If the rate of money destruction exceeds the rate of new debt plus interest, the economy contracts.  Add the fact that debt grows exponentially and we can see that the system just cannot be sustained – we are running out of willing and worthy borrowers from the public and private sectors.

    Breaking the debt monopoly is the only way to put permanent money into the system though it will take many years to offset the imbalance.  I suggest that most of the debt free money from the “Davis Money Plan” will ultimately be used to counter-act the deflationary forces by providing money for debt relief.

    While one state may not be able to turn the overwhelming debt tsunami, it may provide a life raft for the citizens of Minnesota.  Once one state goes, others will follow unless stopped by the federal government. 

    Larry

    • Fri, Jun 11, 2010 - 02:09am

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      Peak Prosperity Admin

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      Re: Gubernatorial candidate’s revolutionary money plan …

    I too have my reservations about the plan, because I can see the potential for future abuse by the government.  That said, it does have it’s merits and it’s good to see people in the political arena actually trying to put forth a plan that would benefit the people.  All this talk by world leaders of Austerity vs QE is nothing but sheer garbage.  It’s time we got beyond this.

    • Fri, Jun 11, 2010 - 04:26am

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      Peak Prosperity Admin

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      Re: Gubernatorial candidate’s revolutionary money plan …

    [quote=DrKrbyLuv]

    If the newly created money is consistent with new goods and services entailed with infrastructure projects, then it is not inflationary by definition

    [/quote]

    This sort of simplicity is what really bothers me.  I guess before I get too excited I should make sure that we are using the same definition for “inflationary“.  Clearly creating money by definition “inflates” the money supply so I am going to assume you mean that is it not  “inflationary” more in terms of the general price level.  If so then I agree that at least there is a chance that it is not inflationary but it is hardly “by definition“.

    For example the government is considering two equal cost projects.  One is a new road between two towns that currently don’t have a direct connection and another that is repaving some pot holes on the street in front of the mayor and other important city council members houses.  In this case it is certainly possible that the road between two unconnected towns may create enough economic advantage that the expense would not to be inflationary but the mayors street work, not so much.

    What happens if the government accepts no bid contracts for work from Halliburton or the mayor’s brother in law.  Will this still not be inflationary “by definition”?  What if for one of those no-bid contracts there was a contactor that was willing to do the exact same work for one half the cost?   Would that still not be inflationary?  If it is not inflationary, what if the government uses the low cost contractor and then prints up paper money to spend equal to the half that was saved?  Is this still not inflationary? 

    Here is just a few more potential problems I can come up with off the top of my head.

    • Could creating debt free money actually help perpetuate the current banking system that we all seem to oppose?  In other words could debt free money allow the P<P+I equation (upward flow of value) to continue far longer than it would otherwise?  Is that wise?
    • Wouldn’t the rush for infrastucture drive up these jobs auction prices?  There certainly would be a lot more demand for contractors and wouldn’t they then raise their prices?  Sounds inflationary to me.
    • Is government spending on roads that may not be used as much in the future due to peak oil really the optimal allocation of resources?  If it is not, how will you find what is?
    • Could we end up with a soviet style system by removing cost from economic decisions of large part of the economy?  Project cost is critical so that society can make the proper capital allocations in our finite world.  If the cost to benefit ratio for projects are distorted, how will the government know how to allocate its limited capital.  If the capital is not limited, it must be inflationary.
    • We worry about corruption when the banking system can buy politicians.  Does corruption go away when politicians can buy themselves?
    • Because money is fungible, if Minnesota’s infrastucture spending does prove to be inflationary, it will end up costing us all.  If it is infationary, each state will immediately try and pass its own version of this law so they can try and keep their own proportionate spending power.  This would quickly result in a race to the bottom and hyperinflation.
    • Sounds very Keynesian.  The only difference is that the money government spends is debt free.   At least it seems much closer to Keynesian than Austrian is to Keynesian.

