A Monetary System to replace the Federal Reserve System
The first step in replacing the Federal Reserve System is for Congress to require the Federal Reserve to buy back all of its paper dollars with silver dollars because Paper alone results in endless inflation. However, inflation eventually runs out of values. When that happens the only viable solution is to return to “a hard money” standard.
To start with, one must keep in mind that money is simply a certificate for hours of work.
The only question, and it is a difficult question, is how to make the change from paper back to gold and silver coins.
Our current, Federal Reserve System of paper money, is the third time our Nation has gone the paper money route. The first time our Nation, as a Nation, went the paper money route was the “Continentals” of our War for Independence. The Second time were the “Greenbacks “ that were issued during our Civil War. The third time is our current experience with the Federal Reserve notes.
Each of these times is about 100 years apart, or 4 or 5 generations apart. It seems that it takes three generations to forget the problems of paper money, and one or two more generations to again succumb to the “Sirene call” of a “free” paper money system.
Despite all the derivative ways in which money can be handled, such as in various investments, eventually the only use of money is to buy hours of work from someone else.
All un-backed paper money systems (such as the current Federal Reserve System) ultimately fail and eventually have to be replaced by “hard money”, silver and gold. Because with paper money, any time Politicians from time to time “want” money; the temptation to “run the printing presses” overwhelms the politicians. What they leave out is that an additional run of the printing presses is a form of stealing, stealing hours of labor from the workers who worked to get those hours of labor to meet their own requirements for funds to pay the rent, to put food on the table, and clothes on their backs.
Eventually the workers become aware that they are not getting full value for their hours of labor and when they do, they might use their vote to elect a different set of office holders to office.
Per Ludwig von Mises, “Human Action” , The main advantage to a “hard money” system is that it keeps the politicians from cheating the workers out of their hours of labor. Per Ludwig von Mises, paper money also tends to increase corruption. Hard money prevents the politicians from “living off the sweat of someone else’s brow”. “Hard money” helps prevent politicians from stealing someone else’s hours of labor.
Since silver coins (and the supporting gold coins) are extremely heavy, certificates for silver have been known at least since Biblical times.
Not only have silver certificates been known for at least a couple of thousand years,
silver certificates, paper backed by silver, with silver coins available to be exchanged for the paper on request; and “gold certificates”, backed by gold coins have worked well.
To get from where we are, back to a “sound money system” , there are only two questions; ‘When’ to make the changeover and “How” to make the changeover.
When ? Whenever those who are workers, realize that they can change who they are voting for and the workers decide that they would like to make the changeover.
Historically, in the United States, the changeover has been made by buying back the paper dollars with silver dollars. At the time of our War for Independence, 1776 to 1789, the, “not worth a Continental”, dollars were issued as a debt against the Continental Congress.
Along with the adoption of the Constitution of the United States of America, the paper “Continental Dollars” were purchased back from the citizens of the United States. (US Constitution, Article VI, “All Debts contracted and Engagements entered into, before the Adoption of this Constitution, shall be as valid against the United States under this Constitution as under the Confederation.”) and so the “Continental” dollars were bought back at the rate of a silver dollar for a paper dollar., and the ensuing financial well being of the Nation’s workers increased at the phenomenal rate of about 20% per year per year.
At the time of the Civil War, the “Radical Republicans” in Congress again issued un-backed paper dollars which were printed with green ink on one side, so they were called “Greenbacks”. Along about 1876 Congress passed an Act to buy back the Greenbacks. The “Greenbacks” were purchased back from the people during the years 1876 to 1879. Beginning in about the year 1880 with a money system entirely backed by silver, reportedly, the financial well being of the Nation’s people again increased at the still phenomenal rate of about 20% per year per year.
The “Fed” was formed in 1913. Initially the “Fed” did not issue paper money. All the dollar bills and five dollar bills from 1913 onward into the 1940′s and later were “US Treasury” “silver certificates” , “payable in silver to the bearer”, or in the larger denominations, up until 1933, gold certificates payable in gold to the bearer, at any bank. The Treasury certificates were eventually withdrawn, and were entirely replaced by Federal Reserve Notes.
As everyone knows, with out any backing, the value of our paper money has fallen, and in the opinion of some people, the value of our paper money has fallen precipitously, precipitously meaning something in the range of a thousand to one., so that the money we had during WW II had about a thousand times more value than the paper money we have today.
Ludwig von Mises in his book, “The Theory of Money and Credit” published in 1971 by the Foundation for Economic Education, Part Four, Chapter III “The Return to Sound Money” pages 435 TO 460, lists perhaps a dozen or more things needed for a return to sound money. Included in those things are the following:
1. The first step is an unconditional and absolute prohibition on issuing any additional, un-backed, paper money.
2. The Federal Reserve to create a “conversion agency” using “specie” (gold and silver coins) to buy back existing Fed paper money
3. During the buy-back period, the “old” Federal Reserve notes can remain in circulation, just that an equal value of Federal Reserve notes are to be removed from circulation and to be destroyed to balance out, one for one, all newly issued gold and silver coins or certificates.
