Yesterday, Stephen Zarlenga, director of the American Monetary Institute made a dramatic announcement at the Monetary Reform Conference that Joe and I are attending here in Chicago: Congressman Dennis Kucinich announced in a special video to the conference, that he is planning to introduce the American Monetary Act (pdf) in “the next few weeks.” The bill has a new name now, as well: The American Monetary and Financial Security Act.
As you’ll see all over this site, we feel that the American Monetary Act is the best draft of legislation that would create the reforms we advocate. There are three parts to the legislation:
1) Incorporate the Fed into the US Treasury.
2) Repeal money creation by banks via the fractional reserve method.
3) US Treasury creates all of our money, debt-free, and spends it into existence on projects determined by the US Congress.
The AMI has had this draft of legislation up on its website since 2004, where public comments have engendered several revisions. A lot of thought has gone into it. It will mark the first time that true monetary reform will have been introduced since the Chicago Plan in 1933.
Passsage of course, is still a long shot.
This is about to get very interesting. Stay tuned.
Mr. Zarlenga, cellphone in hand with Kucinich on the line, interrupted a presentation to make the announcement the American Monetary Act
Couple questions about the Fed and their open market transactions pertaining to US Treasuries
Assume the Fed does reimburse a portion of their profits from the interset collected when the national debt is repaid, what do they do with the principal that they created out of thin air when the bond matures and is paid in full?
Also, as they currently can not be audited completely how do we know what they have done.
Also, where did they get the money to buy all that juck from their bank buddies out on the street? The thin air machine I would assume.
How about this obvious contradiction, the fed claims that they must remain independent so that they can not be influenced by political agendas. Isn’t the converse of this logic then true also, what they do is so important that it can be used to influence politics?
The Fed is one branch of a world wide debt machine that is responsible for 90% of the pain and suffering humanity has had to endure for centuries.
I just read the G20 agreement of nations and the charter for the Financial Stability Board, the one that now works out of the Bank for International Settlements.
I’m almost certain that there is a smidge of collusion taking place on a global scale.
All I can say is we got some serious catching up to do to get rid of these bloodsuckers.
Oh hell while I’m at it, according to the book Modern Money Mechanics published by the Chicago Federal Reserve when the Fed decides that a monetary contraction is in order all it has to do is sell some of it’s current holdings of Treasuries on the open market. And these have to be paid for with dollars from the banking systems reserves. And because they deplete the reserves and we have a fractional banking system the contraction must occur based upon the reserve multiplier. So, why is it that in 2008 the Fed dumped 265 billion of its holdings which would create a credit contraction of about 2.65 trillion and no one said a word?
First, Dave, I don’t pretend expertise in the Fed’s Open-Market operations, subscribing to Milton Friedman’s view that they should be abolished, as outlined in his “Fiscal and Monetary Framework for Economic Stability(1953) ”.
Regarding what happens to the principal portion of Treasury bills when interest is paid, if we are talking about the public portion of Treasuries, the Fed just holds these. There is rarely a reduction of the principal – look for another authorized increase in unnecessary government borrowing sometime soon. The Fed can essentially collect interest on those bonds forever.
As to the audit question, to me, an “audit” of the Fed is minimal – only providing the basis for a complete investigation of the state of the money system. But, we cannot know anything without an ‘independent’ audit, one that is carried out on behalf of the PEOPLE’s Congress, and not for the Fed’s Board of Governors
As to the “thin air” question, where else? But remember, if money is ever to be created, it is necessary for somebody to create it out of thin air, so to speak. The question is, who benefits therefrom.
The Fed’s ‘independence’ is best translated into ‘hidden from the view of the people that own the Fed’, a.k.a., secretive, the antithesis of transparent.
As to that question about the apparent change in the money supply that must have gone unnoticed, the answer could be that the Fed dumped those Treasuries into private hands, and replaced them with other, less-collateralized, more-risky(toxic) assets, the result being very little change in the Fed’s balance sheet, the further result being very little change in the money supply.
But I could be wrong.
Thanks for the questions, Dave.
Oh, I forgot a couple of things. When Brenanke was asked how he was going to keep all this new money from causing inflation down the road he said two things. One is that they can change interest rates to make the money harder to get and the other one is that they have other tools. I wonder if the other tools he was refering to were the same ones they used last year.
And one more thing, if they are trying to make credit available why did they change the law to allow interest to be paid on depository institutions excess reserves held at the Fed. Seems like this would be a disincentive to lend, if you were a bank that just recieved a windfall from TARP and AIG and the Fed has bought up all your toxic assets and the economy is contracting you would have a tough decision, do I keep my excess reserves at the Fed and get interest backed by future taxation or do I lend it out to the public now and take my chances. Hum, let me see, what should I do?
Oh, and the interest that the banks are getting from the Fed, does this show up as an expense for the Fed so they do not have to return as much to the Treasury? I bet so don’t you?
As for Bernanke’s ‘pretend’ inflation protection measures, I only pay attention to their absurdity.
