Copyright ©2010 |The Unique Green Boutique
If the government were to buy back its own bonds with cash, these instruments of financial value would merely be converted from interest-bearing notes into non-interest-bearing legal tender. The funds would move from M3 into M1 (cash and checks), but the total money supply would remain the same.”²
“"Broad liquidity" thus includes most government securities. Longer-term securities are not technically included in this definition, but the principle still holds: cashing them out would not affect consumer prices, because the money supply would not increase and the bondholders would have no more spending money than they had before. Consider this hypothetical:
You have $20,000 that you want to save for a rainy day. You deposit the money in an account with your broker, who recommends putting $10,000 into the stock market and $10,000 into corporate bonds, and you agree. How much money do you have in the account? $20,000. A short time later, your broker notifies you that your bonds have been unexpectedly called, or turned into cash. You check your account on the Internet and see that where before it contained $10,000 in corporate bonds, it now contains $10,000 in cash. How much money do you have in the account? $20,000 (plus or minus some growth in interest and fluctuations in stock values). Paying off the bonds did not give you an additional $10,000, making you feel richer than before, prompting you to rush out to buy shoes or real estate you did not think you could afford before, increasing demand and driving up prices.
Another safeguard against the threat of inflation is to simply have the government buy back its own bonds and take them out of circulation.”³
The Bank of the United States – A publicly Owned Entity.
The Treasury could conduct an appraisal of major Government properties around the nation and use the appraised value of some of those properties to capitalize a publicly owned bank. That bank using fractional reserve lending principles, would then issue interest free credit to fund the budgets of Federal, State and local political jurisdictions.
Capitalizing the value of these federally owned public properties is infinitely more advantageous to tax payers than selling them to domestic and foreign interest simply to raise cash in a one time transfer. The public would continue to have access to these properties through a system of modest fees which contribute to replenishing the Treasury accounts. There are no middle men or central bank interventions. Over time this system allows the absolute reduction in federal income tax rates because it eliminates the creation of federal debt.
State Owned Banks – Reducing Dependency on Federal Funds
If every state had its own publicly owned bank like that recommended above where the Treasury Department serves as the nations publicly owned bank, each state would then eliminate the annual madness of attempting to balance budgets on the backs of the people. The states could capitalize the value of state owned property and cash assets, use fractional reserve principles to create the funding needed to finance budgets and, like N. Dakota, generate budget surpluses year after year.
If Wall Street and the Feds won’t extend credit to the states on reasonable terms; the States could simply walk away and create their own credit machine. Virginia, for example, could put its revenues in its own state-owned bank and fan these “reserves” into many times their face value in loans, using the same “fractional reserve” system that private banks use.
Congressman Jerry Voorhis, writing in 1973, explained it like this:
“[F]or every $1 or $1.50 which people, or the government, deposit in a bank, the banking system can create out of thin air and by the stroke of a pen some $10 of checkbook money or demand deposits. It can lend all that $10 into circulation at interest just so long as it has the $1 or a little more in reserve to back it up.” 4
For instance, according to the California Treasurer’s report, as of May 2009 the state had aggregate deposits and investments exceeding $55 billion. Of this sum, $1.1 billion was held in demand deposit accounts (non-interest-bearing accounts allowing unlimited deposits and withdrawals) and $16.5 billion was in NOW accounts (interest-bearing accounts allowing unlimited deposits and withdrawals). According to the Treasurer’s office, the non-interest-bearing demand deposits are held at the seven depository banks named earlier, while the NOW accounts are held at Citibank and Union Bank. Applying a “multiplier effect” of ten to the total sum on deposit at these seven banks ($17.6 billion), the banks collectively have the ability to make $176 billion in loans. At 5%, $176 billion can generate $8.8 billion in interest for the banks.
Rather than showing their gratitude by reciprocating, however, six of the seven depository banks have refused to honor
California’s IOUs. Worse, three of these six actually received federal bailout money from the taxpayers, something that was supposedly done to keep credit flowing to the states and their citizens. Citibank got $45 billion in bailout money, Wells Fargo got $25 billion, and Bank of America got $45 billion, not to mention guarantees of $300 billion for Citibank and $118 billion for Bank of America. When Governor Schwarzenegger asked for a loan guarantee for a mere $6 billion to bolster California’s credit rating, on the other hand, he was turned down. Californians compose one-eighth of the nation’s population.
If private banks can leverage deposits into multiple amounts of “credit” on their books, a state-owned bank could do the same thing, and return the profits to the public purse.” 5
The impact on reducing federal debt would be substantial, since federal infrastructure grants would be unnecessary as would most other forms of federal lending. Moreover, state income tax rates could be reduced since there would be no owners of the public bank to siphon off returns.
Pay Our Bills With A New Currency.
Our current economic circumstance requires bold and imaginative approaches that ensure our survival as a society, indeed as a Democracy. The more indebted we become the less Democracy we will have.
“In what may be the best piece of advice ever given to a sitting President, Colonel Dick Taylor of
Illinois reported back that the Union had the power under the Constitution to solve its financing problem by printing its money as a sovereign government. Taylor said:
“Just get Congress to pass a bill authorizing the printing of full legal tender treasury notes . . . and pay your soldiers with them and go ahead and win your war with them also. If you make them full legal tender . . . they will have the full sanction of the government and be just as good as any money; as Congress is given that express right by the Constitution.”
The Greenbacks actually were just as good as the bankers’ banknotes. Both were created on a printing press, but the banknotes had the veneer of legitimacy because they were “backed” by gold. The catch was that this backing was based on “fractional reserves,” meaning the bankers held only a small fraction of the gold necessary to support all the loans represented by their banknotes. The “fractional reserve” ruse is still used today to create the impression that bankers are lending something other than mere debt created with accounting entries on their books.
They were paid to soldiers and suppliers and were tradeable for goods and services of a value equivalent to their service to the community. The Greenbacks aided the
Union not only in winning the war but in funding a period of unprecedented economic expansion. Lincoln’s government created the greatest industrial giant the world had yet seen.
The steel industry was launched, a continental railroad system was created, a new era of farm machinery and cheap tools was promoted, free higher education was established, government support was provided to all branches of science, the Bureau of Mines was organized, and labor productivity was increased by 50 to 75 percent.
The Greenback was not the only currency used to fund these achievements; but they could not have been accomplished without it, and they could not have been accomplished on money borrowed at the usurious rates the bankers were attempting to extort from the North.
Lincoln succeeded in restoring the government’s power to issue the national currency, but his revolutionary monetary policy was opposed by powerful forces. The threat to established interests was captured in an editorial of unknown authorship, said to have been published in The London Times in 1865:
If that mischievous financial policy which had its origin in the
North American Republic during the late war in that country, should become indurate down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.
The institution that became established instead was the Federal Reserve, a privately-owned central bank given the power in 1913 to print Federal Reserve Notes (or dollar bills) and lend them to the government. The government was submerged in a debt that has grown exponentially since, until it is now an unrepayable $14 trillion. For nearly a century,
Lincoln’s statue at the Lincoln Memorial has gazed out pensively across the reflecting pool toward the Federal Reserve building, as if pondering what the bankers had wrought since his death and how to remedy it.”
The above alternatives can be made viable only if policy makers are willing to give them equal time for deliberation with those measures which are all too familiar to Americans and which create the greatest burdens for Americans.
We can pay our bills easily, if we use are resources wisely.