A way out of the debt!

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Thomas Hedin's picture
Thomas Hedin
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A way out of the debt!

How in the world did we end up so deep in debt and is there a way out?

In search for the answer to that question, letters were written to the U.S. treasury and others.  The answer received from Russell Munk, assistant general council for the U. S. treasury, was: “the actual creation of money (ALWAYS) involves  the extension of credit from private commercial banks.”  This means interest bearing loans. Mr. Munk then went on to say “You may want to know whether the bank is the one getting the benefit of the new money, since the bank owns the new money while the customer has merely borrowed the money.  The bank does indeed get the benefit of the new money”. 

My next question was, If all money is created as interest-bearing loans, how is the money created to pay interest on the loans? The answer received from Mr. Munk was, “the money to pay the interest on loans comes from the same source as all other money.” In other words, it also has to be borrowed from a commercial bank.  

John M. Yetter, writing for the U. S. treasury stated: “The money that one borrower uses to pay interest on a loan has been created somewhere else in the economy by another loan”. 

John B Henderson, Senior Specialist in Price Economics, Congressional Research Service, The Library of Congress stated: “Money is created when loans are issued and debts incurred, money is extinguished when loans are repaid”.

Robert H. Hemphill, credit manager of the federal Reserve bank of Atlanta.  “If all bank loans were paid, no one would have a bank

deposit and there would not be a dollar of coin or currency in circulation.”

My next question was just what kind of credit do banks extend to us?  I found the answer to that question in the Third Edition of the Federal Reserve System Purposes and Functions page 6.  “All bank deposits are a form of credit.  Basically, they represent amounts owed by banks to depositors.  They come into existence by an exchange of bank promises to pay customers for the various assets which banks acquire currency, promissory notes of business, consumers and other customers, mortgages on real estates, and Government and other securities”. 

[Our currency is a liability of the issuing Federal Reserve Bank and an obligation of the US Government] Source: personal letter from M.M. Schneider, Acting Executive Assistant, Bureau of Engraving and printing.  “When individuals or businesses want currency or coins to spend, they write a check, exchanging one form of money (checkbook money) for another (cash) both are a liability of a bank.” Department of the Treasury Office of the Public Correspondence Fact Sheet OPC-5 

The Bureau of Engraving and Printing produces the nation’s paper currency and sells it to the Federal Reserve System for 4.2 cents per note. “The Bureau of Engraving and Printing is not authorized to print or issue United States paper currency for direct delivery to the public. Currency notes are placed into circulation by your local financial organization and can only be obtained from that source” Linda W. Coleman Dept. of the Treasury. 

The Bureau of the Mint produces the coins we use then sells the coins to the banks at a profit to the government.  However, to get the coins we have to borrow checkbook money from the banks and then buy the coins from the banks with the borrowed money.  Therefore someone has to be in debt before the notes or coin can get into circulation.

That is why Mr. Munk was right when he said all money is created when a commercial bank makes a loan.

When someone exchanges the checkbook money for the currency, the liability of a commercial bank is shifted to a Federal Reserve Bank. Federal Reserve Notes move into circulation and checkbook money is removed from circulation.

The net effect is the banking system creates and loans a promise to pay to the government and to the people and receives unto them selves, as a profit, the real physical wealth produced by the people.

The government then uses its power to tax the people to guarantee the bank’s promise to pay. The government receives nothing except what it first takes from the people. So the government’s guarantee of the currency is based on a mortgage on all the homes and other property of the people. This fact is well articulated in the Congressional Record March 9, 1933, H. R. 1491, pg. 83 speaking about the Federal Reserve Act, “Under the new law, the money is issued to the banks in return for government obligation, bills of exchange, drafts, notes, trade acceptances, and bankers’ acceptances. The money will be worth 100 cents on the dollar because it is backed by the credit of the nation. It will represent a mortgage on all homes and other property of all the people in the nation”.  This is what is mean by the statement; the money is backed by the faith and credit of the U.S. government.

We must borrow the bank’s promise to pay and pay interest on it to have a medium-of-exchange. The banks owe, the government owes, and the people owe, nothing was loaned. Yet the banks and the government can go into court and force the people to give up all the real physical property to pay the loans. 

