Our financial solutions are right in front of us if we take the time to look…
Let me give you something that has become very rare, some great news regarding our economy. Necessity is truly the mother of invention and we are at a point where reform isn’t enough. Our monetary system is usurious and it has a terminal flaw – debt must continually grow which becomes an exponential function (Crash Course Chapter 8: The Fed – Money Creation).
So the banking system must continually expand – not necessarily because it is the right (or wrong) thing to do, but, rather, simply because that is how it was designed. It is a feature of the system, just like using gasoline is a feature of my car’s engine. Chris Martenson Crash Course Chapter 8
We are at the end of our monetary system as there are no longer enough willing and worthy borrowers to sustain the required growth. Government has stepped in as the borrower of last resort in an effort to "artificially sustain" the system. The problem is that every dollar the government borrows is backed by "We the People." When the ship sinks; and that is inevitable with our current system, we are going to pay through huge losses of our national and private wealth and assets (collateral).
Government and the Fed know this and they have already made the choice – save the Fed and it’s banking system at the expense of "We the People." There’s only room for one in the lifeboat. You can forget any notion you may hold that our federal government and the non-federal fed are working towards the best interests of the people. Our federal government has been usurped at the highest levels by the federal reserve banking cartel. Solutions must come from others as they are the problem.
The Fed’s plan at this point is to steal as much as they can from the sinking ship. After our economy collapses, we are going to lose what remains of our national sovereignty. The central banks are consolidating under the mother of all greed – the Bank of International Settlements located in Switzerland. A global bank to usher in global governance. We may have already celebrated our last day of independence this past 4th of July.
Now for the good news…California may create their own currency (H/T investorzzo).
Schwarznegger to Obama: Watch and Learn, by Marshall Auerback: According to the San Diego Union-Tribune, Republicans and Democrats alike embraced legislation last Friday that would make California IOUs legal tender for all taxes, fees and other payments owed to the state.
Effectively, California is using its IOUs to create a currency. If this bill passes it would allow California to deficit spend just like the Federal Government and with the IOU’s acceptable as payment of state taxes, it instantly imparts value to them. In effect, what you have is a state of the union creating a sovereign currency right under the noses of Treasury, Fed. They are stumbling their way into it…
It will be viewed as a stop gap measure at first, and then could very well become entrenched as states realize they have a way to escape balanced budget requirements..
The … Federal government retains this monopoly under our existing monetary arrangements. If California is successful here in allowing its IOUs to pay tax, it has profound constitutional ramifications. It will be interesting to see how this plays out. As California goes, will the nation follow?
The solution right in front of us. Over 130 years ago, Abraham Lincoln said "The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government’s greatest creative opportunity."
It is time to take back our supreme prerogative and greatest opportunity. The California idea of creating IOUs is only one of the many creative opportunities that we have to restore our financial freedom and security. Here are several examples that could take place at the state level (I will use California as an example, but this applies to every state):
- California could buy or establish their own "private" state bank. This would enable them to create money through the fractional system that is held as a "money-making-monopoly" by private banks. California’s 2009 projected revenue of $128 billion falls short of their budget requirements by $23 billion. Assuming a 10% reserve requirement, if they deposited $2.3 billion in their own bank, they could loan out the $23 billion instead of running a deficit. North Dakota is doing something similar now (Ellen Brown’s explanation).
- If they deposited the full $128 billion in revenues, they would have the potential to issue $1.28 trillion in loans! They could use this money to rebuild their infrastructure or for special purposes. For example, they could provide 0% loans for all qualified state residents to get out of predatory private mortgages that are destroying the state.
- They could charter a state bank to advance funds for legislatively-approved projects in the same way that banks make commercial loans – simply by "monetizing" the projects. Our entire money supply is now created by banks in the form of loans – banks create all the money they lend. This was confirmed by the Chicago Federal Reserve in a booklet called "Modern Money Mechanics," which states:
Of course, [banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts. Loans (assets) and deposits (liabilities) both rise [by the same amount].
Projects could be simply monetized without adding any debt! The money could be used to purchase goods and services, benefiting business. It could be used to eliminate or greatly reduce state taxes. And it would flow back into the state reducing the number of loan defaults, increasing employment and benefiting every segment of society. Byron Dale has written the Minnesota Transportation Act (It has not yet passed) which explains this in greater detail.
