Modern Money Operations  

I highly recommend that your administration mount an educational campaign to inform Americans of the fact that they have an alternative to tax increases and spending cuts as policy choices for managing the deficit. That alternative is to issue sufficient debt free currency to fund debt and debt service as part of the budgets of the more than 55,000 political jurisdictions in America.

We’ve successfully done this in the past. Lincoln refused to accept offers by Eastern Bankers who wanted to charge 26% to 35% interest for a $150 million loan. In 1862 President Lincoln and the Congress issued debt free Greenbacks. His debt free Greenbacks were constitutionally valid as a medium of exchange. They were considered money by providers of goods and services who accepted them as payment from the government and offered them as payment for commercial bills. They won the Civil War, reignited America's industrial revolution and served as interest free money through 1912.  And would be our currency today were it not for the Federal Reserve charging the Federal government interest on every dollar it needs to finance the commons.

The New American Dollar:   

Americans need to understand that this nation owes approximately $80 trillion in principle and interest payments and unfunded liabilities to all creditors, domestic, foreign, intergovernmental, etc. That sum is represented by Federal Reserve Notes, Treasury Bills, Bonds, and subordinate debt instruments.  This Treasury issued debt represents what the "Good Faith and Credit" of the United States is obligated to pay to creditors at some future point.  The crushing costs of this enormous obligation can be entirely eliminated by your courageous decisions.

You would request Congress to authorize the creation of 80 trillion New American Dollars, (NA$80Tr) interest free. [The new legal authority would allow Treasury to create electronic credit and debit accounts denominated in the new currency.  Requests for cash would, be provided as needed through Treasury and not the Federal Reserve. The costless availability of the new currency would eliminate concerns over when to replenish unfunded liabilities of all political jurisdictions.]

 

1. Congress would instruct the Executive to redeem, upon presentation/verification, all debt instruments.

2. Immediately liquidate/void these representations of money/credit/debt rather than rolling them over, as is current practice.

3. Accomplishing #2 above leaves the total supply of money unchanged, therefore, no inflation.

4. Federal taxation of corporations and individuals would be phased out since we would no longer pay interest on our own money.

5. State and local governments would purchase goods and services with the new currency also eliminating the need to tax corporations and individuals.

Debt free currency is the “Silver Bullet Solution.”  A debt free currency controlled by society not a handful of privileged individuals whose profit maximization principles exclude the general welfare and progress of all the people.  Capitalism’s principles should not be applied to the public sector via the accretion of debt and debt service. There should be no interest charged on “fiat” funds provided to serve the Commons.

 

Educating America on the above should be the most important function of your Administration during this “deficit crisis.” This solution eliminates entirely the crushing burden of taxation and deprivation of needed services.  It opens the door to funding for alternative energy research, development and deployment.  Moreover, this entire nation’s infrastructure needs can be met without incurring public debt. Our national security can be enhanced without fiscal constraints. Oceanographic and space exploration can proceed apace. We can employ tens of millions of Americans in these efforts which are, now, severely constrained by current monetary and fiscal policies.

 

Why Pay Interest on Our Own Paper Money?

 "Greenbacks were authorized by Congress and approved by the President and spent into the economy and there was no interest attached to their issue. As a medium of exchange Greenbacks entered the commercial/private sector debt free. 

Recipients of Federal payments for goods and services would deposit those sums in commercial banks. Some recipients would also invest and/or spend their income. Banks would do what banks should only do…serve as depositories, lend funds, and discount bills.  They should not issue currency.

State and local governments would receive federal, debt free, money as the funding source for state budgets including budgets for subordinate political jurisdictions. States, counties and cities, etc. would not need to compete in bond markets to raise funds for capital and social projects or to augment pension and health programs. Nor would they need to levy taxes since they receive non-interest bearing funds.

Modern monetary policy requires income taxation for its acceptance and survival.  A nation required to borrow must have a stream of revenue with which to pay service on its debt. Since governments are not profit making entities they must devise a ruse to assure creditors that payment of debt service will not be interrupted. 

