Frequently Asked Questions
The Bill, Part I (Banking and Monetary Policy Reform)
 

1. What happens to interest rates once NESARA is passed?
2. How will NESARA affect the investment markets?
3. What will be the effects on foreign trade and the trade deficit?
4. What inflationary or recessionary effects will NESARA cause?
5. How does NESARA control government spending?
6. Under NESARA, the new Treasury Reserve Banks no longer charge interest to create money. What is the effect of this action on the money supply?
7. NESARA restructures bank contracts in midstream. Is such a move unconstitutional by interfering with the obligation of contracts?
    

What happens to interest rates once NESARA is passed?

First, a clarification. Technically, for most loans interest rates should be more appropriately called a monetization fee because banks do not loan their own money, they create money out of the borrower’s debt. When banks create money, this process is called monetization of debt. Throughout this web site the authors have strived to differentiate the two terms, but for most discussions the two terms are used interchangeably.

Under NESARA, what happens to those rates? Depends.

For secured loans, rates will drop.

Remember that under NESARA the banking loan equations change for secured loans. Under the new equations, banks receive all the principal before collecting the monetization fee. That means such loans become less risky. Second, NESARA imposes an excise tax on loan monetization fees that become excessive, thus discouraging excessive monetization fees.

What happens to interest rates with credit cards and unsecured loans? To promote business, many lenders will tempt borrowers to convert unsecured loans to secured loans. Borrowers benefit from lower monetization fees under the new loan equations. Yet, borrowers might not wish to provide security for previously unsecured loans and might continue repaying the loan as is, suffering higher rates.
 

How will NESARA affect the investment markets?

Depends.

Under NESARA, capital gains taxes, and personal and corporate income taxes are eliminated. This action will tend to increase the volume of stocks exchanged.

However, NESARA will tax secondary stock sales at 10% of the national sales tax rate, or at 1.4% as currently proposed. This tax will tend to decrease the volume of stocks exchanged.

Without having to pass the hidden regressive costs of the corporate income tax, companies could then concentrate on production and expanding business. This boom should make investing more attractive and tend to increase the volume of stocks exchanged.

Regardless, NESARA will stabilize and strengthen those markets. No longer will the markets be a short-term speculation and gambling attraction. Investing once again returns to a stable long-term strategy.
 

What will be the effects on foreign trade and the trade deficit?

NESARA will immediately reduce approximately one sixth of the on-book national debt; and will immediately reduce some private debt as well, although how much is unknown. This sudden influx of cash from private debt reduction will provide a tremendous increase in disposable income and undoubtedly will create competition among manufacturers for that disposable income.

NESARA eliminates the corporate income tax and that move will lower production costs. American manufacturers will be able to reduce prices, thus making American products more competitive, both domestically and abroad. Furthermore, eliminating the hidden, embedded costs of the income tax will have a compounding effect because those costs are no longer passed down the line from manufacturer to manufacturer. Some estimates by experts state that the hidden, embedded costs raise prices by about 30%.

NESARA replaces the income tax with a national sales tax, and that sales tax will affect both American exports and foreign imports. However, by removing the hidden, embedded effects of the income tax, the economic system’s efficiency will improve. A mere 2.5% increase in the efficiency of the American economic system will create a minimum offsetting 2.5% price advantage in American exports. Like the compounding effect of the hidden, embedded costs of the income tax, the improved efficiency will compound itself throughout the system. The improved efficiency will mean lower prices in domestic sales. That is good for the consumer, and good for competition against foreign products.

Imports will be subject to the sales tax. Because efficiency is improved in the domestic market, thereby reducing prices, domestic products become more competitive against foreign products.

Exports will not be subject to the new sales tax because those sales take place outside the country. Because efficiency is improved in domestic production, reducing the price of exports should increase volume. How much we do not know as there are too many variables, but the increased volume brings more profits home.