If inflation and deflation are always monetary-related, we are within Fisher’s debt-deflation cycle right now, and will remain so until Trillions more in toxic assets are socialized. At that time, actions aimed at preventing inflation (preventing money-supply growth) will be counter-productive to the real people-goal of re-employment and business growth.
The debt-money system is broken.
As to whether paying interest on reserves might either allow or prevent economic expansion, I think it depends on what the interest rate is, relative to those reserves and what the market is. I am for abolishing those “excess reserves” via a move to full-reserve banking.
Your last question has to do with the hierarchy of Fed receipts and expenses. I think our last ‘coffee with Joe’ covered that potentially phantom payment.
Yeah, there are lots of ways we could lose that payment, the Fed’s Donald Kohn has said so, and the question really becomes, who is responsible for the Fed’s losses.
Chew on that one for a moment.
Damn, forgot some more, why is it we have an executive branch of government that has become a nest for the creatures that promote the continued exploitation of everyone tht works in this country. Take Tiny Tim for example, his background sure should be an indicator of where his heart lies. Fed, IMF, CFR, Kissinger, etc. and the rest of the team of financial gurus.
One more thing that has been bothering me, the bank stress tests that determined that they needed to increase capital (interesting choice of words there, capital) just in case things got worse like the Basel II accords stipulated. Does this mean that they couldn’t justify lending as much because they didn’t hold enough money and that they could put more on hold at the Fed and get some more of that new found interest?
Just wondering.
Dave,
I would forget about the ironic charade of the Fed creating ‘money’ out of thin air, providing excess reserves to the banks, and the bankers deciding whether they should keep or ‘leverage’ those reserves.
That is a fool’s errand.
Forget stress tests.
Forget capital requirements.
Forget proper reserve ratios.
Forget trying to “insure” against a systemic failure caused by a flawed systemic design.
The debt-money system is broken.
The solution is monetary reform.
There will be no relationship between the Fed and the bankers’ monies.
Focus on the AMI proposal for a legislative remedy to an honest money system. It’s coming to the fore very soon. Be ready.
Full-reserve banking.
Bankers of all kinds lend real money.
Money is created as equity, not as debt.
The Money System Common.
It’s our money system.
Dave you ask many insightful questions.
1) The Federal Reserve holds treasuries until maturity. In other words it never monetizes the debt (though there are rumors it did so a bit during our current crisis). When securities reach maturity the treasury makes redemption payment to the Fed. The Fed then reinvests those redemption payments by buying treasuries at treasury auction (note how they buy them at primary auction and not from secondary markets). So after originating new money and buying securities on the secondary markets to provide the seignorage to wall street, then they play this shuttle game with the treasury where the treasury passes tax dollars to the fed (redemption) and the fed passes them immediately back to the treasury (reinvestment). This goes on and on as the Fed accumulates more and more treasuries until the Fed can take advantage of a crisis situation to unload those treasuries without destroying money (more on this below).
2) as for an audit, the Fed presumably keeps its own books in order and even has itself partially audited from time to time (and makes those audits available to the public). However the public self-directed independent audits do not include any of the crucial information relevant to monetary policy. For example: how much seignorage income has the Fed enjoyed (and then laundered) each year from 1913 to 2009?
3) Indeed they used the thin air machine to dispossess the banks of their toxic assets. It is possible they might have also simply loaned treasuries directly to unload those treasuries from their Fed portfolio without destroying any money. In that way the bank put up toxic assets as collateral but receive treasuries instead of money as loans.
4) Certainly the lack of transparency is ridiculous. More so the argument that the Fed could possibly insulate the process from politics. What they (the banking cartel) mean is that they will wield the political power on their own behalf and insulate the process from democratic institutions and the people.
5) Whether the $265 billion in holdings destroyed money or not depends on whether the fed unloaded them for money or something else. Most likely the Fed unloaded the $265 billion in treasuries for toxic assets of the same face value (as collateral). In that case no money is destroyed directly (though some might be destroyed or created the fractional reserve lending).
6) Bernanke’s response about other tools might have been an obfuscation of the fact that they were unloading treasuries without destroying money.
7) That’s an excellent point on the interest on excess reserves. Obviously the Fed is only concerned about the needs of its banking cartel members and not concerned about the people.
I don’t have anything to add to your last two point in your last comment. However I will say that while monetary reform is a solution, it all depends on what kind of monetary reform. We need to break apart the powers of the Fed, return the power to originate money to the Congress (as the constitution requires) and place the other powers in newly created departments within the executive branch. The power to regulate banks should be handled by a department or bureau independent and insulated from the financial industry. The power of seignorage should go to the general fund or to wherever Congress so directs it and not to Wall Street. The inherent power of the electronic clearing house should be handled by an executive branch department and insulated from other non-democratic influences. The power of lender of last resort will no longer be necessary once our financial system and monetary system are not entangled (once we have a 100% reserve requirement on demand deposits).