Monetary System for the 21st Century
Have you noticed only one Presidential candidate is debating Monetary Policy and the Federal Reserve – the Libertarian Ron Paul. The only other one is the far left, past Presidential candidate Dennis Kucinich by introducing HR 2990 “The NEED Act”.
It is very hard to understand why because it was the 100% cause of the “Great Recession”. Therefore, the major solution is Monetary (Money Creation) and NOT Fiscal (Tax & Spend). We in the Monetary Reform Movement can not figure it out. I guess the big banks do a good job of changing the debate and keeping our leaders in the dark. Even the 99% – Occupied Wall St. movement is confused and mystified. They just know something is wrong.
If you read Ron Paul’s book “End the Fed”, it is a very good description of U.S. monetary history. It does misinform some important events and of course has the wrong 19th Century solution. The first historical misinformation is the inflationary collapse of the Continental currency during the Revolutionary War. It was basically caused by the two British war ships in New York Harbor printing massive amounts of counterfeit currency. This was a common practice of the British against their enemies. I do not blame the author for this error. You will also find the omission of this fact in the Federal Reserve history. Both the predecessor Colonial and the Continental fiat currency worked well. In fact, according to Ben Franklin, the major cause of the Revolution was elimination of the Colonial fiat currency by the Crown.
He also failed to fully discuss the successful utilization of the Greenbacks during the Civil War. This was another fiat like currency that had basically limited gold backing. Then the government started removing them from circulation which caused recessions because of lack of money in circulation.
Then he states that we had very sound currency between 1830 and 1860. This was the time that Andrew Jackson closed the Second National Bank reducing the amount of money in circulation which caused very severe depressions. His concern is the government inflating their currency. I have this concern to! But, I am more concerned with deflating currencies causing panics, recessions and depressions. People are far better off in an inflationary environment versus a deflationary one. Would you like to be living during the depressions of the 19th and early 20th Centuries or the latter half of the 20th Century?
Another of Ron Paul’s argument is the interpretation of the Constitution which in the reform movement definition gives the power to Congress under Article I Section 8 and Clause 5. It states that Congress can “coin money”. If you want to take this literally in the digital age, order the Treasury to mint Trillion dollar coins and then make change as funds are needed.
Ron Paul wants to eliminate “fiat currency” and “fractional reserve banking-Federal Reserve. These are two separate issues! Fiat currency is paper money with no specific backing like gold and silver. Now, it is all digital! The supply of actual paper money is a very small part of money in circulation. Fractural reserve banking is the creation of money by issuing loans-debt both private and public.
Ron Paul, as expected, wants to go back to the “good old days”. What he does not explain nor defend well is so called sound money, gold standard, private banking system.
The real solution is to create a 21st Century modern system with transparency, diversity, checks and balances that avoid excess/hyper inflation. The creation power has to be in public hands. The power to create money is too easily abused and has unlimited demand to be in any private hands or secret hands of the Federal Reserve. The actual distribution can be mostly in private hands.
We need to have a more sophisticated fiat money system and eliminate the debt money system of the banks and Federal Reserve. We need to have enough money to fund the programs and projects we need! We do not want to create scarce or expensive money keeping a vast majority of the population in relative poverty like the 19th Century.
Congressman Paul’s main concern is inflation and that is obvious. Therefore, a 21st Century monetary system should have the following to prevent excess inflation and avoiding asset bubbles:
- Substantially increase the number of systems that actual delivery new money. This especially helps in avoiding asset bubbles. The current banking system has only several ways to place money into circulation like home loans causing asset bubbles.
- Encourage continued production and productivity. We now live in a world of abundance. The private sector is extremely productive and can produce most of the goods and services that are needed including agriculture. We have excess capacity for most goods and services which is a deflationary factor. We just don’t have enough quality consumers who can buy them.
- Reduction of higher interest rate charges which is a cost of doing business and places upward pressure on prices.
- Encouraging savings and investing rather than over consumption of goods.
- Encouraging spending on personal services rather than over spending on goods.
- Having the Commerce Dept. create and publish an array of inflation statistics.
- Having many checks and balances in the creation of money in the Federal Government. President, Treasury, Commerce, Senate and House will be the major participants of how much and where to increase or decrease the monetary supply. This will be based on inflationary statistics instead of the current philosophical debate.
- Voters will be able to cast their votes based on the inflationary management of the country.
- Currency and Commodities markets should be monitored in the long term to help control excess inflation. This includes gold!
- Increasing taxation removes money from circulations.
- Competition usually keeps upward spirals of prices in check. Increasing anti-trust enforcement and/or regulating monopolies and oligopolies helps.
- Substantially encourage renewables and recycling to reduce the demand pressures on raw materials and energy.
This is just a short description of a completely new, evolutionary 21st Century monetary system. You can read the Monetary Reform section of our site at www.cpe.com for more information. Then if you want more input and proof you can start reading the books listed on our monetary section of the site’s book list.