"Richard Clark" - The Kucinich Plan for National Economic Reform and Recovery

http://www.opednews.com/articles/The-Kucinich-Plan-for-Nati-by-Richard-Clark-110725-480.html

July 25, 2011

By Richard Clark

 Dennis Kucinich says Congress must direct the Treasury Department to issue US Notes (like Abe Lincoln's Greenbacks, but which would also be issued in electronic deposit form) to pay off the National debt.   He says the US must also gradually increase the reserve ratio that private banks are required to maintain from 10% to 100%, thereby gradually ending bankster ability to create money out of thin air and then loan this funny money out at interest.   Prize-winning documentary film maker Bill Still agrees and has produced several very persuasive films, web sites, books and articles that explain and support this idea of nationalizing the Fed, ending fractional reserve banking, and distributing a new, non-debt-based currency.

Congressman Kucinich's proposal is laid out here in its entirety.

In this bill, HR 6550 IH, Kucinich proposes a means by which we can:

• create a full employment economy;  
• provide for public investment in capital infrastructure;
• provide for a reduction in the cost of public investment;
• retire public debt;
• stabilize the Social Security retirement system;
• restore the authority of Congress to create and regulate money, modernize and provide stability for the monetary system of the United States, retire public debt, and achieve the goals just listed

This is a plan that prize-winning documentary film maker and author of No More National Debt believes has the potential of actually achieving all the goals just listed.   However, it is a very long bill, and is written in legalese.   What follows here, then, is my simplified and clarified version of attorney Pat Carmack's plan for monetary reform, which lays out all the essential principals in Congressman Kucinich's plan, and briefly provides the key arguments that Kucinich makes in his bill.   (Carmack's version of the idea was written at the special request of Bill Still, for presentation in one of his prize-winning documentary films, The Secret of Oz.)

For more about Mr. Still and his accomplishments, click here  and here.

Two Step Plan to National Economic Reform and Recovery

Step 1:   Direct the Treasury Department to issue U.S. Notes (like Lincoln's Greenbacks, but which can also be in electronic deposit format) to pay off the National debt.  

Step 2:   Gradually increase the reserve ratio that private banks are required to maintain -- from 10% to 100%, thereby ending their ability to create money out of thin air when they loan it out at interest.

These two relatively simple steps, which Congress has the power to enact, would extinguish the national debt, without inflation or deflation, and would end the unjust and parasitic practice of private banks creating interest-generating money every time they make a loan through fractional reserve banking.  

Paying off the national debt would wipe out our $400+ billion annual interest payments and thereby balance the budget.   This would in turn stabilize the economy and end the boom-bust economic cycles caused by fractional reserve banking and the systematic exploitation of our money supply by banksters.     

The Monetary Reform Act in greater detail

As already stated, this Act would require banks to increase their reserves on deposits from the current 10%, to 100%, and would do it over a one-year period.   This would slowly strangle fractional reserve banking (i.e., money creation by private banks) which depends upon fractional (i.e., partial) reserve lending.   To provide the funds for this reserve-increase requirement to 100%, the US Treasury Department would be authorized to issue a new currency, in the form of United States Notes (and/or US Note accounts) that would replace the money now created out of thin air by private banks, and would be sufficient in quantity to pay off the entire national debt and replace all Federal Reserve Notes.

The funds required to pay off the national debt are closely equivalent to the amount of money the banks have created by engaging in fractional reserve lending.   How so?   Right now, the Fed creates 10% of the money the government needs to finance deficit spending (and then uses that newly created money to buy US bonds on the open market).     Big banks then create the other 90% in the form of loans (as is fully explained in the next section in this presentation).   Thus the national debt closely tracks the combined total debt that is made up of the US Treasury debt held by the Fed (10%) plus the amount of money created by private banks (90%) through the enormous amount of loans it makes -- loans which, in their making, bring this loaned money into existence.

Because of the equivalence just described, Kucinich's proposal to increase bank reserve requirements to 100% and pay off the entire national debt would add no net increase to the nation's money supply -- the two actions would cancel each other out in net effect on the money supply;   it would therefore cause neither inflation nor deflation, but would simply result in monetary stability and the end of the boom-bust pattern of US economic activity that is caused by our current and inherently unstable, debt-generating system.