Manufacturers who previously moved business out of the country because of the oppressive income tax laws, will probably consider returning that business home. Those moves will create new jobs. Although taxable retail products, both foreign and domestic, will see the extra costs of the new sales tax, foreign products will become proportionately more expensive because of the offsetting improved efficiency, thus making American products more attractive to consumers.
 

What inflationary or recessionary effects will NESARA cause?

NESARA is designed to create an economic boom of Biblical proportions.

However, you can expect two bouts with inflation. Before we explain, let’s not close our minds right away.

Currently, this nation experiences inflation every year, every day. Current monetary policy is purposely designed to create a slight inflationary effect at all times.

NESARA is designed to control currency inflation.

We did not get into this mess overnight and will not get out of the mess overnight. Under the current rules of the game, getting out of this mess will be terribly painful. Under NESARA, getting out of the mess will be the equivalent of having a cold rather than the flu.

When NESARA is passed into law, many people will suddenly find themselves debt free. The new banking equations will cause a one-time shift in private debt. Loans will be recalculated retroactive to the origination date of the loan, and many people suddenly will be debt free. Those people will experience new disposable income they never had before. The first reaction of those people probably will not be to save, but to spend that money or pay down and eliminate other private debt, such as credit card debt. This will cause an increase in prices because with more disposable income available, sellers will naturally respond by raising prices.

A second surge of inflation can be expected within one to three years after passing NESARA as those who did not realize the immediate ending of loans begin to pay off those loans under the new banking equations. As those people become debt free, more income becomes disposable, thus bidding up prices.

What about deflationary or recessionary effects? Depends upon Congress as Congress must learn the new rules under NESARA. You can find some further thoughts in our Explanations and Details.

However, remember that NESARA provides for a new mechanism that can be used—and will be the primary tool used—to control the quantity of currency: The Treasury Reserve Account. The first wave of inflation will be difficult to stop as we simply have to start the journey to get out of this monetary and fiscal policy mess. The expected second wave of inflation can be better regulated than the first wave. Congress’s borrowing habits also can be more effectively regulated, although in the end, Congress simply has to start learning to live within its budget—just like you.
 

How does NESARA control government spending?

First, Congress can no longer hide behind the “create money out of thin air” scheme so easily hidden through the Federal Reserve System. The simple reason being that NESARA eliminates Congress’s ability to “create money out of thin air.” Congress must borrow only currency already in circulation. NESARA restores respectability to the word “borrow.”

Second, the Treasury Secretary is required by law to publish at least weekly, the exchange ratios of the various currencies in circulation. Although Congress has constitutional authority to borrow money, if Congress doesn’t quickly learn to control itself, the exchange ratio will immediately warn Americans that something is wrong.

Third, if the Treasury Secretary maintains the exchange ratio at 1.00, but Congress is the culprit for gobbling up paper currency, there will be less currency in the free market, which consumers will notice immediately. Oops, we just caught Congress with their collective hands in the cookie jar.

Under NESARA, Congress sets the standard for the money creation process and The People determine the quantity of debt they are willing to monetize.
 

Under NESARA, the new Treasury Reserve Banks no longer charge interest to create money. What is the effect of this action on the money supply?

Actually, under NESARA, the new Treasury Reserve Banks cannot create money at all! Just as the Founding Forefathers had intended, creation of money is reserved to the people. Under NESARA, all money is created by commercial banks through the monetization of debt—but only at the local level. Under the current rules the Fed can create money with a stroke of the pen. Under NESARA, the new Treasury Reserve Banks cannot do that.

Like the current rules, when Congress chooses to exercise its authority to borrow, Congress must do so through selling public debt instruments. However, unlike under the Fed, the Treasury Reserve Banks cannot sell this debt, but only buy and cancel. The Treasury Reserve Banks are limited to basic clearinghouse functions and storing cash reserves for commercial banks.

Also remember that under NESARA, only the new Treasury credit-notes can be used as reserves. This eliminates banks from participating in buying public debt for the purposes of maintaining reserves.
 