There is no way to force the banks to ‘make good on their promise to pay.  They just claim that because they got the government to make their promise to pay legal tender it is their payment.  Source: Dale Soderberg vs Federal Reserves Bank of MN.

The debt to the banking system is one of deception, just a trick played on the minds of the people. The long term effect is the people who actually produce the wealth lose their right to gain the full benefit of their production and the men running the banking system and the corporations that grow up around it gain control over everything.

Money is involved in almost everything we do on a daily basis. Nothing is more critical or important to our economic welfare and standard of living than understanding how our current money system works and then fixing it. No major problems will be resolved in our State or Nation until we fix our current debt based money system.  

All we hear and read about are the problems our current banking system creates: budget deficits, unpayable loans and foreclosures with no real solutions in sight just more tax and spend or no tax but cut government programs with no plan to create jobs in the private sector. What it really takes to create more jobs is more money.  The Minnesota Economic Recovery Act will provide a real solution to all these problems.  The plan provides for State Banks to create money, debt free and interest free, to fund Transportation projects in the State of Minnesota. There is no reason we should have budget deficits or a recession in Minnesota.

Nothing is more critical to the people’s economic welfare than understanding the current banking system and the long term consequences of huge trade deficits.

The plan has been introduced in the Minnesota Legislature and as S.F. 65 and H.F. 610.  Contact your State Legislators, City Mayors & Council members, talk-show hosts and community leaders and urge them to understand and support this important legislation.

Failure to fix our money system in the next few years will result in the debt becoming so large that just the interest alone will be greater than the total income of all the people. For more information and how to get involced contact Byron Dale at: 952-925-6199, Gregory Soderberg at: 507-440-1015 or Thomas Hedin: 952-500-3951 or visit http://www.wealthmoney.org 

katyan's picture
katyan
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alternative currencies

Thanks for sharing this. I look forward to exploring your ideas in more detail on your website. Is this similar to another state banking system that I've heard of (either North or South Dakota, if memory serves)?

I'm not an economist, but it seems that we need to decouple the two primary functions of money: 1) a store of value, and 2) a medium of exchange.

One potential solution is electronic exchanges that utilize "trade credits" backed by the value of the labor &/or product offered rather than national currencies. There are many B2B exchanges already in operation based purely on the cost savings and networking advantages to member companies, as well as exchanges that have sustainability and/or alternative currency as primary objectives. Local paper currencies, while well intended and perhaps useful on a very small scale, have a number of inherent drawbacks. There are some sophistocated software packages on the market (including an excellent open source platform that I've tested) for facilitating trade exchanges that include the ability to use swipe cards and mobile devices.

Following are a few resources I've found useful for understanding our current monetary system and exploring alternatives.

Learning about monetary systems:

Thomas Greco websites & books:
http://beyondmoney.net
http://www.reinventingmoney.com

The End of Money and the Future of Civilization (2009)
Money: Understanding & Creating Alternatives to Legal Tender (2001)
Money and Debt: A Solution to the Global Crisis (self-published 1990, free download at http://circ2.home.mindspring.com/money_and_debt.htm)

Money As Debt (video on YouTube)
http://www.youtube.com/user/MoneyAsDebtFullVideo#p/u/0/-oeqZVTCFzg

Money As Debt II - Promises Unleashed (video on YouTube)


   
 

Alternative currency/trading: (a small sampling)

GETS
http://www.getsglobal.com

XO Barter Exchange Software
http://www.barter-software.com/en/home/index.aspx

CYCLOS (open source)
www.cyclos.org

Green Business Network
http://www.greenamericaexchange.org/?view=content3

International Reciprocal Trade Association
http://www.irta.com/resources.html

 

Other ideas:

How to Liberate America from Wall Street Rule (New Economy Working Group)
http://www.yesmagazine.org/pdf/liberateamericadownload.pdf

   Note that one of their recommendations appears to be similar to yours: "Create a State Partnership Bank in each of the 50 states to serve as a depository for state financial assets. State banks can keep these funds circulating in state by partnering with community development financial institutions on loans to local home buyers and locally owned enterprises engaged in construction, agriculture, industry, and commerce."

