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The Disease is our Monetary System

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If the money is BORROWED into existence as it is done in our current "debt based" monetary system, the money is created out of thin air by the banks using the fractional reserve lending system. This money is then a representation of debt and has a debt and interest burden associated with it.

The way money is brought into circulation is at the very heart of our problems. It turns out that in our "debt based" monetary system, our entire money supply (except for coins) is created when a loan is taken out. Once the loan is repaid, the money is removed from circulation.   This system unfortunately has a fatal flaw that guarantees its ultimate collapse.

Let's assume that we are on an island with a totally closed monetary system and you were to borrow $100 at 10% interest. You can pay back the $100 principle because $100 was put into circulation as a result of your loan. However, where will the $10 in interest payments come from if there is no other money in circulation? The fact of the matter is that the loan must default because there is not enough money in circulation to pay principal and interest. Since the $100 in circulation is the result of the loan being taken out. This $100 is placed as a liability on the bank's books. Once you have paid off the loan, this liability is removed from the bank's ledger.   That is how the money is extinguished once you have repaid the principal on the loan. The only way to pay back the interest on the loan is to borrow more money into circulation. Only the principle is extinguished, the interest is not extinguished because the interest was not a liability on the bank's ledger. The interest amount ends up in the pockets of the bankers. If someone takes   out additional loans to cover the interest charges, it will only delay the day of reckoning. Ultimately you will have an even higher interest burden that can never be repaid. Doesn't this sound familiar to the economic situation we currently find ourselves in?

Of course our monetary system has millions of people, taking out loans, making payments and doing other transactions all of the time. However, the fact remains that you can only repay a loan with interest if you or someone else takes out a loan to place additional money into circulation. The problem is that now someone else will have a loan to repay and will also need additional money in circulation to pay for their interest charges. So the debt burden for the money to pay the interest payment on your loan   has been shifted to someone else, and over time the interest burden continues to grow. It becomes quickly obvious that as a nation we must constantly be in debt in order to service the interest charges on our money supply. As time passes, this debt overhang with its associated compounding interest charges becomes a larger and larger burden on the society, eventually reaching a level that is no longer sustainable as it is becoming today.

The other fatal flaw in this system is that in order for the money supply to keep up with the growth in the economy, we must also continue to grow the debt in order to grow the money supply. Some of those clueless politicians represented by the first doctor we visited at the beginning of this article think we should pay off the debt. What they do not realize is that if the debt was ever totally paid down, there would be no money in circulation. Our current "debt based" monetary system is the DISEASE. Until we change our monetary system from "debt based" to "wealth based", we can never pay off the debt, because if we did, there would be no money in circulation. The patient would die!

Think about this example of the insanity of the current system. If a government wants to build a bridge, instead of printing and then SPENDING the money into the economy with no interest bearing debt associated with it, the government instead goes to the bankers and BORROWS the money into existence. By BORROWING the money into existence, the government incurs interest charges which means that over the term of loan the government will pay more money for this bridge in finance charges than it pays for the materials and for the labor for the project. This financing cost of "debt based" money is then passed on to everyone.

In a "wealth based" system, the government would SPEND the money into existence, rather than BORROW it into existence. The costs of all infrastructure projects could be cut by more than half. This fact should resonate to those of you with a home mortgage, once your mortgage is paid off, the interest charges have easily exceeded the original cost of your home. The same thing is happening to all of our infrastructure projects. The financial class is profiting   immensely from our current "debt based" system.

Benjamin FranklinSo, is a "wealth based" monetary system some utopian vision of what has never been and can never be? The answer is no. In our colonial past we had colonial scrip where the government SPENT the money into existence.   Our colonies were prospering at that time. David Hayes writes about Benjamin Franklin during a visit to England:

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The English officials asked how it was the Colonies managed to collect enough taxes to build poor houses, and how they were able to handle the great burden of caring for the poor. Franklin's reply was most revealing: "We have no poor houses in the Colonies, and if we had, we would have no one to put in them, as in the Colonies there is not a single unemployed man, no poor and no vagabonds." Think long and hard about this. In the American colonies before the American Revolution, there was "not a single unemployed man, no poor and no vagabonds". -- no one on Welfare, no one on Social Security, no homeless, no income tax, no alphabet agencies, No IRS, BATF, FBI, DEA, CIA, HEW, OSHA, SBA, and on and on and on to provide for the "general welfare" of our villages, towns, cities and states. How did Benjamin Franklin explain this to the British officials of his day?
How would he explain it to today's lawyers, judges, politicians and other government officials? "It is because, in the Colonies, we issue our own paper money. We call it Colonial Script, and we issue only enough to move all goods freely from the producers to the Consumers; and as we create our money, we control the purchasing power of money, and have no interest to pay."

