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There has been talk about returning to a gold standard for our money. I would like to discuss a few points with you about money backed by metals.
History has shown us that gold or other expensive metal backed currencies benefit the people that hold gold and other expensive metals as their store of wealth. It does not perform well as a currency to increase the exchange of goods and services for the general population, because the people who hold the gold as their store of wealth hold onto it, and will not distribute it to the general population, so that an economy can be created, thus making it worthless as an good economic means of exchange for the majority of the population.
A person must be financially well off before the person, holding their wealth or capital in the means of exchange of an economy, will lend the person the medium of exchange. The only recourse the person has, if they do not have a financially secure means of obtaining money, is to resort to creating their own means of exchange, or the barter system to exchange their goods and services. Bartering does not perform well for a nation as large as ours, because it is cumbersome and inefficient.
Creating your own means of exchange is similar to what Europe was doing before the Euro was created. Each state or city would have its own means of exchange, and different exchange rates.
Trade between our states would be very difficult if we did not have a uniform currency that was accepted in all 50 states. Our economy's strength comes from our states being united and where free trade can readily take place, without import and exports tariffs, other taxes, exchange rates and other restrictions.
I agree that the means of exchange must have a stable exchange value. The most important factor in the creation of money is how much of the means of exchange is in an economy, not what it is made of or backed by. This is a good video http://www.youtube.com/watch?v=4VaSh8MMo34/ It is a video about money and fiat money. Mr. Bill Still is the same person that made the fiat money video, The Wizard of Oz.
Money cannot be so valuable that people will not turn lose of it to make exchanges for goods and services. It cannot be losing so much purchasing power that people will not hold onto it long enough to make rational purchases of goods and services. It all comes down to balance, the balance of the supply of money vs. the supply of goods, and services.
I think, we can all agree, it is the fractional banking system that increases the amount of money in circulation in our economy. Our banking system is how people who have money share their money with people that need money, with certain requirement attached. That it is the use of credit that creates almost all the money in our economy. That it is the amount of loans, that the banks make, or do not make, is the problem.
As we all should know by now, the banks are loaded with reserves and the Federal Reserve is creating more reserves (money) with its quantitive easing. I believe they are doing this because the government is spending too much, and it would be the wrong thing to do, in a deep recession, to raise taxes, because it takes purchasing power away from people.
We need increases in disposable income, of a majority of the people, to improve the economy. If the government takes away money from people by cutting spending, or increases in taxes, it reduces the amount of money people have to spend in the economy. I also believe, the Fed is increasing the banks reserves, because it sees trouble ahead. If the collateral’s price continue to decrease, the value of the banks’ assets decrease, and they will need more reserves to stay solvent.
The financial institutions are telling us that interest rates are at historical low rates (they’re not low. read articles at www.recoverygovforthepeople.wordpress.com/), yet people are not walking through the banks doors to take out a loan, even if they could get one. Until people start taking out loans and the banks are willing to make loans, the amount of money that is being created will remain very low. In fact M-3 is decreasing.
Banks and people have no reservations about making and borrowing money when collateral prices are going up. Collateral prices are going down currently, so banks are not lending or creating enough money. People are not buying the collateral that most large loans are secured by, real estate. Until real estate (collateral) prices stabilize, our economy will remain in recession and the unemployment rate and foreclosures will increase.
Banks are only making loans to people and business that are positioned very well financially. This is why big businesses and investors are doing so well. The middle class and small businesses have been left out of the recovery engineered by Wall St. and the Federal Reserve banks.
The government, big business and investors have had their debts restructured, whereas the middle class and small are being foreclosed on and made government dependent, increasing government liabilities and our future tax bills.
Balance, this is what my People’s Economic Recovery Plan is all about. The guiding economic policies of our economy, the income tax and other laws, are static. Yet we have a dynamic economy that is changing continually from recession to inflation.
We currently leave in place the guiding policies, that we use to help end a recession, until we have inflation, and then the Federal Reserve must “take the punch bowl away” (make money more valuable and decrease the use of credit by increasing the interest rates.)
The gold standard currency and the current fiat money creation system rely on higher interest rate policies to control inflation and inflation psychology. I believe higher interest rates are the wrong tool to be using to slow down the use of credit and increase the value of our money (debt). The first thing that happens when the Fed increases interest rates, it devalues the existing money (debt), because the new debt is earning a higher interest rate, than the old debt.
Second higher interest reduces demand from the bottom of the economic ladder, which causes unemployment and bankruptcies in the general population to reduce demand. If we would reduce excessive demand and inflation psychology (read articles at web site) with the income tax, normal production and consumption could continue to take place, while the income tax combated inflation.
This is were the ZERO INFLATION TAXATION POLICY comes into play. It uses the income tax to maintain a balance in our economy. When collateral prices are going up, people use too much credit, (create money) creating inflation. The Policy discourages people from walking through the banks doors to create more money, when the economy is telling us that there is enough money available in the economy, because if we have inflation in our economy, the economy is getting out of balance.
The Policy would encourage people with money to hold onto it as savings, which would give production the time it needs to balance supply with real demand created by consumers, not excessive demand created by investors, investing in shortages, which creates more money, if done with credit, or large amounts of cash if people are hedging against inflation.
By using the income tax to maintain the value of our money, we take the power away for the Federal Reserve Banking system to determine when the economy needs more money or less money in circulation. How the economy is performing and if it was in balance or not, would automatically change the income tax. The income tax would be change based on how the economy was performing, not by a 540 member politically divided committee (Congress), that can’t take action until the economy, and the financial system is about to collapse.
Most people, and members of Congress don’t understand how the banking system operates, and how it creates money. So why do we have Congress and the banks making policy? The banks currently profit greatly when collateral prices increase too much. The higher the price, the more commissions are made all along the way from the realtor, to the bank to Wall St., and the government with increased taxes. The more excess money (debt) that is created, the higher the price of the collateral increases. It’s a viscous circle until the whole thing comes crashing down.
If you analyze the Policy further, you will notice that the Policy sets up a sort of a guarantee. If people or the government do create inflation, by creating too much money (debt), the person holding the money investment (debt investment or savings) would pay a little less tax and the people that created the debt (money) would pay a little more tax, at the end of the year. This procedure would maintain the value of money (debt). and control inflation psychology.
Even a 3% inflation rate can build up an imbalance in values in our economy. Over a 10-year period, a 3% inflation rate adds up to a 30% decrease in value of the money (debt), and a 30% increase in the price of the collateral and commodity prices. This imbalance must be corrected at some point. It can be balanced at the end of each year, or you can balance the values at the end of 10 years with a deep recession, as we are doing now, with the Great Recession of 2008.
Copyright by Leonard C. Tekaat Nov. 22, 2010 All rights reserve
