The underlying problem with our current monetary system is that it must be perpetually inflated with more and more debt, effectively creating a debt pyramid. This debt pyramid arises through fractional reserve banking
where a bank can loan out $1000 for every $100 it has in reserves. This is a finite monetary system because the system can only support a certain amount of debt growth. When debt growth begins to outpace real economic growth there is a shortfall in the amount of reserves needed to prop up the pyramid, and we reach peak credit
This is a classic Ponzi scheme
. When there are not enough “new entrants” (i.e. new capital) coming into the system the system collapses on itself. This is what we witnessed in the most recent recession. The financial debt pyramid could not access enough new capital because it was outpacing real economic growth, and, therefore, it had to be bailed out with trillions of dollars in low interest Federal Reserve loans in order to keep the massive debt pyramid from collapsing.
I have summarized the problem, so now I will present the only real solution. That solution is to abolish the Federal Reserve, institute a full reserve requirement for all banks, eliminate debt-based government financing, and put the power of money creation into the hands of the citizens of the United States of America where it belongs.
With a full reserve requirement
banks will not be allowed to create any new money through fractional reserve banking. They will hold deposits as bailments
and act as a broker by bringing together borrowers and lenders. This would lead to a reduction in the size of corporations and banks. Small business would thrive, thrift would be a virtue, and the economy would no longer be forced to grow through debt-financed consumption.
Eliminating fractional reserve banking would eliminate all new money creation. This would result in deflation which is not ideal for the economy as a whole. There would have to be money creation through the U.S. Treasury. The Treasury’s goal would be to create a monetary environment that was neither inflationary nor deflationary (i.e. money supply would grow in lock step with the economy and the population). This government financing would be DEBT FREE and it would NOT COME FROM TAXES that’s right NO MORE IRS, and NO MORE TAXES!!! Not only would each individual receive a stipend from the government (after the federal, state, and local governments finance themselves), but they would also not have to pay any taxes. Imagine a government that doesn’t tax its citizens but, instead, pays its citizens.
With this new monetary system money creation would rightfully be in the hands of the people through their elected representatives.Additional Resources:
The Secret of Oz documentary by Bill Still: http://www.youtube.com/watch?v=swkq2E8mswI
Some history and implications of fractional reserve banking: http://georgewashington2.blogspot.com/2011/07/we-have-forgotten-what-ancient.html
Great article on Swift Economics discussing full reserve banking: http://www.swifteconomics.com/2009/06/17/got-100-reserve-banking-on-the-mind/
Speech template by Dick Distelhorst that addresses this subject and HR 2990: http://www.monetary.org/wp-content/uploads/2011/10/City-Council-Speech.pdf