But is this inflationary? Inflation results when the money supply increases faster than the amount of new goods and services. The key is to increase goods and services as the money supply is increased, maintaining a balance between the two. The federal reserve system system is inflationary because banks create the principal but not the interest necessary to pay back their loans. Additional loans must therefore continually be made just to service existing debt. Loan profits go into the pockets of private banks rather than contributing to the productivity of the community.
Our nation faces many problems but money should not be one of them, in fact, money is the tool to help solve or minimize all other problems. This is getting exciting as people will now begin to look at alternatives to the rotten federal reserve. We still hold our sovereign destiny but that power is being taken from us…let’s take it back before it’s too late.
Good point in that this rases constitutional questions. I reckon the Feds will put a quick end to it.
While as you must know, I am totally opposed to the Fed, I fail to see how the concepts put forth here would solve anything. California state IOUs would just be another form of fiat money, backed by nothing. It would be a CA version of the Fed and nothing more, with a few differences existing in how control is exerted. Ultimately though, the IOUs would have no more value than fiat money because that is all it would be.
I am for a decentralized money supply, but it would have to be backed by a raw material or finished good.
Hello Patrick, thanks for stopping by…
Patrick said: I am for a decentralized money supply, but it would have to be backed by a raw material or finished good.
We have agreed on this point in the past and that is exactly what I am talking about. The money would be backed by the assets (finished goods as you said) that collaterlize it. The federal government is not going to fix our problems, this is now up to the states which goes toward your well founded concern with centralization.
The California IOUs would not be my proffered way of doing things but once states figure out that the money monopoly that is the federal reserve cartel, they will begin to take a very close look at alternatives. We either go bankrupt or de-couple from the system incrementally, state by state.
North Dakota has been doing this for over 90 years. Charles Fleetham observed:
“North Dakota is a sparsely populated state of less than 700,000, known for cold weather, isolated farmers and a hit movie – Fargo. Yet, for some reason it defies the real estate cliché of location, location, location. Since 2000, the state’s GNP has grown 56%, personal income has grown 43%, and wages have grown 34%. This year the state has a budget surplus of $1.2 billion!”
In my initial post I described how they pulled it off. They are playing the fractional lending game on their own terms with their own bank. All state revenue goes into the bank which builds reserves for future money needs. They have the autonomy to do their own planning and to establish their own priorities without paying interest to the private federal reserve banks or begging Washington.
This also gives states a revenue stream without taxes as they may choose to lend with interest that is profitable. For example, states could decide that saving energy is a key and in response, they could make 0% loans (there would be transaction and qualification fees) to fund the huge costs in upgrading as many homes and commercial buildings as possible.
Byron Dale’s plan (described above) could augment the program by monetizing large state projects, like mass transit systems, without incurring any debt. None of the money would need to be paid back and it would help fund the interest payments from other loans (Crash Course #8).
You asked if this was constitutional. This gets complicated, so I will refer you to Ellen Brown’s argument that, yes, it is constitutional (scroll down page). Beyond that, North Dakota is already implementing their program. As a side note, our current system is not constitutional as I understand it.
There are limits to this like anything else. All money issued would need to be fully backed by collateral (maybe 110-120% of what is borrowed), as you said "finished goods." It would allow us to add to our infrastructure, productivity to grow our wealth without growing the government debt.
Government would pay for itself while still providing the money and credit needed to satisfy the spending power of the state and the buying power of consumers.
Fascinating conversation! Please keep it going. I have to run to a meeting, then off line tomorrow, but can hardly wait to get back to this thread tomorrow evening. Thanks to you both, for your thoughts. Always learn from what you post.
Our dollars are NOT backed by debt, they are backed by all the property in the United States of America, even the government debt.
If you get a loan, all the ‘money’ is backed by your property.
If your federal, state, local, city, ect….puts up a bond, that is mortgaged on your property. Yes, there are several mortgages on your property to the banking system, which is by and large not known by the mass public.
97% or more of our money supply is not fiat money. I’m confused as to why you are so hung up on fiat money when it only represents 2-3% at most of our money supply, and which before the debt can be paid off at the bank that terrible awful fiat money must be converted out of fiat money and back into check book money. Who told you that fiat money is the problem? Can you give me any logical reason why having a law passed stating something is to be accepted as money would be bad? Are you suggesting that we get rid off all the paper and coin currency in circulation and go with a cashless society, which really isn’t much different that what most people do right now. If we got rid off all of our fiat money (pocket cash) wouldn’t that force us into a cashless society? Who are the people pushing so hard for this and why? Who would it benifit? I’m confused as to why anyone would want a cashless society.