In the absence of interest charges (at all levels of political jurisdictions) on funds provided as payments for goods and services, there then would be little if any need for corporate or individual income taxation. 

It cannot be repeated too often that the major alteration to current monetary policy is that there should be no interest charged on funds transferred from the Federal Treasury to the 54,000 plus political jurisdictions and federal government agencies. Interest on these funds occurs when they are deposited in private sector financial institutions as savings and investments. These institutions then earn income from loans and other financial services..

We as a society must develop priorities absent constraint on funding.  Competing priorities can be resolved through the ballot box and/or a social-economic cost benefit formulations which generate the most good for a majority of the people. Also, tradeoffs will always be used to create acceptable compromise.  A system of transparent priority indicators can be developed to eliminate "the sky is the ceiling" syndrome in the construction of budgets in a “debt free currency” environment. 

Mr. President you’ve said on a number of occasions that we need, “…bold, imaginative approaches to confront the myriad challenges of this generation.”  I believe the above recommendation and its benefits meet that dictum.  We have witnessed the inadequacy of current policies.  They leave us further constrained and deeper in debt here at home and to foreign interests. Significantly, a continuation of current policy would increase the multiple levels of pain suffered by most Americans.

American Precedents for the Elimination of Deficits and Debt

Background

Look what these elected and unelected officials, financial and economic mavens, debt and deficit pundits have done to America.  Not a day goes by when all of the above wail to anyone in earshot that if Americans don't accept reductions in discretionary programs there won't be an America for anyone. If Americans don't accept tax increases America will be in default on debt service payments and indeed usher in the collapse of the global financial system as we know it.

They lament, these wizened counselors to the President and other worthies, that there are no Silver Bullets. They are quick to proclaim that solutions involve pain which must be shared by all if we're to get through this debt crisis. Their recommended solutions, however, are not, unsurprisingly, crafted from creativity. The same shibboleths from centuries ago become modern day mantras.  Cut spending---increase taxes---and all will be well.   

The Unfortunate Focus of Today’s Debate

But there is a "Silver Bullet Solution." This "Solution" has always been available to America. However, we've been brainwashed to believe that there is only one school of thought on the issue of national debt and that school reflects only Adam Smith and John Keynes and the Masters of the Federal Reserve System.

A few examples of the debt debate’s narrow focus: 

1. Harry Reid supports a cap on the size of the deficit, with some conditionality involving automatic spending cuts or tax increases if the cap is exceeded. The ""Gang of Six" is in stalemate over tax increases and spending cuts. 

(They are hobbled by the prospects of having to either tax or cut.)

2. "Cantor Proclaims ‘America Pays Its Bills,’ Then Threatens Not To Raise The Debt Ceiling" reports Wonk Room's Pat Garofalo.

 (We’ve always allowed more borrowing because it’s how the Ponzi scheme survives.)

3. House GOPers plan a package of deep cuts to go with a debt limit increase. HuffPost: "The pieces being considered for the package include a mix of hard discretionary spending caps, substantial cuts to mandatory spending, a reduction in federal government hires and a fail-safe “trigger” option that would force additional cuts if Medicaid reforms or spending cuts are not enacted by a certain date."

(And more of the same cut-cut-cut)

4. The Senate will have to vote up-or-down on the House GOP budget. HuffPost: "'There will be an opportunity in the Senate to vote on the Ryan budget to see if Republican senators like the Ryan budget as much as the House did,' Reid said..."

(And  more of the same equivocation)

5. Rep. Paul Ryan is dishonestly selling the House GOP budget, argues TNR's Jonathan Chait: "Asked if he is 'trying to balance the budget on the backs of the poor and the elderly,' Ryan replies: 'We're saying to anybody who's 55 or above, "No changes to your Medicare whatsoever.' ... The biggest problem here is that Ryan turns the question into one entirely about Medicare. He imposes a massive, disproportionate share of his cuts on programs that aid the poor and elderly, yet ... he evades the issue of the poor completely."

