- It creates an enormous amount of debt both at the national and at the individual level.
- It creates budget deficit battles in Congress. In order to approve a particular budget with the usual deficit, many questionable pieces of legislation are introduced into the omnibus bill.
- Most of the money created goes into the financial economy (mortgages, Wall Street hedge funds, credit cards, etc.) very little gets into the productive economy where actual jobs are created. In England, for example, people who study these things claim that only about 10% of the money created by banks gets into the productive economy.
- Lack of sufficient, good paying jobs leads to a decline in the Labor Force Participation rate which has gone from 66% in 2004 to 62.8% in 2014.
There are several organizations which have proposed
solutions to these problems. The two most prominent ones can be found at:
I will focus on the
second one since I feel it will be easier to implement.
**********
A
Hybrid Money System to Set Aside the Sequestration Budget Cuts,
Pay down the National Debt and “End this
Depression Now!”
http://monetaryreform-taskforce.net
SUMMARY OF
“GREEN MONEY” MONETARY REFORM PROPOSAL
Government planners in
Washington DC are now (Jan 1, 2013) faced with a three pronged dilemma for
which we propose an elementary solution in this paper.
- The first prong is the need to reduce the federal budget deficit expressed in the Budget Control Act of 2011 (Debt Ceiling Deal).
- The second prong is the need to stop the increase and start the decrease of the national debt. Both of these objectives would seem to dictate budget cuts and tax increases.
- But there is a third prong as well, the need to decrease the unemployment rate. (Editor’s note: increase the Labor Force Participation rate)
This
would entail a substantial “surge” in government spending that would seem to
imply greater borrowing as well. And if
we borrow more, the deficit and national debt would go up, not down. So it appears to be impossible, under the
current institutional arrangements, to make progress on all three fronts
simultaneously.
This paper is devoted to a proposal for emergency
monetary reform action that will avert this disaster, and in fact make all
three policy objectives feasible at the same time. The sequestration cuts can be canceled due to
a feasible deficit reduction plan, the upward trend of the national debt can be
reversed, and the un-employment rate can be brought down, all at the same time,
by the same action. This single game changing solution is simply for Congress to reassert
its constitutional power to create money that is spent into circulation without
debt and without interest obligation.
The monetary reform
controversy has been couched in terms of choosing between two alternative money
creation systems:
(1) a
debt-based money system in which all money is created by banks through bond
acquisitions by the central bank and loans by commercial banks utilizing the
fractional reserve system (such as the Federal Reserve System in the US); and
(2) a
debt-free money system in which all money is created by the government, in
which banks are subject to a 100% reserve requirement for checking accounts and
fractional reserve banking is forbidden. We argue here that there is in fact a third
alternative,
(3) We argue here that there is in fact a third alternative, a
hybrid money system in which part of the money supply is created by the
government debt-free and part is created by the banking system through
debt. This third option can be seen as
a transition stage towards a completely debt-free money system (option 2), or
as a permanent solution, depending on perspective.
The
completely debt-free system is based on the Chicago Plan of the 1930s, and has
been codified in the American Monetary
Act proposed by the American Monetary Institute and introduced in Congress
as HR 2990 in Sept 2011 by Rep.
Dennis Kucinich. There is mounting computational evidence (see Yamaguchi
ref[14,15] and Kumhof ref[16]) that the
system dynamics for debt-free monetary
systems are vastly superior to those for
debt-based money systems and therefore moves towards something like the HR
2990 proposal are highly desirable from a systems performance point of
view. It is intuitively obvious from the
public interest perspective that this should be the case because debt-based
money entails debt and an interest obligation, whereas debt-free money is free
of debt and has no interest obligation.
However, since the Federal Reserve System is so
entrenched now after 99 years of existence in the American and International
financial worlds, and since HR 2990 provides for a dismantling of the Fed and
the end of fractional reserve banking, the prospects
for Congressional approval of HR 2990 are, in my opinion, extremely dim. As California Senator Diane Feinstein once
said about another issue, it is likely to be perceived in Congress as “simply
too much, too fast, too soon.”
Hence
the approach taken in this White Paper is therefore to focus on
the most urgent and least controversial part of the HR2990 reform proposal
(issuance of debt-free government money), and frame monetary reform as a multi-stage transformational process that
will require a sequence of bills over a period of years that introduce change
in a more gradual way, during which time a hybrid money system will
obtain as bank and government money circulates side by side.
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