Proposals for a Nation gone off--Monetary system

 Monetary system

Nowhere have such divergent principles been as thoroughly tested and just as thoroughly been found wanting as in the US monetary system -- from a full gold standard to a fully floating currency and various expediencies in between, from independent banks issuing currency to one central bank since 1913.  Given the reliance of nearly everything on a sound currency, the controversies will never fully be resolved and the proposals to follow will not promise paradise, only order and accountability, which is to say, the possibility of sound decisions and the capacity for political reckoning.  

Although the congressional charter for our central bank, the Federal Reserve, promises a currency free from political consideration, it should be obvious that anything chartered by Congress can be regulated, influenced and changed by Congress -- and be accorded the title of “independent” to boot.  Today's Reserve is fully compromised by political decisions and political goals.  Whatever danger is hoped to be averted through an “independent bank,” dangers such as the use of interest rates to manipulate the economy (referred to as stimulus*[1]) or the use of inflation to assist the central government in paying its debts -- all these dangers have been realized in our central bank.  

What is needed is not a bank chartered by Congress but one chartered by constitutional amendment and likewise protected from any interference from Congress.  What is needed is a bank directly accountable to the American people with elections every two years for the head of said bank.  And just as the sole successful entity of the US government is the armed forces*[2], accountable to one man who is in turn accountable to the entire US electorate, if the central bank is to be successful, a similar structure needs to apply -- independent from the legislature and accountable to the American people.

Here is as follows:  The national wealth of Fort Knox is hereby transferred to the United States Central Bank.  

The head of the bank will be elected by the American people for a two year term for a maximum of four consecutive terms.  The individual running will select 6 individuals to chair the reserve board and who will set policy and oversee the daily operations of the bank.  The board will serve at the head's discretion.  The number of board members can be altered by ballot initiative.  All ballots initiatives must take place at the same time as the election of the head of the bank.

One of the more offensive aspects of the current system is its sibylline quality.  Economics is not magic.  Every decision made as to interest rates must be both open to the public and formulaic, in other words, the actual results need to be based on economic data which is itself made public.  Every school child should be able to determine the overnight rate based on economic indicators found in that day’s newspaper.  There should be nothing secret about the banks operation.  No hidden signals to the market.  No secret meetings with the federal government.  The bank will publish its operating formulas used to set interest rates and each change in the rate must be preceded by an open public meeting where the change is proposed and the board is subjected to public questions as to its decisions.  

The bank has the power to print the legal tender for the United States economy, the US federal government and all state and local governments.  The bank may establish subsidiary reserve banks throughout the country in keeping with need.

The bank will set interest rates for its loans and print money for exchange in keeping with the principles of low inflation.  There should be neither inflation or deflation  It's only concern is a stable currency.  Not economic growth, not interest rates.  Certainly not the interests of politicians:  the bank head and board members are exempt from appearing before Congress and any congressional inquiry -- they are accountable directly to the American people.

The bank may not make direct loans to the US federal government or to any individual state or local government.  The bank may only loan to private entities with established private credit.  It might be a good time to reform the rating agencies as well -- AAA credit has become the mark of implausibility.

Congress may make no law abridging the Federal Reserve's right to print money, either in amount or to whom it lends.  The bank will be independently accountable to the American people and the United States Government will observe the independence of the bank.  The Government may not compel loans from the bank, seize its assets or impair its ability to perform its chartered tasks.  

The bank is to have no army or security force.  The state of Tennessee, or the state where it is located is accorded the responsibility of keeping the bank and its funds safe.  The state may bill the bank in keeping with this service.   The bank may relocate by ballot initiative at its own expense.  It may only be located in one of the states of the union.  It may not be located within 100 miles of the nation's political capitol.  Legal matters as arise can be referred to the courts.

The bank must operate on its own budget realized through its loans.  The bank employees will be paid through this same source and any outsourced needs such as security.  The bank has no power to levy taxes to support itself.

Let it be determined also to put interest to work for stability -- that the elected head of this bank shall receive in compensation 10 times to salary of the US president and his selected board of bank managers shall each receive 5 times said salary.  There is one proviso -- for every percentage point of inflation over two percent per annum, the elected head of our bank will forfeit a penalty of 20 percent of his salary, his reserve board members will forfeit 10 percent.  The same penalty applies to deflation.

It is not simply the monetary policy which will be shored up by full independence from Congress but Congress itself will be obliged to play an honest hand in its dealing with the American people.  As it is, for a government to have both the power of the purse-strings and the printing press is to have a power one too many.  Any such government cannot be relied upon to make objective decisions.  And, is this not the greatest conflict of interest in human history?  Not unique, typical rather of every government but certainly the greatest example given the sums involved.  The independence of the monetary system is as good for money as that independence is good for Congress -- to have a good Congress.  The reserves of precious metals held by the American people through the federal government will be turned over to the American people in the entity of the new US bank.  The bank can agree, as a profitable institution to take some percentage of existing US treasury debt as a farewell gesture with the understanding that any debt incurred by the federal government from that point forward is the responsibility of Congress to honor through its own revenues not through the inflating of currency or emergency loans from the bank.  Additionally, as a profit making entity, the US Bank will be expected to pay to every citizen a dividend of the profits realized on its loans to banks.  That would be the best way for the monetary supply to increase.  There probably won’t be much to split 300 million ways but the profits made from the national treasury also belong to the American people.

Given the wild eyed spending taking place in Congress, the American people need to look to their own basic interests, that of a sound currency.  There is in addition to all the practical reasons for such a change a great moral one, namely, that inflation -- the destiny we face from our expansive federal government -- injures most those who have the least.

In summation, our plan puts in action several principles which will be repeated throughout this pamphlet -- the desirability of separation of powers, not necessarily separate in insularity but agonistically separate.  In this separation reality can shine through, or at least have its say, in addition to all those fantasies that politics is heir to.  Lastly, from the day before the change to the day after it is like there is no change at all.  There will be the same currency in circulation.  There will be the same value to that currency.  There will be roughly the same amount of money in circulation.  And yet everything has changed even though the true and beneficial effects will be apparent only in time’s good work.

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footnote 1:  As opposed to the more rightful measure of tax cuts to rebalance a grown economy with a government that doesn’t need to grow along with it -- something that would obviously compromise the glorious power of the government and only benefit the citizens.

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footnote 2:   It is also one of only two, along with the monetary system, subject to and measurable by foreign competition.  Everything else can get away with not working very well without fear of being decisively replaced.  The armed forces have both features, accountability and competition, the monetary system has just competition and, given the number of socialist leaning countries, competition very friendly to inflation