Promoting Our Freedom By Reforming Our
ECONOMY

It is indisputable that many, many people feel “the economy” is an issue of the first magnitude. This may cover quite a bit of territory, including things like creating jobs, providing tax relief, modifying the minimum wage, getting the national debt under control, balancing the federal budget, providing relief for mortgage foreclosures and unpayable student loans, and maybe even fixing the banking industry and the financial system so disastrous financial meltdowns can’t happen. It’s a big topic. Complicated. Even overwhelming. The previously presented restructuring of the tax system provides some steps toward fixing at least some of these issues, but by no means all or even most.

Fortunately, once you learn to see through the smoke and mirrors set up by congress, the federal reserve system, and banks in general, it’s not difficult to understand how the current monetary system actually works.

Let’s begin — the Constitution provides that congress has power “to coin money, regulate the value thereof, and of foreign coin”. So the People, by winning a sufficient majority of congress and even without the president’s agreement or endorsement, have the power to create (as coins) money, and to regulate its value, and to regulate exchange rates with other countries’ money. This can be understood as an implicit recognition by the founders that so-called “fiat” money should be avoided in favor of so-called “commodity” money in the form of coins. The founders already had the experience during the Revolutionary Was of issuing fiat paper notes, called “continentals”, for which there was no commodity support. And our wartime enemy, the British, counterfeited enormous quantities of the continental currency, causing it to lose much of its value. By the time of the Constitutional congress, the founders apparently were quite convinced commodity money was superior to fiat money, possibly because commodity money can’t be easily counterfeited like paper money can. But that doesn’t mean paper or electronic legal tender must be avoided, and it doesn’t mean coins made of precious metals must circulate as lawful money. It simply means legal tender should be supported by commodity money, just as it used to be. The commodity money can be kept in a vault, just as it used to be. In fact, commodity money can be made from the gold in Fort Knox. After all, that’s where the gold in Fort Knox originally came from—it came from gold coins confiscated from the People by the federal government during the Great Depression. And Fort Knox can even continue to serve as the vault.

One problem with our economic system is that most people aren’t taught how it is set up to work, and finding clear explanations of the banking system may not be very easy. However, one particularly helpful resource is a booklet called Modern Money Mechanics that used to be published by the Federal Reserve Bank of Chicago. The booklet is now out of print but at this writing is still available as a free download at https://upload.wikimedia.org/wikipedia/commons/4/4a/Modern_Money_Mechanics.pdf, or for purchase on Amazon.com. That booklet teaches, in the last paragraph on page 6:

“Of course, they [lending 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 [from borrowers] in exchange for credits to the borrowers’ transaction accounts [that is, adding the borrowed amounts to the borrowers’ checking accounts by changing the balance of the accounts, even though nothing is actually deposited]… the deposit credits constitute new additions to the total deposits of the banking system.”

This is the way money is created in our current monetary system. The banks create new money simply by increasing the balance of the borrower’s bank account by the amount “loaned”. No pre-existing money changes hands, the banks just change the numbers in the borrower’s account. The increase in the account balance itself is characterized as “new deposits”, that is, new spendable money. The new wealth belongs at first to the bank, and the bank belongs to its owners, its shareholders. Some of the shareholders may be bank holding companies or other institutional entities. But drilling down to the actual natural being owners will certainly uncover a lot of wealthy people. In other words, the current banking system, which was designed and is operated by wealthy bankers, serves the wealthy very well. In contrast, the banking system in general operates to keep the middle class treading water, and keeps the poor in what amounts to financial bondage, just as it was designed to do.

But we can use the same tricks that currently benefit the wealthy to better serve us common people, and we can do so without inflicting undue harm on anyone. How? We can draft and pass new laws to reform the banking system, for example to accomplish the following:

1. We can stop the practice of banks creating money, which increases the money supply and directly causes inflation. We can forbid any entity except the U.S. Treasury to add to the money supply. This single step will stop inflation in its tracks.

2. We can provide a guaranteed minimum income (GMI) to individuals and families. This income can be provided to us directly by the U.S. Treasury, without borrowing and without adding to the national debt! Instead, the treasury can create the money needed similarly to the way banks do now when they make loans, simply by adding the amount of every recipient’s GMI to the balance of their demand bank account, such as a checking account. If a recipient doesn’t have a checking account, they can be required to open one to receive their GMI. This will immediately and dramatically reduce all citizens’ state of financial bondage, and support and enhance our personal freedom.

3. Of course, if we just add the GMI payments to the money supply every year, the result would be to induce huge inflation. To prevent that, we can pass a law requiring every bank to periodically send to the IRS a percentage of their current demand account balances. For example, the banks can be required to make monthly payments to the IRS amounting to 90% of their demand account balances. This is effectively what banks do under a reserve banking system that maintains a 10% margin, and treats the remaining 90% as a surplus to provide or back new loans to borrowers.

4. We can reduce or eliminate every citizen’s debt load by requiring banks to reduce or eliminate some or all of every citizens’ loan balances. For example, we can eliminate all outstanding student debt by requiring the holders of that debt to change the unpaid balances to zero. After all, the student loan debts were created by lenders adding the amount borrowed to students’ accounts and adding the same amount to the lenders’ assets. So the student loans’ unpaid balances can be erased by deleting the student loan balances from the lenders’ assets. In both cases, no pre-existing money changes hands; it’s all done using accounting entries made in accounts controlled by the lenders. Of course, nullifying student debt would support and enhance the personal freedom of the former students who had carried that debt.

5. We can similarly require to be reduced or eliminated any other loan balances that were created out of thin air by lending institutions. Further, we can require existing loan interest rates to be reduced, and require the payments and/or loan durations on the remaining balances to be recalculated using the reduced rates. For example, we can pass a law that requires citizens’ combined loan balances below a certain amount, such as mortgage loans, auto loans, and credit cards, up to a combined total of, say, $500,000, to be reduced to zero. Remaining loans that then have a remaining balance, say, between $500k — $1m, can be modified in any desired manner, such as to reduce the interest rate of such loans to, say, 3.5% if their current interest rate is higher than that, and/or to reduce levelized loan payment amounts and/or payment durations by any desired amount. Citizen’s loan balances over $1m can remain under their current terms. Business loans of any amount can also remain under their current terms. Of course, this would support and enhance the personal freedom of the people benefitting from all of this debt relief.

Other considerations can include, for example, what happens if AI-based agents put untold humans out of work. Well, if people already have a guaranteed minimum income available, it shouldn’t matter if their jobs are eliminated! Furthermore, we can require all prices to be frozen at current levels, so the GMI benefits aren’t consumed by prices that would climb due to the formerly common practice of business owners raising prices without constraint.