(To really grasp the enormity of Ryan’s cynicism please read, Thomas Frank’s “The Wrecking Crew”, How Conservatives Rule.)

The Issue is not Spending & Cutting it is Borrowing at Interest

Ok.  What do we have here? Neither side is willing to admit that the solutions they so eagerly tout have never resolved the basic, fundamental, first cause issue which is;

“Should America--comprised of the Federal, State, local governments, and taxpayers continue to borrow money from the privately owned cartel known as the Federal Reserve Banking System, paying them interest on funds the government can easily create itself and avoid interest charges that now amount to half a trillion dollars FY2011-2012?

Creating government controlled paper money as well as electronic transfers eliminates interest payments which, as we now understand lead to ever more debt.  We also eliminate corporate and individual income taxes when the government controls the issuance of money.

Woodrow Wilson, Calvin Coolidge and all the Presidents since, understood this dilemma and were rendered impotent in their attempts to resolve it. They, like President Obama, were trapped between:

1. A fundamentally flawed, privately owned central banking system, and

2. A national, political system operating within the evolving framework of a Constitutional Democratic Republic.

The two systems are diametrically opposite.  The privately owned central bank has as its singular objective, maximization of bond holder income. A constitutional Democratic Republic purports to function as an extension of all the people.

However, because of the privately owned Central Bank, this society must borrow at interest to fund all of its budgeted priorities.

Were there no central bank, i. e., no private sector middleman, this society would simply spend at the level defined by budgets from the 54,000 plus political jurisdictions, without the need to charge interest. There would be no debt ceiling because there would be no debt.

Much of the rationale for debt free currency lies with the fact that our political jurisdictions are…Not “for-profit” enterprises/institutions. 

The need for usury arises only when there are forgone opportunities that are less risky than providing funding to the federal government.  Central bankers and their supporters know that the safest investment in the world is to lend to the American people because they are forced, through confiscatory income taxation, to pay the interest income needed by the banker’s clients.

The government at all levels could charge, on a per capita basis, profit making prices for all services, i.e., defense, space exploration, maintaining national and state safety and labor standards, FEMA, national Air Traffic Control, the  real cost of national, state and local roads, bridges, sewer and water/waste treatment, etc. Revenue from such a system would far exceed current tax revenue, even if marginal tax rates on the rich and super rich were 100%. And still, there would be a need to borrow to finance that portion of funding not met by pricing government services and draconian tax rates.

Precedents

1.  The Silver Bullet 1775

We've done this twice before in our history. We've used interest free paper money in lieu of gold, silver and interest bearing notes, bills and bonds, because people accepted it as a medium of exchange to pay for goods and services and at the same time eliminate the prospect of perpetual indebtedness.

The historical fact remains that the interest free Continental Currency and the American Revolution were inseparable. 

The First Time Created the Independent Land of America

Stephen Zarlenga informs that, “Leslie Brock advanced the modern study of colonial money by realizing the entire field was cast in a misleading light by the dominance of writers such as Horace White, Charles Bullock, and Andrew MacFarlane Davis, who regarded inconvertible paper money as evil. They were largely influenced by Dr. William Douglas of Boston, and concentrated on the worst years of the period from which to draw their conclusions.¹ Zarlenga continues, Dr. Douglas often misquoted and drew his facts from questionable sources.  But he was tolerated as long as he adhered to the theoretical viewpoint of Adam Smith.

