How To Manage US Fiat Money Creation Bank System

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happyashell's picture
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How To Manage US Fiat Money Creation Bank System

In the early 1970s President Nixon took the American dollar off the Gold Standard. In place of the gold standard, we have money that floats on the world currency markets, where its exchange value is determined.  This is fiat money. 

The word fiat means, “let it happen” in the Italian langue.  A government can create fiat money simply by decreeing that the money is legal tender for all debts, public and private as written on our Federal Reserve notes. (Paper money)  

We have a fiat money creation system in our country. A fiat money system can create an unlimited amount of money. A fiat money creation system is backed only by promises, not by gold or other commodities. The amount of money that is created worldwide is banker controlled not government controlled. Bankers (Federal Reserve and Banks) determine the amount of money that is created in our economy. 

Inflation is created when too much money is created in an economy. A recession is created when there is not enough money or purchasing power in an economy. As we have found out by the current economic crisis, bankers are not very good at controlling the amount of money that is created in our economy. Think about it. The banks profit from the amount of money that is created. The more money they create the more profit they make. Profit is a good thing but when it endangers the economy, the security of our country and people's standard of living it must be correctly managed. Just like any other danger. 

The income tax benefits bankers by encouraging an increase in the creation of debt, which is 97% of the money created in our economy.  The other 3% of the money created is either made of paper or metal.  The interest deduction and the long-term capital gains tax rate are more for the banks benefit than yours. The interest deduction and the long-term capital gains tax rate cause hard capital asset investments to become more valuable than money investments. This occurs because of the taxation difference between money investments and long-term capital gains. Long-term capital gains income is taxes a 15% and interest income is taxed at 35%, this taxation difference increases demand in the hard capital asset markets. The extra demand causes the price of the collateral to go up. Therefore, the owner or buyer of a hard capital asset, with an increased collateral price can obtain a larger loan, thereby increasing the money supply. This process increases as inflation goes higher, creating higher inflation rates. 

The current housing bubble was created this way.  The government lowered the tax on capital gain on owner occupied homes to 0% in 1997.  As the homes increased in price, sellers had a very profitable reason to sell and buyers had a very profitable reason to buy, as long as the buyers thought the house was going to continue to rise in price.  The banks were more than willing to make larger and larger loans based on the increased price of the homes that were being sold, thereby increasing their profits. 

When hard capital asset prices are raising banks lower their qualification requirements (sub-prime loans) and the loan to value ratio decreases, requiring a lower down payment. 

When hard capital asset prices are decreasing banks will not or cannot make loans unless they are very secure.  Loan qualification requirements increase and the loan to value increases, requiring larger down payments. 

It is when and why people save and spend money in the economic cycle that determines if we have an increase in our standard of living or bubbles and deflations. 

It is our psychology about our money that determines its value. Do we use it as a rational means of exchange? Do we spend it as fast as we can before it loses more purchasing power? Do we hold it as a store of value? Do we buy hard capital assets as a store of wealth? Do we use it to obtain and create more money without creating an increase in the supply of products or a beneficial service to the economy? Our income tax and which economic cycle is occurring in our economy or which cycle is perceived by people to occur in the near future in our economy, influences all of these decisions.  

The income tax unbalances normal production, consumption and investment decisions. We have a dynamic economy with a static income tax system. Our economy is continually changing from recession to inflation and then recession again. The income tax must change, without government approval, as our economy changes from recession to the inflation cycle. You cannot put the economic pedal to the metal and not expect to go over a cliff. 

The income tax guides us into the herd effect. It causes a vast majority of the people to all go in the same direction and do the same thing. This is one of the reason we must enact the Zero Inflation Taxation Policy. 

The excessive use of credit in business, investment and consumption got us into this economic crisis. Our income tax system encourages credit use and investing with credit. This is fine as long as the economy needs more credit use but when the economy is showing signs of excessive credit use, such as economic bubbles and inflation, credit encouragement should be curtailed and money investments (savings, bonds and securities) should be encouraged to maintain balance in our economy. 

If we first use the income tax to guide investors and consumers before the Federal Reserve must raise interest rates in the inflation cycle, this will maintain the lowest possible interest rates and maintain the value of existing savings, bonds and securities. This is the second reason we should enact the Zero Inflation Taxation Policy. 

I do not want to eliminate the long-term capital gains tax rate. We need to encourage people to make productive investments and take investment risks. I want to neutralize it at the correct time in the economic cycle. Even though it will be neutralized for inflationary investments, it still will be available for productive investments. The Zero Inflation Taxation Policy would only go into effect after the Fed and the banks have created inflation in our economy. This is the third reason we should enact the Zero Inflation Taxation Policy. 

The Zero Inflation Taxation policy would work as follows. As inflation or under investment in savings, and in the bond and securities market begins to occur, the tax on money investments should automatically be decreased and the interest deduction should be decreased by the same percentage rate, based on the inflation rate. When money investments are taxed at the same rate as long-term capital gains, (currently 15%) money investments will be as valuable as inflationary investments.  This is the Fourth reason we need to enact the Zero Inflation Taxation Policy. 

The balancing of money investments and capital investments would occur at the end of the year, based on the annual inflation rate, when we file our income taxes. This procedure would correct the imbalance each year instead of it building up over many years, which cause a major correction, as we are experiencing with our current economic crisis.   This is the fifth reason we must enact Zero Inflation Taxation Policy 

Think about it. What the Zero Inflation Taxation Policy does is, it makes the banks responsible for the value of money. If the banks create too much money, which creates inflation, the tax code would change automatically and encourage savings and money investments and less credit creation, there-by increasing the banks liabilities and reducing its assets. The banks would become sensitive to the purpose of the loans and total money being created. :) This would include government debt. Our savings pool would increase for normal production and consumption to take place. The velocity of money would slow down without raising cost after inflation has started to occur in an economy.  This is the sixth reason we have to enact the Zero Inflation Taxation Policy. 

If we want to leave a smaller deficit and lower taxes for our future generations we must take the power to limit money creation away from the banks and give it to the people. Let the economy tell us how much money is needed to maintain normal production and consumption to maintain the standard of living that we are willing to work for. We must enact the Zero Inflation Taxation Policy to take back our economy from the banks and have control of our futures.  This is the primary reason we must enact the Zero Inflation Taxation Policy. 

For more info go to URL=

Leonard C. Tekaat [email protected]/




Johnny Oxygen's picture
Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1443
Re: How To Manage US Fiat Money Creation Bank System

Hi happyashell!

Welcome to CM.

This topic is a regular one here at CM. You may be interested (no pun intended) to read this thread.

A lot of what your talking about was discussed here.

petersonjames696's picture
Status: Member (Offline)
Joined: Mar 5 2010
Posts: 1
Re: How To Manage US Fiat Money Creation Bank System

what a nice Topic, And your title is also too cute.Such as I really like it, And hope that It may be liked by everyone.



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