There was a reason the term Commonwealth was applied to Massachusetts, Pennsylvania, Virginia and Kentucky. The term was also used interchangeably   with the term "state" by Vermont and Delaware in its 1776 constitution. When Benjamin Franklin was in England , he observed hunger, tramps, beggars, and poverty in the richest nation of its time. He asked how England with all its wealth had such grinding levels of poverty. The reply was that they had too many workers and that the rich were already overburdened with taxes. (Sound familiar?) However, they also had misdiagnosed their problem. It was not that they had too many workers, it was that they had too little money in circulation and it all carried the endless burden of unrepayable debt and interest.

The colonies did not have this problem because they used "wealth based" money that had need SPENT into circulation. This caught the attention of the English bankers. They had laws passed that prohibited the colonies from using their "wealth based" currency and mandated that "debt based" currency should be used. Within a year after passage of these laws, the colonies found themselves with mass unemployment and beggars as Franklin had found in England. This suffering brought on by a "debt based" currency was the trigger for the Revolutionary War. Unfortunately, even after the Revolutionary War, the monetary system remained "debt based" and except for brief periods of time we never returned to a "wealth based" currency.

Abraham LincolnLater in our history, Abraham Lincoln was faced with the financing costs of the civil war. He went to the bankers and found to his dismay that they were going to charge him 24% to 36% interest which would have left the country hopelessly indebted to the bankers. Instead, he issued Treasury Notes that came to be known as Greenbacks because of their green colored ink on the back. This money was independent and debt free and was spend into circulation with no debt or interest burden. Lincoln understood the power of the bankers which led him to write:

"The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarch, more insolent than autocracy, and more selfish than a bureaucracy. It denounces, as public enemies, all who question its methods or throw light upon its crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at the rear is my greatest foe."
Abraham Lincoln

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In fact, Lincoln did exactly what the founding fathers had envisioned for the Republic when they specified that "only Congress shall have the right to coin money". We all know what happened to Lincoln after the war.

Not a Federal Reserve NoteJohn Kennedy also understood the damage that the current "debt based" money system was having on the nation and he signed Exec­utive Order 11110 which allowed the Treasury to issue "United States Notes" without having to go through the Federal Reserve system. Some of you may remember these "United States Notes" as they had the red seal on them, not the usual green seal of the Federal Reserve Notes. This money was also spent into the economy and was free of any debt and interest burdens.

We all know what happened to Kennedy a few months after signing that executive order.

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Rudy Avizius is a former educator and school administrator. He has been following the economic situation and the subsequent collapse for a decade now. He is concerned that the current economic, social, and environmental course we are on is not (more...)
 

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Having "debt based" currency that can only be borr... by Rudy Avizius on Friday, Jun 1, 2012 at 12:43:03 PM
The other one is mine.  I was at the same PBI... by Scott Baker on Friday, Jun 1, 2012 at 1:53:41 PM
I really like your article and was especially take... by Rudy Avizius on Monday, Jun 4, 2012 at 10:29:46 AM
I really liked the way you pointed out how the Fed... by Alan Pyeatt on Friday, Jun 1, 2012 at 2:56:00 PM
We also need, as I said in my own article today on... by Scott Baker on Friday, Jun 1, 2012 at 4:42:39 PM
Alan: A stable money supply serving a growing econ... by Derryl Hermanutz on Saturday, Jun 2, 2012 at 10:05:32 AM
Derryl, I appreciate the thoughtful response, but ... by Alan Pyeatt on Sunday, Jun 3, 2012 at 3:39:56 AM
For thousands of years human social practice has b... by Robert Cogan on Saturday, Jun 2, 2012 at 8:50:40 AM
When there is a lot of work that needs to be done ... by Philip Pease on Saturday, Jun 2, 2012 at 9:47:45 AM
money supply  automatically creates a USG def... by bogi666 on Saturday, Jun 2, 2012 at 12:49:45 PM
I heard this story at the Public Banking Institute... by Rudy Avizius on Sunday, Jun 3, 2012 at 11:36:04 AM
Our political economic system is merely a system o... by E. J. N. on Saturday, Jun 2, 2012 at 8:47:43 PM
"Colonial Script", "Greenbacks" and "Red Seal Kenn... by Daniel Penisten on Sunday, Jun 3, 2012 at 1:19:04 AM
How refreshing and I believe there were 3 articles... by Thomas Brown on Monday, Jun 4, 2012 at 9:04:47 AM
I took a sentence from your bio and placed it on m... by Rudy Avizius on Monday, Jun 4, 2012 at 10:31:56 AM