If you’re in favor of having money backed by a raw material or finished good then how about we monetize the production of our nations infrastructure as a wealth, and not as a debt, free of taxation? Do you really care what we use for money, or what it represents?
Back to the post,
Is it constitutional? Yes. States are prohibited from creating money, but banks have been creating money in this country long before the constitution was signed, for better or worse. Byron’s proposal would regulate the banks to create a debt free, wealth based PAYMENT for production. That production being permanent infrastructure that would benefit all of society, without giving any direct special benefit to any particular group. If we get the Minnesota Transportation Act passed up in Minnesota you’ll see me in the forefont pushing all sorts of projects to make Minnesota the first 100% energy independent state in the USA.
California’s IOU’s….They should just go one step further and just make them the final payment for production. They they would cease to be a debt instrument and become a wealth instrument that would benefit the people, instead of a tool to deprive the people of all of their property.
The way I see it, we need to introduce massive amounts of money into circulation to destroy the principal plus the interest, otherwise in time, the debt will grow so large, it will absolutely destroy any nation. Right now we would have to SPEND (not lend) around $60 trillion dollars into circulation just to get rid of the debt and leave us with zero money.
Can anyone imagine the economic freedom we could all enjoy if there was zero debt, and enough money in circulation to to allow our economy to function at full steam? No more boom and bust cycles created by the banking system which they create to consolidate the property of the people into fewer and fewer hands. No more foreclosures. Poverty greatly reduced, taxation(by and large) a thing of the past. The average citizen being able to decide his or her own economic destiny, instead a banker! Honestly what more could you want?
P.S. The North Dakota Bank is just another bank. It still only puts the people of north Dakota into a mathematically un-payable debt owned to the banking system.
Inflation of the credit supply is bad, inflation of the money supply is good. Unfortunatlely we don’t have any way under U.S. Law to inflate our money supply, there is only a way to inflate the credit supply. Clearly money and credit cannot be the same thing because money is supposed to be something you can make final payment with, and if our money only represents what we owe at the bank it is clealy impossible to make final payment in any transaction. I think it’s impossible to borrow from Peter to pay Paul and expect to get out of debt.
Is anyone out here
good great at making video introductions? My software isn’t very good at doing that stuff, and I could really use some help if someone is willing to help.
[quote=Thomas] Inflation of the credit supply is bad, inflation of the money supply is good[/quote]
While I agree with most of your post and your attempt to clarify misunderstandings, I’m wondering if more clarification is needed to support this quote. The former is the monetary system we’ve had in this country…you’re right it’s bad because it eventually deflates (though despite the painful transition, deflation in the end is a good thing as it destroys the credit inflation, resets the economy, sets up the next growth phase). But the latter is what they did in Weimar…printing more money…that’s even worse as it destroys the very foundation of the economy…all savings evaporates.
Thomas and Larry:
I fail to see how either of your solutions solve anything. You are both trying to fit a square peg into a round hole. There is no such thing as a monetary system that has at its core the propensity for someone (either government or private banking) to create more money at will that would be any better than our current system. To think otherwise is a fairy tale.
When I say our money is fiat, I am not talking about 97% of it or 3% of it. I am referring to 100% of it. It doesn’t matter if it’s cash or digital, borrowed or spent into existence. If it is backed by nothing and exists only because the law says it does, it is fiat money.
Requirement for Money Growth not Limited to Type of Money System
The Crash Course argues that our current system requires an ever-increasing amount of money in order to operate. Since our monetary system also happens to be debt based, that also means that our system requires an ever-increasing amount of debt just to pay the interest on the prior year’s principal. Fair enough – no arguments there.
However, let’s suppose we did not have a debt-based system, and that we had sound money. I can prove to you that we would still need more money every year to support the debt incurred by the market participants. The only difference is that a sound-money-based system would self-regulate the interest on money and therebye minimize booms and busts, and it would self-regulate money production and therebye eliminate inflation.