Our entire national debt would be extinguished -- thereby dramatically reducing or entirely eliminating the US budget deficit and the need for collecting the extra taxes necessary to pay the $400+ billion interest per year on the national debt.   And because of this relief, from having to annually pay this $400 billion, our economic system would be stabilized.   Thus would end the terrible injustice of private banks being allowed to create over 90% of our money as loans on which they charge us interest!   For this reason, wealth would cease to be concentrated in ever fewer hands (as a result of private bank money creation).   Thereafter, apart from a regular 3% annual increase (roughly matching population growth), only Congress would have the power to authorize changes in the US money supply.   And any changes would be purely for public benefit, and no longer primarily so that private banks can increase the wealth of banksters.

When the Fed decides that the economy needs more money to be in circulation, how  does it "create" all the money that's needed, out of nothing, and how do big banks help, and get ever richer in the process?

It's a four-step process.  

[But first a word on bonds for those readers whose understanding of them might have become a bit foggy:   Bond issuers promise to repay, with interest, the bond buyer who is the recipient and holder of the bond that he purchases with money paid to the bond issuer, who is usually either a government agency or a corporation temporarily in need of some major funds.   Investors buy bonds to get a relatively secure rate of interest or return on their investment.   At the end of the term of the bond loan, the government agency or corporations repays the principal, plus interest (if not paid periodically) to the bond buyer, and the paper on which the bond was printed is destroyed, since the prescribed and agreed-upon sequence of financial transactions is now complete.   Keep in mind that at any given time there are trillions of dollars worth of such bonds in existence.]

Now, as promised, here is the Fed-and-privatebank money-creating process explained in greater detail:

• Step 1.   The Fed Open Market Committee approves the purchase of U.S. Bonds on the open market.
• Step 2.   The bonds are purchased by the New York Fed Bank from whichever bond buyer-owners has them in their possession and are now offering them for sale on the open market.
• Step 3.   The Fed pays for the bonds with electronic credits to the seller's bank, which in turn credits the seller's bank account.   These electronic credits are based on nothing tangible.   The Fed just creates them with key strokes on their computer's keyboard.
• Step 4.   The banks then use these deposits as reserves (fractional reserves), on the basis of which they are, by law, allowed to loan out ten times (10x) the amount of their reserves to new borrowers, all at interest.   Where does the money come from, that they loan out?   Like magic, it comes out of thin air;   quite incredibly it is "created" (i.e. comes into existence) in the very process of their making the loan!   The more magicmoney they loan out, the more real money that is created.   And on all of this money that is magically created and then loaned out, they collect interest!   (What a racket!   Problem is, someone eventually has to pay for all this wealth that bankers generate for themselves from our current monetary system.   And who would you guess that someone is?   It is you the taxpayer.   Read on and find out exactly how this works.   Find out how you are being systematically robbed, and what you can do to put a stop to it.)

In this way, a Fed purchase of, say a million dollars worth of bonds, magically "becomes" 10 million dollars in bank deposits.   The Fed, in effect, creates 10% of this totally new money and the banks, by way of fractional reserve lending, create the other 90%.

This also explains why the Fed consistently holds about 10% of the total US Treasury bonds.   It had to buy those bonds (with accounts or Fed notes the Fed simply created out of thin air) from the public in order to provide the base for the rest of the money that the private banks then get to create, most of which eventually winds up being used to purchase Treasury bonds, thus supplying Congress with the borrowed money it needs to pay for its expenditures.

Due to a number of important exceptions to the 10% reserve ratio, some loans require less than 10% reserves, and many require no (0%) reserves, thus making it possible for banks to create many times more than ten times the money they have in "reserve."   Due to these exceptions from the 10% reserve requirement, the Fed creates only a little under 2% of the total US money supply, while private banks actually create the other 98%.

To reduce the amount of money in the economy, the process is just reversed:   the Fed sells bonds to the public, and money flows out of the purchaser's local bank.   Loans must then be reduced by ten times the amount of the sale.   So a Fed sale of a million dollars in bonds, results in 10 million dollars less money in the economy.

By these two methods, the Fed (a privately owned group of banks) controls and determines the total amount of money in circulation.   What Kucinich is proposing is that all this legerdemain (in which billions of dollars are essentially skimmed off the top by banksters) be replaced by a system in which the Congress of the US is alone responsible for the size of the money supply and the issuance of the money that is nationally in use.