While Douglas was lionized his adversary, the brilliant and scrupulously academic, Alexander Del Mar was marginalized because he thought little of Douglas’ argument that the Massachusetts Colony must adhere to the universal commercial medium (gold and silver). (Zarlenga) 

In Pennsylvania, by 1722 private banking cartels had reduced most shopkeepers and farmers to a form of indentured slavery through usury.  The cabal of four or five rich men controlling the issuance of gold and the redemption of bills of credit were finally undone in 1723 by the introduction of “paper money.”  A state loan office was authorized in Philadelphia to issue £15,000 of paper money at 5% interest for 8 years. The borrower had to offer as collateral triple the amount of the loan which could not exceed  £250. Borrowers had to repay 1/8 of the principle annually. “So great were the benefits that accrued to the province by this addition and so immediately were they felt that in December a further issue of £30,000 was ordered on the same terms,’ wrote a member of the Numismatic Society of Philadelphia.²

Eventually the bankers and merchants favored by the Crown and know as the Lords of Trade overruled Colonial leadership and forbade the printing/issuance of paper money.  More than anything else these Acts of 1751 and 1764 which suppressed further issues of bills of credit, contributed to the final breach with England.  Even Sumner a commodity currency advocate admitted “There can be no doubt that the bitterness engendered by this conflict was one of the great causes of the Revolution, wrote Sumner”³ 

Pennsylvania fearing a resumption of earlier economic collapses when species was not made available or made available only at usurious rates, refused to suspend the issuance of their bills of credit.  Adam Smith congratulated the Pennsylvanians for keeping a firm limit on issuance and redemption.

The 1764 Act did not ban issuance of paper money for government transactions but did for commercial transactions and becomes the precedent for Colonial development before, during and after the Revolutionary War. 

During the war Franklin had written;

“Our paper currency is not understood in England.  And indeed the whole is a mystery even to the politician, how we have been able to continue a war for four years without their gold and silver money, and how we could pay with paper that which had no previously fixed fund appropriated specifically to redeem it.  This currency as we manage it is a wonderful machine… It performs its office when we issue it, and when we are obliged to issue a quantity excessive, it pays itself off by depreciation.”⁴

Franklin realized the injustice of this to fixed pensioners and salaried persons and proposed legislative remedies for them.

Del Mar was more to the point: But the narrow minded and selfish London merchants and bankers, who influenced the government at this period, would not permit the colonies to have their own monetary system…accordingly orders were sent to America to put down colonial money and enforce the falsely named “national,” but really private [English] money…it was the enforcement of this policy that brought on the Revolution…,” wrote Del Mar,.. “and led to establishing an order of society that had been “forgotten for 18 centuries”---a republic.⁵

By 1773 London reconsidered, and allowed colonial legislatures more leeway in issuing various forms of paper money.  But it was too little too late; the colonists “rejected any parliamentary interference with their control over money,” wrote Ernst.⁶

While the Continental Congress convened in Philadelphia in 1775 skirmishes with the British were in full sway. Nonetheless that

Congress’ first act was to issue $2 million in bills of credit – Continental Currency.  The bills were not interest bearing. Historians biased toward gold and silver have vilified Continental Currency simply because it was so easily counterfeited by the British Government in its effort to debase it as a medium of exchange. 

The historical fact remains that the interest free Continental Currency and the American Revolution were inseparable. 

The Continental Congress eventually authorized $200 million in interest free Continentals and never exceeded that amount.  Del Mar estimates that the Crown, in league with criminals, counterfeited approximately a billion dollars worth during the period 1775-1781. (Zarlenga pp. 380-387)

The Silver Bullet 1863

Stephen Zarlenga writes: “Thanks to over a century of relentless propaganda; the image of the Greenback comes down to us as a worthless paper money.  But upon more careful examination, on balance they were probably the best money system America has ever had. And they served our nation well during its worst crisis-the Civil War.)⁷

 “The best currency that ever a nation had.” (S.G. Fisher) 

Zarlenga continues, “Demonstrating how far monetary history has been distorted, readers may be surprised to learn that every Greenback printed was ultimately as valuable as its gold equivalent, and became redeemable for gold coinage at full value. Today the Greenback supporters are erroneously presented as merely being pro-inflation or against sound money.  What they really wanted was a more honest money system, controlled by government, instead of banks.⁸