NESARA restructures bank contracts in midstream. Is such a move unconstitutional by interfering with the obligation of contracts?

You are probably referring to Article I Section 10 Clause 1:

No State shall…pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts…

Notice that this restriction applies to States, not to Congress. However, let’s assume the clause also restricts the federal government.

In the past, Congress lost little sleep over passing retroactive legislation, especially tax legislation. Whether or not constitutional, we see nothing stopping Congress from continuing such habits.

In considering the question at hand, remember that banks are corporations, and their charters can be changed. Why? Ever since the landmark Dartmouth College v. Woodward, 17 U.S. 518 (1819) case, governments have issued charters with embedded clauses allowing those charters to be changed by future legislation. In other words, by pre-arrangement corporate charters can be changed almost at whim, neatly bypassing the “ex post facto” provision, as well as the obligation of contracts provision. Governments today refuse to issue corporate charters without these clauses.

One other point worth mentioning: The Federal Reserve System was chartered in the District of Columbia, a place where the Constitution finds little application.

There is another avenue that could be raised regarding retroactive changes to existing contracts, and that is the Fifth Amendment Takings clause. Although bankers might concede that existing contracts can be altered in midstream by a government decree that changes their charter, the bankers might try to argue that such a change is a “takings.” The question then would not be whether some of their contracts can be changed retroactively—they can—but whether compensation would be due to the banks because of a “takings.” At first glance, one might think banks would have standing to file such a complaint, but stop and consider the big picture.

Through their corporate charter, banks are granted a special license to create currency out of thin air. With a stroke of the pen or a computer keyboard entry, banks create currency. There is no mystery about this process, but the challenge banks would have to overcome in their petition is proving that the currency they originally loaned was in fact their own property. They cannot prove this because that currency was created by license, mere bookkeeping entries in which they have only an equitable interest. In other words, for fractional reserve loans, their money was never at risk and there can be no “takings” if they never lost anything.

The second problem bankers would have to overcome is proving the “takings” was for a public use. Although many individuals benefit from the changes, those benefits are not directly transferred to the public at large. Furthermore, the courts love to hide behind the misinterpreted doctrine of police powers and the banking industry is unlikely to win when the entire nation obviously benefits from the changes.

Nonetheless, NESARA does “soften” the blow somewhat by allowing bankers to retroactively calculate service fees. Obviously this windfall charge will not equal the usurious sums garnished through compound interest, but compensation is nonetheless provided for this midstream one-time change in equations.

We strongly doubt that retroactively changing existing bank mortgage contracts is dealing unconstitutionally. Every bank asked for and accepted their charter and have always been subject to numerous rule changes. Those rules and regulations are continually changing. Bankers that object to the new rules can always get out of the banking business.

We also have to remember that judges are human. They too have families and mortgages. Just like the income tax, judges have a keen interest in seeing changes that improve the system. By eliminating the income tax and by revising the lending laws to reduce bankruptcies, judges might see some hope regarding relief for the court system. By no means are we encouraging corrupt decisions, but we nonetheless see judges ruling favorably for the changes NESARA provides—if such changes are ever challenged in court.

Lastly, we see a more important point to consider. The new equations offered under NESARA greatly benefit lenders as well as borrowers. We need only one half-smart fractional reserve lender to change the way his or her bank operates and every borrower in the land will be knocking on their door to refinance at that institution. In other words, other lenders will be forced to change too or lose business.

In fact, as far as we can tell, there is nothing to stop any lender from implementing the new equations today. Our research indicates that lenders do not need NESARA to change the way they calculate future fractional reserve loans. One courageous lender could shake up the entire industry.

NESARA is designed to be win-win. Even if lenders could find a way to challenge the constitutionality of retroactively changing banking equations, we fail to see that such actions would be to their benefit. The new equations work well for them too. In fact, very well.