#7 How to slay the DEBT MONSTER

GREEN MONEY CAN AVERT A NATIONAL DEBT DEFAULT

As an illustration, let us consider a hypothetical scenario for bringing green money (paper and electronic) into the equation in a gradual way.  This risk averse approach is to insure that there are no unintended effects that cannot be handled by simple adjustments.  An example quarterly adjustment plan based on the proposed Greenback Renewal Act is shown in Table 1.  If enacted this year, these quarters could start this year, or Jan 1 2013 latest.

Table 1.  Ramping up the Green Money Injection

QUARTER	Daily Green Money Injection	Quarterly Green Money injection
Q1	$1.25 billion per workday	$81.25 Billion
Q2	$2.5 billion	$162.5 Billion
Q3	$3.75 billion	$243.75 Billion
Q4	$5 billion	$325 Billion

If you total up the green money injections shown in Table 1, you get $652.50 Billion for the year.  That is not enough to cover the whole projected budget deficit, but it is about half of it.  And continuation of the increases in the same manner for another year will completely wipe out the federal budget deficit and keep the national debt on a steadily downward trend.  It also satisfies the Budget Control Act requirement for a deficit reduction plan reducing deficits by at least $2.3 Trillion over the next ten years.  In fact it would reduce deficits by the requisite amount well within three years, thus averting the horrible sequestration cuts that will otherwise occur.

There is another way that green money can be employed to bring down the debt in a more dramatic way.  And that is by buying up the Fed’s portfolio of US Bonds with green money. These bonds were purchased with money created out of nothing by the Fed, a power granted to them by Congress, and hence the debt owed to the Fed and the interest due on these bonds is nonsensical.  Congress could have issued the money directly without debt and without interest.  Thomas Edison put it this way:

“But here is the point: If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%; whereas the currency, the honest sort provided by the Constitution, pays nobody but those who contribute in some useful way.  It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People. If the currency issued by the People were no good, then the bonds would be no good, either. It is a terrible situation when the Government, to insure the National Wealth, must go in debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold.”  (New York Times, December 6, 1921)

So by buying bonds held by Federal Reserve Banks back with green money, Congress is basically “undoing” the error that was committed by letting the Fed create the money in its stead.  It would be stipulated that the Federal Reserve Bank Credit that was created for each bond purchase would be extinguished upon buyback by the Treasury Department, being replaced by the equal dollar amount in green money, so that the amount of monetary base (M0) would be unaffected by the repurchase of the bonds. 

This would amount to a transformation of M0 from Federal Reserve Credit into US Bank Deposits, which could be split up into four quarterly $412.5 billion repurchases, to be completed in one years’ time.  Of course, the Federal Reserve Note currency would be replaced with US Note currency as well, so that at the end of a year’s time, M0 would consist entirely of government issued money, no part of it being Fed created money.  This $1.65 trillion reduction in the national debt would constitute about 10% of the total national debt and would put the US well on the way towards the debt free status.  The credit rating of the nation would be restored, since it would be apparent that the country can make good on ALL of its debts in due time, once it realizes its power to create money at a responsible rate and exercises the will to do so.  In summary:

Debt Reduction Plan for a debt-free nation

1.     All US Bonds in possession for the Federal Reserve Banks (approximately $1.6 trillion) shall be replaced with US Money through the purchase of US Bonds held in the portfolios of the various Federal Reserve Banks;

2.    One fourth of the US bonds owned by the Fed (approximately $0.4 Billion) shall be replaced with US Money during each quarter of the first year following passage of this act.  Hence, all US Treasury bonds will be replaced with US Money at the end of the year following passage of this act, thus reducing the National Debt by approximately $1.6 trillion in the first year.

3.     Federal Reserve Notes shall be retired gradually as US Notes are issued into circulation in such a way that total currency held by the non-bank public will grow at a rate appropriate for the needs of commerce.  Federal Reserve Notes held by banks as vault cash will be replaced with US Notes during the first year following passage of this act.

4.     Upon passage of this act, the Federal Reserve Banks will cease and desist from further purchases of US Bonds.  Hence after the first year following the commencement of this act is completed, Federal Reserve Bank share of the national debt shall be, and shall remain, 0%.

5.     Non-Federal Reserve debt and interest on the debt shall be paid off with existing or new US Money as provided for in the annual budget.

6.     Loan repayments from foreign entities to the Federal Reserve, including those reported in Table 8 on page 131 of GAO-11-696 and those based on subsequent loans to foreign entities, being outside the purview of the mandates for the Federal Reserve System, including both principal and interest, shall be transferred to the US Treasury account on a daily basis as received from the foreign debtors.  The Federal Reserve shall cease and desist from future loans to foreign entities, except as approved by Congress.