The Solution
To Talk Of Many Things—Living In Interesting Times
Part 5 of 5
 

Building an honest money system makes a good, although not very original, place to start. After ratifying the Constitution and getting themselves organized, it was a primary concern of the Founding Fathers. In April of 1792 they established the United States Mint in Philadelphia.

NESARA reestablishes the constitutional silver dollar as a basic national currency, duplicating the founders’ original plan. Congress sets the standards and creates the supporting instrumentalities. A sovereign people control the quantity of money in circulation by the volume of precious metal they submit for coinage.

Following that same pattern NESARA introduces new treasury credit-notes. Again, Congress sets the standards and provides for the instrumentalities, namely the Treasury Reserve Banks and the licensing of private commercial banks. It does not create money. A sovereign people produce the money they need by monetizing their individual debts through the banking system.
 

Government may continue borrowing money by selling treasury bills, bonds, certificates or notes. That simply shifts it from the private to the public sector. If not immediately spent back into circulation, the action is deflationary, possibly very deflationary. Unlike the treasury credit-notes they replace, treasury commercial paper cannot be used for bank reserves. With a large multiplier factor, reducing bank reserves by a given amount can cause a much larger reduction in the total currency and credit available. On the other hand, immediately spending that borrowed money back into circulation does not affect total volume.

Government must never create money directly. That prerogative invites calamity. To meet national needs the Board of Governors of the Treasury Reserve System may increase the total amount of currency and credit in several ways. It could buy treasury debt on the open market with treasury credit-notes from its reserve account. This adds liquidity to the monetary system, potentially increasing bank reserves while decreasing government debt. The Board cannot reverse this action because NESARA requires cancellation of all U.S. Treasury debt instruments that it acquires.

In a simpler and possibly less obvious move, the Board of Governors might deposit some funds from its Treasury Reserve Account into commercial banks. As savings accounts or certificates of deposit the funds count as bank reserves and earn interest. This encourages more commercial activity by the banks. Withdrawing the funds reverses the process. These actions allow the Board to expand or contract total currency and credit without influencing markets for the government’s debt instruments. It also provides another way for them to support a troubled bank.

Other provisions of NESARA, Part I §6G and §7J, place the responsibility for creating or revising “necessary policies, procedures and regulations” to control commercial banks with the Office of the Comptroller of the Currency. This gives the Comptroller substantial opportunities, with the consent of Congress, to rebuild the nation’s banks along fiduciary lines, something like the old mercantile banking system.

Under fiduciary rules, ownership of all bank deposits remains vested in the depositor, not just the new gold and silver accounts as provided by NESARA. Deposits never leave a bank without an owner’s permission, legitimately transferred in commerce or withdrawn in cash. Runs on banks become meaningless except as a study in the psychology of group behavior. What are people to do with their money? Moving it to other banks does not affect the monetary system. They could hide it under their mattresses but will quickly discover that this risky gesture earns no interest.

Fiduciary banking eliminates or largely diminishes the need for the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Resolution Trust Corporation. Banks are forbidden to make loans with their depositors’ money. New loans are merely monetization of debt, the wealth that backs them originating with the community. Depositors’ funds may be stolen from a bank vault but never ‘lost.’ Prudence suggests a simple, low-cost insurance policy against theft, not a complex FDIC government program subject to taxpayer bailouts. A system of this design would have prevented the savings and loan disaster, saving taxpayers an estimated $500 billion.

A Comptroller’s prime obligation is to maintain uniform normal daily operation of the nation’s banking system, not to set monetary policy. But rules to stabilize bank operations and provide for the possibility of bank failures become part of the monetary system. Linkages between operation and monetary policy naturally occur.
 

Stability is a time-domain function. In its pursuit the Comptroller might rule that interest will not be paid on checking accounts or on funds deposited for less than 30 calendar days, nor can they be counted as bank reserves. Money used as reserves should not be immediately available within the stream of commerce. An impeding cost for withdrawals from reserves helps stabilize them.

The total volume of loans carried by a bank must be limited by its capitalization, the actual loan/capital ratio being set by the Comptroller’s Office. Part of that capital should be held in a non-interest-bearing reserve deposit. Full payment for a defaulted loan comes from a bank’s profits, if any, then from its capital account reserves. These rules will affect monetary policy by setting another limit on currency and credit expansion, but their primary function is to discourage banks from making unsound loans. With this plan banks risk their own money on every loan they make.

All banks under U.S. jurisdiction are subject to inspection at any time by bank examiners from the Comptroller’s Office as are foreign banks, whether or not U.S. owned, when making loans of U.S. currency. Of course foreign banks may refuse U.S. inspection, as is their right. In response, the Comptroller may freeze any assets of that bank held by U.S. banks and deny all U.S. banks the privilege of dealing with a frozen foreign institution. Any U.S. bank knowingly violating the freeze could be subject to seizure by officers from the Comptroller’s Office.

Actually, ownership is unimportant because banks are stock corporations; their stock may change hands day-to-day. It is the bank’s ability to create money with the stroke of a pen, to command the resources and wealth of the American people, that must be closely monitored and kept under control.

A monetary attack against U.S. currency should be viewed in the same light as foreign forces invading the nation and requiring the same ultimate response. As the Japanese say, “Business is war.” They are correct in that the subject is that important.
 

Shakespeare, Measure for Measure, Act 2, Scene 2