    Needless to say, I don’t see myself supporting this idea.  Seems like it is somewhere between naive and dangerous.

    • Fri, Jun 11, 2010 - 05:03am

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      Peak Prosperity Admin

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      Re: Gubernatorial candidate’s revolutionary money plan …

    [quote=goes211]

    Clearly creating money by definition “inflates” the money supply… [/quote]

    Yes, but in an economy where all money is put into circulation using this method and where non-productive services (Medicare and Social Security) benefit from the same entry into circulation the total money supply can be balanced by adjusting the levels of different taxes to maintain an overall money supply that is consistent with the amount of goods and services in the economy. Mathematically such an economy could maintain stable prices indefinitely, although it would require careful and valid measurement of economic statistics. 

    • Fri, Jun 11, 2010 - 01:41pm

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      Re: Gubernatorial candidate’s revolutionary money plan …

    [quote=SteveW]

    Yes, but in an economy where all money is put into circulation using this method and where non-productive services (Medicare and Social Security) benefit from the same entry into circulation the total money supply can be balanced by adjusting the levels of different taxes to maintain an overall money supply that is consistent with the amount of goods and services in the economy. Mathematically such an economy could maintain stable prices indefinitely, although it would require careful and valid measurement of economic statistics. 

    [/quote]

    But advocates of this strategy often tout that it eliminates the need for taxes.  Also if taxes are needed, do you really  think you can adjust them dynamically enough to effect the economy and velocity of money?  Would making taxes so dynamic, destroy a business ability to forcast future business needs, and therefore paralyze the entrepreneurial spirit that makes the economy move forward?

    Seems like you are saying central planing can work if it is done correctly.  That may be true, but history does not show a very good track record to back up this belief. 

    • Fri, Jun 11, 2010 - 06:24pm

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      Peak Prosperity Admin

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      Re: Gubernatorial candidate’s revolutionary money plan …

    From coin clipping of ancient Kings to its equivalent today ;   fiat money run by the Federal Reserve system.     The common thread that runs trough both is the deep  desire of those governing to have access to money that they are unable or unwilling to collect from the governed.   

    • Fri, Jun 11, 2010 - 08:44pm

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      Re: Gubernatorial candidate’s revolutionary money plan …

    [quote=goes211]

    [quote=SteveW]

    Yes, but in an economy where all money is put into circulation using this method and where non-productive services (Medicare and Social Security) benefit from the same entry into circulation the total money supply can be balanced by adjusting the levels of different taxes to maintain an overall money supply that is consistent with the amount of goods and services in the economy. Mathematically such an economy could maintain stable prices indefinitely, although it would require careful and valid measurement of economic statistics. 

    [/quote]

    But advocates of this strategy often tout that it eliminates the need for taxes.  Also if taxes are needed, do you really  think you can adjust them dynamically enough to effect the economy and velocity of money?  Would making taxes so dynamic, destroy a business ability to forcast future business needs, and therefore paralyze the entrepreneurial spirit that makes the economy move forward?

    Seems like you are saying central planing can work if it is done correctly.  That may be true, but history does not show a very good track record to back up this belief. 

    [/quote]

    I don’t know if it would work but I would prefer this type of money system to our unsustainable current system. I understand your scepticism. I’m not suggesting central planning of the economy itself but maintaining a stable or gradually increasing (in line with economic expansion) money supply, unlike our current limited money supply with overwhelming exponential debt. Money is simply the grease we use to lubricate the economy.

    I think you might be overinterpreting how dynamic taxation would need to be. After all a 3-5% or so excess or deficiency in the money supply would probably have a limited effect so that income/business tax rates could be adjusted maybe annually with a 3 month advance notice. Such a system would not, I think, unduly cripple business planning.

    I don’t know if such a system eliminates the need for taxation. It seems that this suggestion is part of the “sales pitch” for the system. Once such a system were established and understood though can you imagine people clamouring for an increase in taxation because the price of bread had gone up too much reflecting excess money in the economy?

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