4. Reestablish a free market in gold.
5. Imperative that the individuals in policy making positions associated with the Fed should be released from their positions, and not hired back into policy positions.
Just Abandoning the Paper Money Devastates The People
However, as history shows us, just abandoning the currently circulating paper money devastates the financial well-being of the people. For example:
At the time of the French Revolution, The French revolutionists has seized all of the many properties of the Catholic Church in France.
In January 1790, the value of the first issue of 1,860 million Assignats were essentially equal in value to the seized Church properties. Then January to May 1792, without any appreciable number of added properties, an additional 2,200 million more Assignats were issued. In June to December 1792 another 2,750 million Assignats were issued. In January to August 1793; 4,950 more Assignats were issued. In September 1793 to July 1794 another 8,450 million Assignats were issued, for total of about 20,210 livres in Assignats. At about that time it became obvious that the paper money Assignats were not being accepted and that a return to gold and silver must be arranged.
In France the French Revolutionary Government, in effect, simply discarded the Assignats. Shortly after the Assignats were discarded Napoleon came to power. On one of my trips to Europe, I bought one of the famous “Gold Napoleons” just to remind me from time to time of the paper money debacle that occurred in France. When the Assignants were cancelled, the financial well -being of the French people was devastated , and according to some reports, it took about the next two generations for the French people to recover from the financial losses of simply discarding all the paper Assignats then in circulation.
(Reference: “The Assignats” by S.E. Harris, published by the Harvard University Press 1930)
Eliminating the Federal Reserve Notes
Congress passed a series of laws that established the Federal reserve system, therefore Congress can pass a law, or laws that requires the Fed to buy back their paper with gold and silver coins, (or fully backed certificates for gold and silver). During WW II the United States funded foreign governments with the “Lend Lease” programs. It is important to remember the name applied to those transfers of money, “Lend Lease”, because the US Constitution prohibits the Federal Government from merely “giving” funds to other governments.
The Marshall PLAN began in April 1948. It was followed by a series of similar “giveaways”. For example, in the mid 1960′s BF Goodrich supplied the “pickle line” tanks for two (in the Philippines and in Turkey) of the five steel mills that were being “given” to other Nations. (At that time I was the Marketing Supervisor for rubber lined tanks at BF Goodrich.) For another example, in 1998 “we” “gave” a $1,800,000 paper-making complex to Indochina (which during the next several years, “killed” almost all of the paper making jobs in New Hampshire). Also at about that same time we gave a 7 billion dollar steel making plant to Shanghai China. The estimates are, that in the years since 1948 we have given 42,000 manufacturing plants to other nations. Using an estimated cost of a billion dollars per gift, that comes out to be approximately 42 trillion US Tax dollars in manufacturing plants that we have given other nations in the past 63 years.
One of the uses of the Federal Reserve was for the Fed, directly or indirectly, to print the money needed to pay for the “Marshall Plan”, and all the many succeeding money giveaways, since then. As the impeachment (for bribery) of President Clinton showed, the key people in the US were in turn rewarded with “contributions” of a giveback of some of the giveaway money as donations to their re-election campaigns. The then Speaker of the House, Newt Gingrich, delayed the vote for a full year during which the bribery charges were switched to a bedroom farce, and the Senate did not vote to convict the President.
We have very little to show for those giveaways other than approximately 42 trillion dollars of “IOU’s” . All of the money “given- away” has to have been in the form of a loan, because the Congress has no authority to merely “give” money to another nation.
(Remember that all money given other governments in WW II were given in the form of “Lend – Lease”.)
All of those IOU’s are held by the Federal Reserve Bank.
If the Federal Reserve Bank were to apply the approximately 42 trillion dollars in “IOU’s” held by them, the Fed would have the resources to buy back all of their paper dollars at the rate of a silver dollar for a paper dollar, and in addition, pay off essentially all of the estimated 16 trillion dollar National debt. The news media tells us that the interest on the Federal Debt is the single largest item in the budget, larger than even our Defense budget.
Bill collecting is not “nice” work, and the Fed will not “like” to do that kind of work. In addition the strategy of that kind of bill collecting could be important, so “someone” needs to “sort things out” as to the way for us to collect on those “IOU’s”.
However collecting on loans, (being bill collectors), has always been part of the banking business. Therefore collecting for the IOU’s they hold would be a normal thing for the Federal Reserve Bank to do.
As the experience in France with Assignats shows, merely canceling 42 trillion dollars in “IOU’s” that are now held by the Federal Reserve System, would devastate the American economy for many decades into the future.
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