A.  Real Growth and the Problems with Money Systems

America was in the midst of its industrial revolution. Agricultural output doubled between 1850 and 1862, production of tractors and farm equipment spawned over one hundred manufacturing firms, American shipbuilding was the best in the world and, by 1866, and despite the war, the first transatlantic cable was completed.  Yet, there was no standard system of money and banking.  Federal and state governments chartered banks seemingly at will or for whoever held political power. “The banking system was conducted by 1,606 state banks, each going its own merry way: 7,000 different kinds of bank notes circulated, with more than half being spurious,” wrote Studenski and Kroos^.9

But there was an order of sorts, more an advantage in the Northern banking community where speculation was rampant in cotton bills, payments for which the South relied upon but were never immediately forthcoming. Only when traders had finished with their seasonal manipulation of cotton prices based on “future” contracts would southern farmers get paid. As war became imminent the disorganized banking system was the first causality.  The government became the payer of last resort as banks failed by the hundreds.

However, it was mostly Southern votes that stopped the 2^nd  Bank of the U.S. T.P. Kettle [assembled ] statistics to show that the south was the great wealth producing section, while the north , like an economic leech, sucked up the wealth of the south…”¹⁰

As civil conflict became ever more unavoidable Northern and Southern banks refused to honor cotton bills and the government saved the Southern cotton farmers with the issuance of Greenbacks  

In April, 1861 war broke out and by December 28 1861 all banks suspended convertibility of their notes into coinage and the gold market was closed for two weeks.

Congress took the initiative and Congressman E. G. Spaulding of Buffalo, N.Y. acting without Treasury support introduced a bill to create legal tender money-Greenbacks. Spaulding understood the nature of money and that it was what ever the citizens of a nation held in regard.  He wrote; “the real intrinsic value of these metals is not as great as that fixed upon it by governments…without the government stamp gold and silver would be simple commodities, depending for their valuB. Greenbacks and Savingthe Unione upon the demand for use in trade and manufacture…Why then should we go into Wall St, State St, Chestnut St. or any other street, begging for money? Their money is not as secure as Government money…I am unwilling that this government should be left in the hands of any class of men, bankers or money lenders, however, respectable or patriotic they may be.  The Government is much stronger than any of them…They issue only promises to pay.”¹¹

The legal tender law passed on Feb. 25, 1862 but prior to, it treasury notes issued from 1812 and on were always later redeemable in metal.

But the Greenbacks were not paper promises to pay “money” later. The Greenbacks were themselves money. Since they were not borrowed, there was no interest payment on them and they did not add to the national debt.¹²

The total of $450 million was issued to replace some Treasury notes outstanding.  They were receivables for all dues and taxes to the U.S. except export import duties, which still had to be paid in coin.  Greenbacks were used for everything except interest on bonds, for everything else they were declared legal tender.  Because the Greenbacks were being used to buy back previous government debt bankers held off their resistance to them until after their own positions were settled.

As expected bankers rallied around elected officials supporting a national banking system from which the government would borrow.  The prospects of a permanent system of interest free Greenbacks, as money, deprived bankers of permanent interest income.  Therefore, they fully supported placing a cap on the amount of Greenbacks to be issued during and after the War.

There were few economists willing to publicly support a monetary system based on interest free money allocated from Federal, State and Local Governments to suppliers of goods and services.  The specter of having only commercial transactions upon which to secure income reduced bankers to merchants and eliminated the cushion of the Federal Government being the lender of last resort. It also eliminated banker leverage in the “Halls of Power” placing a goodly amount of that process in the hands of the people and the ballot box.

Because the Greenback could not be counterfeited like the Continental it retained is value.  Economists and historians pick one point in time when Greenbacks were inflated against gold and conclude it was a bad bargain.  These critics ignore the longer term success of Greenbacks. They became convertible into gold, dollar for dollar, in January 1879.  At only one period, during the war, late-1862 thru 1865 did the Greenback’s value erode significantly. Also, unrecognized by many opponents of interest free paper money is that all wars induce inflation no matter how stable the underlying currency, currency speculators and commodity scarcity wreak havoc on money’s value.  Moreover, Greenbacks would not have been affected so severely if they too had been accepted for all payments to the government including for import duties.

