Monetary Proposal

RETURN TO THE GREENBACK DOLLAR    

We no longer have a government “of the people, by the people, for the people.” We have a government run by and for Big Business, and Big Business has gotten control because its affiliated banks have monopolized the business of issuing the national money supply, a function the Constitution delegated solely to Congress.  What hides behind the banner of “free enterprise” today is a system in which giant corporate monopolies have used their affiliated banking trusts to generate unlimited funds to buy up competitors, the media, and the government itself, forcing truly independent private enterprise out. Big private banks are allowed to create money out of nothing, lend it at interest, foreclose on the collateral, and determine who gets credit and who doesn’t. They can advance massive loans to their affiliated corporations and hedge funds, which use the money to raid competitors and manipulate markets. If some players have the power to create money and others don’t, the playing field is not “level” but allows some favored players to dominate and coerce others. These giant cartels can be brought to heel only by cutting off their source of power – the power to create money — and returning it to its rightful sovereign owners, the people themselves.                                   

Two independent monetary systems have competed for dominance in the United States ever since we were a collection of colonies. In provincial America, paper money was issued by local governments. In England at the same time, paper banknotes were issued and lent privately by banks, headed by the Bank of England, the first private central bank. The major flaw in the private banking system was that the banks created the principal but not the interest necessary to pay back their loans, so more money was always owed back than was put into the money supply, requiring more loans to be taken out to cover the interest, spiraling the people into debt.The most effective and efficient of the American colonial systems was in Pennsylvania, where a publicly-owned bank issued paper money and lent it to farmers. The money returned to the government with interest, preventing inflation; and to keep enough money in the system to prevent the debt spiral of the private banking system, the government issued and spent a sum of money on public works as well. The Pennsylvania system worked so well that it completely funded the provincial government without taxes or inflation. Benjamin Franklin and others maintained that the chief reason for the American Revolution was that Parliament forbade the colonies from issuing their own money. Paper money issued by the Revolutionary government got the colonists through the war, but the British heavily counterfeited the Continental currency as a deliberate war tactic, and by the end of the war it had been inflated so much that it was nearly worthless. Fear of inflation led the Continental Congress to completely omit paper money from the Constitution, which does not say who can issue it or under what circumstances. The private banks filled the breach, and by 1913 the U.S. had the same private central banking system that England had. Ever since the dollar went off the gold standard in 1933, all of our money except coins and a few rare U.S. Notes has been created privately by banks (including the private Federal Reserve) and lent to the government and the people. Two centuries after the Revolution was fought, the pyramid scheme of lending 10 dollars and requiring 11 back has reached its mathematical limits. We are “all borrowed up” and the banking system is imploding. It is time we tried the system for which our forefathers fought and died: real, debt-free, publicly-issued U.S. money. This tack would not only not add to inflation but could actually reduce or eliminate it. Inflation results from an increase in “demand” (money) over “supply” (goods and services). Today inflation is caused by borrowing to repay debt: the money created into existence by banks goes to pay interest rather than to produce goods and services. If the government were to issue money and use it to pay for real goods and services (roads and bridges, sustainable energy development, health services, and the like), demand and supply would remain in balance and inflation would not result. The “Federal” Reserve is actually a privately-owned corporation that issues money and lends it to the government. A truly federal central bank would issue funds directly to the Treasury as debt-free U.S. Notes, or as “national credit.” This was done successfully in Australia and New Zealand during the 1930s and 1940s. A state-owned central bank funded public projects that put people back to work, at a time when most of the rest of the world was struggling with a depression brought on by a global shortage of bank-created money. Today we are facing the same sort of bank-created credit crisis, and it could be resolved in the same way. Steps Congress might take include:1. Amending the Federal Reserve ActFederal Reserve Act to make the Federal Reserve a truly federal agency, acting under the auspices of Congress in conjunction with the Treasury.

2. Updating the Constitutional provision that “Congress shall have the exclusive power to coin money [and] regulate the value thereof” to read, “Congress shall have the exclusive power to create the national currency in all its forms, including not only coins and paper dollars but the nation’s credit issued as commercial loans; and it shall not delegate this power to any private entity.”

3. Authorizing new issues of federal legal tender backed by “the full faith and credit of the United States,” to be spent on programs that promoted the general welfare. To prevent inflation, this currency would be advanced only for programs that contributed new goods and services to the economy, keeping supply in balance with demand. Issues of the new currency would also be capped by some ceiling — the unused productive capacity of the national work force, or the difference between the Gross Domestic Product and the nation’s purchasing power (wages and spendable income).

4. Advancing credit interest-free to state and local governments, for rebuilding infrastructure and other public projects. The emphasis would be on projects that were self-sustaining, such as the development of cheap, effective alternative sources of energy (wind, solar, ocean wave, etc.) that could be sold to the public for a fee; or the repurchase of homes in default, to be resold or rented as low-income housing.

5. Establishing a network of national banks to serve as local bank branches of the newly-federalized banking system, either by FDIC takeover of currently insolvent banks or by the purchase of viable banks with newly-issued U.S. currency. Besides serving depository banking functions, these national banks would be authorized to service the credit needs of the public by advancing the national credit as loans. Any interest charged on advances of this credit would be returned to the Treasury, to be used in place of taxes.

6. Authorizing the Treasury to buy back and retire the federal government’s outstanding debt as it comes due, using newly-issued U.S. Notes or Federal Reserve Notes. In most cases this could be done online, without physical paper transfers.

7. Regulation and control of the exploding derivatives crisis, either by imposing a modest .25 percent Tobin tax on all derivative trades in order to track and regulate them, or by imposing an outright ban on derivatives trading. If the handful of banks responsible for 97 percent of all derivative trades were found after audit to be insolvent, they could be put into receivership and their derivative trades could be unwound by the FDIC as receiver.

8. Initiating a new round of international agreements modeled on the Bretton Woods Accords, addressing the following monetary issues among others:

— The pegging of national currency exchange rates to the value either of an agreed-upon standardized price index or an agreed-upon “basket” of commodities;

— International regulation of, or elimination of, speculation in derivatives, short sales, and other forms of trading that are used to manipulate markets;

— Interest-free loans of a global currency issued Greenback-style by a truly democratic international congress, on the model of the Special Drawing Rights of the IMF; and

— The elimination of burdensome and unfair international debts. This could be done by simply writing the debts off the books of the issuing banks, reversing the sleight of hand by which the loan money was created in the first place.Just as we need publicly-operated police, courts and laws to keep individual and corporate predators at bay, so we need a system of truly national banks, in which the power to create the money and advance the credit of the people is retained by the people. We trust government with sweeping powers to declare and conduct wars, provide for the general welfare, and establish and enforce laws. We should trust it to create the national money supply in all its forms. The federal government need not and should not go into debt. A government with a properly designed and monitored system of publicly-issued money could fund itself without taxes, debt or inflation.                      

Ellen Brown, J.D.,

March 6, 2008                                                           

March 6, 2008