How Does NESARA Compare to Other Proposals?
The Monetary Reform Act
 

A commentary comparing The Monetary Reform Act, MRA, (a draft in 17 sections; last revised 8/31/98, copyright 1996, 1997; all rights reserved by Patrick S. J. Carmack, author www.themoneymasters.com/monetary.htm); to The National Economic Stabilization and Recovery Act, NESARA, a legislative proposal of the NESARA Institute placed in the public domain.

Stabilizing simple dynamic systems, let alone national economies, presents daunting technical challenges. Nonetheless, the basic objectives of both proposals are long-term national economic stability and modification of the character of the national debt. Both proposals assume these goals are desirable and, laying aside the question of the numbers presented in each proposal by assuming that both are accurate, provides an adequate starting point for comparison and commentary.

The general solution proposed by The MRA, is stabilization by government edict in two major parts:

1. The elimination of all fractional reserve banking, and
2. The expansion of the nation’s money supply by the government at a fixed annual rate, except in times of declared war.

The MRA plan relies on government control of the nation’s monetary system which implies government ownership of the system. A person might argue that the people are exercising control through democratically elected officials and thus are the true owners of the national monetary system and policy, but experience has shown that such public “owners” receive few benefits of ownership and that modifying existing monetary policy in their favor, particularly in the short-term, proves difficult if not impossible. Under the MRA proposal, government remains both a player and referee in the game of monetary policy.

The NESARA proposal takes a different philosophical approach. Under NESARA, the government establishes the standards for the monetary system while the people, acting through a free market, exercise short-term major control over the quantity and velocity of currency in circulation. The people of the market become the true owners of the monetary system, not Congress and special interests. They maintain control simply by monetizing their personal and business debt with fractional reserve banks at the local level, permitted under NESARA, but with the fractional reserve banks operating under new rules.

Long-term stability is achieved in two ways:

1. By establishing a price index that operates within a standard deviation range, maintained by a public published method; regulating that index within the prescribed range through the control mechanisms prescribed by law; preventing any quasi-private, quasi-public entity from maintaining those standards; and establishing those identified parameters within the monetary system by a truly independent Treasury Reserve Board, operating with the single mandate of preserving price stability, and
2. By recognizing three types of currency: U.S. Treasury Credit-Notes, gold coin and silver coin.

Under NESARA, simple rules tie the fiat currency system to the real world through the price index and through commodity coin. Thereby, Congress satisfies its Constitutional obligations by establishing standards for the coinage, but does not control the amount of currency in circulation. Nor should Congress be provided any such power because that is where much of the inflationary and deflationary mischief originates. Free markets can and will determine the appropriate amount of currency without Congressional interference. NESARA requires Congress to serve in the game of monetary policy only as a referee, not as a referee and a player.

A root cause of the instability of current monetary systems is allowing governments to participate as players in creating currency. Because all currencies, regardless of form or substance, are fundamentally backed by goods and services (wealth), only free markets can determine the appropriate amount of currency needed. Governments are primarily consumers and redistributors of wealth; governments rarely produce wealth. Often severe inflation and deflation result when governments are allowed to be both players and referees in the money creation process. With the hopes of controlling inflation and deflation, the MRA requires Congress to increase the money supply at a fixed annual rate. However, a fixed rate could be inflationary or deflationary. In either case the people suffer. Unlike the MRA, NESARA discourages the process of government creating currency out of thin air and leaves currency creation to the free market.

From a practical standpoint NESARA provides huge incentives to both the public and fractional reserve lenders for making such a political change in monetary policy. NESARA immediately places vast amounts of money in their pockets, as compared to the MRA plan which only promises better government and better times to come.

The MRA plan attempts to eliminate the entire national debt whereas NESARA makes a substantial reduction by purging the “bookkeeping” debt held by the Fed and the banking system. A person could argue that maintaining at least some level of government debt, obligations which have never suffered default, is in itself a stabilizing factor worth the temporary social cost. In any case, NESARA prohibits a double use of that debt as banking reserves, another point of agreement with the MRA proposal. Furthermore, eliminating the national debt is practically impossible as long as the Constitution provides Congress the authority to borrow. Although the MRA seeks to eliminate the national debt, the plan provides no mechanism to forever compel that remedy.

The MRA requires all banks to maintain 100% reserves. NESARA allows fractional reserve lenders to continue operating on that basis with respect to credit-notes and checkbook currencies. Although not requiring 100% reserves, NESARA does specify that only credit-notes may be used as reserves and prohibits all gold and silver deposits from being intermingled with credit-note deposits or loaned to other bank customers. No demand deposit, regardless of the substance of the currency, may be used in loans without the depositor’s contracted permission.

NESARA is written based upon a new theory of money, one which recognizes the concept of virtual wealth. Because NESARA discourages currency creation at the national level, currency is no longer pumped into the economy through government actions in collusion with the Fed. The Fed system would no longer exist. Through the elimination of this process of creating currency backed by no goods and services, the major inflationary mechanism is effectively quashed.

NESARA does “balance” the loss of this “pyramid effect” by changing the rules by which loans are made on a fractional reserve basis. Whereas under the current system fractional reserve lenders might make one loan every 30 years because their reserves are freed only at the end of the life of a loan, under NESARA lenders can loan the equivalent amount to three borrowers in the same period of time because their reserves are freed on the front end of each loan. Such a simple rule change helps borrowers build equity and become debt free much faster. Those same rule changes protect lenders because on a secured loan repaying principal before the monetization fee reduces the potential for default to near zero.

Under the MRA, lenders will continue lending using compound interest methods, a costly and painful process to both consumers, lenders, and the economy. Under such a system the wealthy elite will continue to prosper at iniquitous rates (the richest 5% of society consume more than 50% of the nation’s wealth.) while the poor remain poor and the vast majority of working people barely beat out inflation. Under NESARA, lenders are restricted to charging straightforward monetization fees; and the nation’s workforce gets to keep more of the wealth their labors have created, greatly improving their standard of living and all accomplished without stealing from honest wealthy people in some socialistic redistribution scheme.

The MRA limits lending to actual currency in circulation, and essentially means lenders can loan only from their profits. In a hard currency system, such a desire is logical as a method to restrict currency inflation. NESARA acknowledges that type of thinking by prohibiting the commingling of commodity currency deposits with credit-note deposits. However, in a paper-based currency system, a 100% reserve restriction ignores the concept of virtual wealth and will likely generate economic problems similar to those experienced in the late 1800s and again in the Great Depression. Inflation was low then but at a cost of tremendous public suffering.

Last, but certainly not least, NESARA eliminates the Federal Income Tax and links fiscal policy to monetary policy, issues not addressed in the MRA plan.

In a tit-for-tat world, lenders and politicians are unlikely to embrace the MRA because of its restrictions on fractional reserve banking and government borrowing; and voters are unlikely to embrace the MRA due to the lack of immediate personal benefits. In the long-term some MRA goals are commendable, but commendable does not necessarily mean politically doable.

Therefore, although containing several points of merit and agreement with the NESARA proposal, the MRA is probably facing a much steeper uphill battle than NESARA. The NESARA Institute believes the NESARA plan is Constitutional and more practical, beneficial and politically doable than any other plan yet publicly presented in detail.

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Notice: This document was created without any direct contribution from Mr. Carmack. The information we have posted was done strictly through reading Mr. Carmack’s web site proposal. We will heartily update this page based upon any meticulous and well-pleaded response that Mr. Carmack might provide.