Paying off the national debt would wipe out our $400+ billion annual interest payments and thereby balance the budget. This would in turn stabilize the economy and end the boom-bust economic cycles caused by fractional reserve banking and the systematic exploitation of our money supply by banksters.
The Monetary Reform Act in greater detail
As already stated, this Act would require banks to increase their reserves on deposits from the current 10%, to 100%, and would do it over a one-year period. This would slowly strangle fractional reserve banking (i.e., money creation by private banks) which depends upon fractional (i.e., partial) reserve lending. To provide the funds for this reserve-increase requirement to 100%, the US Treasury Department would be authorized to issue a new currency, in the form of United States Notes (and/or US Note accounts) that would replace the money now created out of thin air by private banks, and would be sufficient in quantity to pay off the entire national debt and replace all Federal Reserve Notes.
The funds required to pay off the national debt are closely equivalent to the amount of money the banks have created by engaging in fractional reserve lending. How so? Right now, the Fed creates 10% of the money the government needs to finance deficit spending (and then uses that newly created money to buy US bonds on the open market). Big banks then create the other 90% in the form of loans (as is fully explained in the next section in this presentation). Thus the national debt closely tracks the combined total debt that is made up of the US Treasury debt held by the Fed (10%) plus the amount of money created by private banks (90%) through the enormous amount of loans it makes -- loans which, in their making, bring this loaned money into existence.
Because of the equivalence just described, Kucinich's proposal to increase bank reserve requirements to 100% and pay off the entire national debt would add no net increase to the nation's money supply -- the two actions would cancel each other out in net effect on the money supply; it would therefore cause neither inflation nor deflation, but would simply result in monetary stability and the end of the boom-bust pattern of US economic activity that is caused by our current and inherently unstable, debt-generating system.
Our entire national debt would be extinguished -- thereby dramatically reducing or entirely eliminating the US budget deficit and the need for collecting the extra taxes necessary to pay the $400+ billion interest per year on the national debt. And because of this relief, from having to annually pay this $400 billion, our economic system would be stabilized. Thus would end the terrible injustice of private banks being allowed to create over 90% of our money as loans on which they charge us interest! For this reason, wealth would cease to be concentrated in ever fewer hands (as a result of private bank money creation). Thereafter, apart from a regular 3% annual increase (roughly matching population growth), only Congress would have the power to authorize changes in the US money supply. And any changes would be purely for public benefit, and no longer primarily so that private banks can increase the wealth of banksters.
When the Fed decides that the economy needs more money to be in circulation, how does it "create" all the money that's needed, out of nothing, and how do big banks help, and get ever richer in the process?
It's a four-step process.
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