Cooperative Local Ownership
http://www.yesmagazine.org/new-economy/a-different-kind-of-ownership-society

Open Capital
http://www.opencapital.net

 

Damnthematrix's picture
Damnthematrix
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A way out of the debt! Really?

"The plan provides for State Banks to create money, debt free and interest free, to fund Transportation projects in the State of Minnesota. There is no reason we should have budget deficits or a recession in Minnesota."

Maybe so.  But any printing causes inflation.  Lots of printing causes hyperinflation.  Will the Feds allow this to happen?

In fact, if you or I did this, it would be called counterfeiting...

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Thomas Hedin
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Yes really.

 DamntheMatrix

I'm glad we agree that there is no need for a recession.

Its true that printing money causes inflation, a very good inflation and a much needed inflation.  Please do not confuse inflation and price inflation because they are clearly two different things.

Can you find any time in histroy where creating money debt free has ever caused hyperinflation?  In fact our plan would do more to stabilize the money supply, and deflate the debt, which is clearly to large.

 

Why would you care what the fed thinks since they have no say in this and it's obvious they are doing a terrible job anyways.

The state chartered banks create money right now today.

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Damnthematrix
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Thomas Hedin
Thomas Hedin wrote:

 DamntheMatrix

I'm glad we agree that there is no need for a recession.

Do we?

Thomas Hedin wrote:

Its true that printing money causes inflation, a very good inflation and a much needed inflation.  Please do not confuse inflation and price inflation because they are clearly two different things.

I know.....  I have said so many times on this site.....

Thomas Hedin wrote:

Can you find any time in histroy where creating money debt free has ever caused hyperinflation?  In fact our plan would do more to stabilize the money supply, and deflate the debt, which is clearly too large.

Has nuthin' to do with history.  It is merely factual that if there are more dollars kicking around, then each dollar is worth less.

 

Thomas Hedin wrote:

Why would you care what the fed thinks since they have no say in this and it's obvious they are doing a terrible job anyways.

The state chartered banks create money right now today.

Well I don't give a toss what the Fed think, and I had no idea state banks created money either.  I live in Australia, and we don't do this here.  Only the Federal Reserve Bank of Australia can print money here...

So now I ask... when state banks print money now, obviously it is interest bearing.  So why are they duplicating the Feds?

Mike

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Thomas Hedin
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logical

Has nuthin' to do with history.  It is merely factual that if there are more dollars kicking around, then each dollar is worth less.

 Can you name one business that adjusts its prices based off of the available money supply?

So now I ask... when state banks print money now, obviously it is interest bearing.  So why are they duplicating the Feds?

This is what we are trying to change.  Interest free, debt free.

goes211's picture
goes211
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How about ...
Thomas Hedin wrote:

Has nuthin' to do with history.  It is merely factual that if there are more dollars kicking around, then each dollar is worth less.

 Can you name one business that adjusts its prices based off of the available money supply?

How about the Victoria Falls Hotel in Zimbabwe?

 

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Thomas Hedin
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Still waiting

 Still waiting Goes211,

 

Really please, we are trying to have a serious forum here.  Why don't you please start informing everyone how they raised the interest rates to 800% and that is what drove the prices up as interest always drives prices up since interest always increases the costs of doing business.

 

How fast would you have to raise your prices to stay ahead of 800% interest.....  I understand you're in the banking business so doing the math should be easy for you.

Enjoy.

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goes211
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What happened in the late 70's?

Thomas,

I think you have a chicken or the egg problem.  If raising interest rates causes inflation how did Volker manage to eliminate the late 70's inflation by rasing rates to 20% in the early 80's?  If your belief was correct, wouldn't those high rates have increased inflation?  How do you explain the results?

I can't seem to find info on Zimbabwe's historical interest rates.  I did find this Telegraph article that says Zimbabwe raised rate from 650% to 800% in 2007.  According to Wikipedia, by 2007 Zimbabwe's inflation rates were already far higher that 650% - 800%.  So was the 800% the cause or only the response to inflation?

2000 55.22% 2001 112.1% 2002 198.93% 2003 598.75%
2004 132.75% 2005 585.84% 2006 1,281.11% 2007 66,212.3% 2008 231,150,888.87% (July)    

It looks to me like 800% was far too low to strengthen the currency based upon these inflation rates.