Debt is Always Greater than Money
I borrow 1,000 monetary units (MUs) from you to buy a motorcycle. The seller of the bike lends it to his sister who buys a new stereo system. The seller of the stereo system lends it to his niece to buy a new crib. The seller of the crib lends it to his unle to buy new lawn equipment. There, we just created 4,000 MUs of debt with 1,000 MUs of money, without any banks, and irrespective of the nature of money. Is there anything wrong with any of these transactions? Would it make any difference what the monetary system was, sound or fiat, debt-based or not? Of course not. Debt exists as a condition of human nature and the total in a society always exceeds the money supply. Debt, by definition, is based on the belief that the future will provide the time and resources to pay for present consumption. In order for the debt to be paid, more money, i.e., production, must be created to pay the principal and interest on the pre-existing debt. It is not a characteristic of fiat or debt based money! It is a characteristic of human nature and the belief that the future will always be greater than the past. I agree with Dr. M and the Crash Course that our society, regardless of the money system, is based on the belief that our future will be greater than the past, but that is not a requirement of our money system. It is a requirement of all money systems!
The difference with sound money is that since it is production-based, its quantity will be regulated by free-market forces, and the interest rates would also be free-market-driven. We would still have more debt than money. We would still, in all likelihood, have FRBanking. But, we would not have interest rates and money supply set by the "magicians" at the Federal Reserve, and we would not have to risk having the value of our life savings reduced to nothing by fiat-money printing. I think by now we all would agree setting interest rates and regulating the money supply is as beyond the human ability as regulating any other market phenomena. All booms are caused by mismanagement of money (and therebye credit) and all busts are the natural result of all booms. So why not take that power from the Federal Reserve, or any other central bank or government and leave it to free-market forces?
Hi Patrick, I don’t want to restart our old discussion in the FRB thread, but it’s not correct to suggest that in a sound money system we’d still have debt levels like today or that we’d have an economy of debt-laden over-consuming folks (borrowing for bikes, stereos, cribs…). That’s because in sound money, the cost and price of debt is clear. Did your grandparents have any debt? Mine had zero their whole lives. They consumed out of savings and income. That’s because in a sound system, debt is not costless, and people know quite intimately the disaster that debt can be. Only in a system like we have now where debt is purposely inflated over time will people figure "oh what the heck, let’s borrow more!!" and banks will think "yeah what the heck, let’s handout the money!!" In sounder money systems historically, the majority of debt was banks loaning to businesses, i.e. it’s used to fuel production. The systemic overleverage we have today is a result of the Fed, not basic human nature. Basic human nature (without the systemic distortion from the Fed) has a lot of fear…causes avoidance of debt.
I think Thomas’ argument with the term fiat is that it technically has nothing to do with what’s behind the money. For example, even the old coinage from the days of a gold standard was technically fiat money…government decrees it as money.
Larry, thanks for those details on Weimar. I’m now even more amazed at how we are in precisely the same situation they were in and bankers are taking us through the same process. The silence of the masses is eerie. The ability of elite bankers to somehow ensure the history books stick all the blame on politicians (Hitler) for the problems the bankers cause is eerie. The ability of people to be unaware of the Matrix within which they live is eerie. The ability for the bankers to keep the masses completely ignorant of how their lives are controlled by those who control their money is eerie. The ability of bankers to stay hidden while millions fight/kill each other after the production engine has run out in particular geographies is eerie.
That’s a lot of eerie. Once again I find myself wondering why, to escape the next phase of Weimar here, I’m not immediately moving to an area of the world that lives more sustainably (Costa Rica) or an area that is in the beginning phase of real economic growth (Asian centers around China) which is where the elite bankers have moved / will move their capital for the next generation of extracting value from working masses. The reason I’m not moving is because I want community. Hmm…not sure that’s a sane reason.
97% or more of our money supply is
fiat money. I’m confused as to why you are so hung up on fiat money when it only represents 2-3% at most of our money supply, and which before the debt can be paid off at the bank that terrible awful fiat money must be converted out of fiat money and back into check book money. Who told you that fiat money is the problem? Can you give me any logical reason why having a law passed stating something is to be accepted as money would be bad? Are you suggesting that we get rid off all the paper and coin currency in circulation and go with a cashless society, which really isn’t much different that what most people do right now. If we got rid off all of our fiat money (pocket cash) wouldn’t that force us into a cashless society? Who are the people pushing so hard for this and why? Who would it benifit? I’m confused as to why anyone would want a cashless society.
Money that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves.
I think Thomas Hedin misunderstands the definition of fiat money. All US dollars are fiat money, and have been ever since the US took its monetary system off the gold standard. Our money does not have a standard value fixed to any one specific asset.
If you’re in favor of having money backed by a raw material or finished good then how about we monetize the production of our nations infrastructure as a wealth, and not as a debt, free of taxation?
What does this mean? I can’t make sense of how we would even do this. Seems to open to manipulation and too hard to quantify.
Do you really care what we use for money, or what it represents?
Very much so.