For a more detailed understanding of the issues surrounding our corrupt monetary, insurance and financial system, see the accompanying essay.

The US monetary system is a crucial component of the commerce which ties each of us together through our commercial relations with one another. It is therefore crucial that the monetary system be tailored to the needs of the general welfare and not co-opted  to serve one sector of the economy or the interests of a few. The US Constitution recognizes the need for a government run monetary system by granting to Congress alone the power to originate money and regulate the value of money. However, today our monetary system is controlled almost entirely by a quasi-public for-profit corporation: the Federal Reserve System. The Federal Reserve guarantees profits to its members and those profits arise from the inappropriate delegation to the Federal Reserve System of the power to originate money.

While traditional forms of money such as paper notes and coin are operated by government agencies, the Federal Reserve operates the central fulcrum of the more pervasive form of money in our contemporary economy: the system of money comprised of electronic demand deposit balances such as checking accounts. The Federal Reserve facilitates the electronic money system by operating the Automated Clearing House (ACH) and FedWire electronic payment systems. These systems grant privileged access to member banks and other banks to make electronic transactions – dispensing with much of the need for paper notes or coins.

Also, a key trait of the Federal Reserve’s design is the encouragement of speculative activity in financial markets. When the Federal Reserve originates new money by simply adjusting upward its own checking account balance, it first uses those new deposits to buy US Treasury securities on secondary markets rather than directly from US Treasury auctions. Every time the Federal Reserve injects new money into the secondary treasury markets in this way it facilitates market gains for sellers of these securities so that some portion of the newly originated money goes to speculative traders instead of to the US Treasury to monetize the debt. These speculative gains also fuel further speculation and undergird the casino mentality of our financial system.

While new money origination constitutes a mode of taking from the public, similar to taxation and which must be done through due process and for the general welfare, the Federal Reserve’s approach instead guarantees some portion of the income from any new money origination accrues to private financial speculators instead of the US Treasury. The Federal Reserve approach also does not satisfy the due process required by the Constitution in such a taking.

Compounding all of the problems with the Federal Reserve System, our larger banking system also permits any bank to create money through an accounting convention called ‘fractional reserve lending’. With fractional reserve lending, banks are permitted to treat demand deposits such as checking accounts as if they were savings and make loans against a major portion of those demand deposits. This means that during economic or financial crises when suitable borrowers cannot be found or maintained, the money needed for commercial activity evaporates and this creates a feedback mechanism causing further economic declines. In boom times, the opposite occurs and the fractional reserve lending’s positive feedback mechanism further fuels speculative bubbles and irrational exuberance. These positive feedback mechanisms associated with fractional reserve lending therefore needlessly compound all of the problems associated with business cycles. The only advantage to fractional reserve lending is that it allows banks to reap further profits from their customer’s demand deposits since the bank need not pay interest on such deposits but earns a return by loaning out those deposits. This private benefit of fractional reserve lending is not an appropriate justification for maintaining this destructive method of money origination.

I support:

  1. Repeal of the Federal Reserve Act and replacing the Federal Reserve System’s policy-making Board of Governors with direct Congressional money supply decisions facilitated through newly created House and Senate Monetary committees and relocating the analytical administrative staff of the Federal Reserve System into a supporting role as a newly created Congressional Monetary Office.
  2. Transfer of operations of the Federal Reserve’s ACH and FedWire electronic payment systems along with the US Mint and the Bureau of Engraving and Printing under a new cabinet level Department of Market Clearing to oversee our various forms of money: paper notes, coins, electronic deposits, and paper drafts. As the administrator of our nation’s central electronic transaction system and other money forms, this department would serve as the executive administrative component of our money system, ensuring equitable and fair access to the electronic general ledger form of money.
  3. Ending fractional reserve banking so that banks can no longer loan checking and other demand deposits which are the funds of depositors; instead banks will only loan their own funds acquired through business income or the sale of financial instruments such as savings instruments. Following on the plan of Irving Fisher from the 1930’s, new bank lending rules and procedures will end the privilege banks now enjoy to create new money by extending credit on demand deposit balances (such as checking accounts).. Banks will continue as a place to bank valuables including paper notes, coins and safety box deposits, selling savings and other financial instruments, and pooling such savings to extend as loans of already existing money at interest; evaluating and rating projects for loans and investments and generally acting as intermediaries between those clients seeking a return on their savings and those clients ready and able to borrow funds for productive investments. However, banks will no longer be creators and destroyers of the electronic balances we use pervasively for money.
  4. Ensuring newly originated money (or retired money) should directly affect the balance of the general fund of the US Treasury or other funds that Congress sees fit to adjust – always keeping the general welfare of the US population as the aim of any such adjustments. By making spending decisions, taxing decisions, and new money origination decisions, Congress will residually determine the funds needed to borrow or repay (or save) which the US Treasury will handle much as it does today. Due to the similarity between bills raising revenue and the same impact of a taking through money origination, and in keeping with the US Constitution, all money origination bills must commence in the House, but the Senate may propose or concur with amendments as on other bills. Money origination bills, like any bills, require the signature of the President and require an override in the event of a Presidential veto as with any other bill. Money origination bills may layout an extended schedule of money origination balance adjustments as Congress sees fit; may alter a prior schedule of money origination adjustments; or may simply authorize a single money balance adjustment to a particular fund within the public treasury.