Just to get some agreement on basic economic principles straight, I assume you would agree that if a car dealer had a lot full of the same make/model/color car, he would be more willing to make a deal, that if he had just a single car on the lot.  In other words, the more cars of that type he had (or any commodity), the less valuable each individual car would be, and therefore he would be willing to sell them for less, all other things being equal.  Another way to look at it is if there were 1,000's of Mona Lisa's, wouldn't they would be less valuable?  This does not seem controversial to me.

If you agree that this is the case, why does money behave differently than everything else?  In other words, why doesn't an increase in the quantity of money, decrease the value of that money, all else being equal?

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katyan
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Posts: 46
is it possible to have a productive discussion?

I thought that this thread had the potential for a meaningful discussion of the topic of debt and innovative solutions. However, most of the exchanges have been tedious and unhelpful.

I realize that emotions run high because this is a complex, seemingly intractable situation which has a very real negative impact on all of us. But it's as if I'm watching a ping pong match here...just a meaningless back-and-forth of barbed opinion that goes nowhere. Unfortunately, the "you're an idiot" tone of voice seems to be pervasive throughout these forums.

There are a number of dedicated individuals and organizations analyzing the fundamental structural problems of our financial/monetary system and exploring sustainable alternatives rather than temporary patches or smoke & mirrors. These efforts are tremendously difficult to communicate because because they force us to challenge deeply ingrained assumptions about how money works...or, in the case of the majority of people (including most politicians) to even think about it at all.

The original post describes a proposal for such an alternative. Whether it is a stroke of genius or a fatally flawed idea, I don't know. But it is deserving of serious consideration and discussion. IMHO, neither those commenting on it nor the poster have served that purpose well so far.

How do we get back on track?

 

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rhare
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Monetary discussions - lack of choice a common motif
katyan wrote:

How do we get back on track?

I find the general discussions of monetary systems and solution to be useless because they generally all begin with this "IS" the solution and I think that is the wrong approach.  We will never "design" a perfect solution. Rather one or more will emerge out of human necessity.  So IMNSHO the best approach is open competition between monetary systems, this means:

1) No laws regulating what can and must be used as money.

2) No laws that favor one currency over another (ie. legal tender laws)

3) No laws that tax exchanging money from one system to another.

None of the above preclude governments from choosing a preferred currency or issuing currencies if they want.  We do not have to have a massive transition from one to another.  It can be done by simply removing current laws that restrict or disadvantage other systems and letting entrepreneurs try their hand a currency design.

Unless a currency or monetary system can survive the rigors of competition and is not forcing unnatural behavior it will not survive.

 

Thomas Hedin's picture
Thomas Hedin
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Posts: 815
Chicken and the egg? The Debt before the money.

Though many people attempt to dodge the real issue it is a known fact that all money does not and cannot exsist until someone goes into debt to a private commerical bank.

In simple terms the debt always comes before the money.  We cannot have any money in circulation until someone goes into debt to a private commercial bank.

To understand the destructive nature of debt based money and how interest is the primary cause of price inflation all one has to do is a a simple bit of compound interest mathematics.

At the height of the 'hyper inflation' in zimbabwe the interest rates were raised to over 800% (source: zimbabwe central bank).

When all money is loaned into exisistance as is the case in zimbabwe, then in order to pay the interest you have to borrow again lets see where this leads an economy.

 

If you were to borrow 100 dollars at 800% interest within a year your debt could grow (because of compound interest) to a staggering amount of $273,418.62 if compounded daily.  Keep in mind that as your interest comes due you'll also have to borrow that or you'll be out of business.  Now just take a moment to think about a society that is forced to borrow 100% of its medium of exchange into exsistance and the effects there of.

We should all take a minute to really think deeply about this because interest on borrowed money (there is no other kind of money out there) clearly would raise your business costs. As costs increase throughout your business you are forced(to stay in business) to raise your prices.

Anyone who believes that raising interest rates is a cure or fix for inflation has simply never done the math and does not understand the difference between wealth money and debt money.

Interest is the primary force of most all price inflation.

 

 

 

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Thomas Hedin
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Posts: 815
katyan

I'll try to keep it on topic I'm still reading through the links you sent and we'll discuss them within a couple days. 

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