Greenbacks were a superior paper money to that issued by banks so much so that those who lent bank money before the Greenback was issued and expected payment in paper money were repaid with a far superior paper asset than had previously existed because it was backed by the government.  After all it was the bankers, not the debtors, who had perpetrated the fraud that their paper notes were convertible into coinage. The disappointed lenders should have been asked how their debtors could have paid them in coinage after the banks suspended convertibility of bank notes in December of 1861.  That suspension showed that the metallic backing was a fiction…a fraud.  (Zarlenga, p 467)

Even the National Banking Act of Feb. 25, 1863 failed to reign in bank fraud. That act entrenched the more dangerous structural fraud with which we continue to live with to this day. Zarlenga reports; “Judge Rufus P. Ranney called on Democrats to “consider how much damage there was in a system that had replaced the Bank of the U.S. If with its $35 million in capital the old bank had dominated the press and Congress ‘what are we to think of the numerous banks with their hundreds of millions in capital?”’¹³

Another example of structural fraud is the charging of interest by banks on money they create from thin air.  Such interest if it is to be charged belongs to society.  Even more important is the control over the flow of credit in the society-the favoritism practiced in directing the flow of newly created money into the hands of privileged special interests. (Zarlenga, p. 470)

Opposition to the successful Greenbacks mounted shortly after the conclusion of the War.  Disregarding the fact that the Greenback was key to winning the war, bankers, as was expected, wanted them discontinued or at least convertible to gold.  The real damage to the Greenback came from the incessant attacks and smearing by religious establishments through their churches and universities.  

Practically all the colleges founded between the revolution and the Civil War were dominated by religious organizations. Their founder Calvin had written: “The people must always be kept in poverty in order that they may remain obedient.”¹⁵ One of the most effective steps in raising a people out of poverty is a societally controlled fair money system. (Zarlenga, p473)  Secular opposition to Greenbacks reached messianic heights as Calvinists, throughout their national media control, railed against the Greenback as akin to the “devil at work.” ¹⁴ 

________________

Read more: IRS special agent challenges system http://www.wnd.com/?pageId=3642#ixzz1L9twsBoz

¹ Stephen Zarlenga, The Lost Science of Money, The Mythology of Money – The Story of Power, American Monetary

  Institute, p.369

² Benjamin Franklin , Modest Inquiry into the Nature and Necessity of a Paper Currency, 1729 ,

 in Writings, Library of America edit., McKee & Williams, (New York: Liberal Arts Press, 1957.

   pp. 83-85.

³ William Graham Sumner. A History of the American Currency, (New York:

  Holt , 1874), pp40-50. 

⁴ Franklin, Writings, cited above, April 22, 1779 letter from France to Dr. Cooper, pp 422-3.

⁵ Alexander Del Mar, History of Money in America, (repr., New York: Burt Franklin,  p. 69.

⁶ Del Mar, cited in 5 above, p. 96

⁷ Stephen Zarlenga, The Lost Science of Money, The Mythology of Money – The Story of Power,

  American Monetary Institute,

⁸  Zarlenga, cited above, p453

⁹  Studenski & H. E. Koos, Financial History of the U.S. , (New York: McGraw Hill, 1952, pp.

   137-8

¹⁰  T.P Kettle, Southern Wealth and Northern Profits, (1860, University of  Alabama: G & J

    Wood, 1965)

^{11 E. G Spaulding, A Resource of War, (repr, CN: Greenwood, 1971), p.37.}

¹²   Zarlenga^, cited above, p. 459

¹³    As quoted by Irwin Unger, The Greenback Era, (Princeton Univ. Press, 1964)

¹⁴   Unger cited above, pp.123, 125, 126.

¹⁵   Kampschulte, I, as quoted by Harman Grisar in Martin Luther, transl. F.J.Eble, (Newman

     Press, 1955.