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Announcing a Project to Modify or Replace the US Monetary System
08-17-2013, 03:51 AM,
#1
Announcing a Project to Modify or Replace the US Monetary System
Announcing a Project to Modify or Replace the US Monetary System

The US Dollar (USD) has been the world’s primary reserve currency (used for most international transactions, even when the US is not a party, and for bank reserves in all nations) since 1920, which has helped support its value due to high demand. The use of the USD for most oil sales since 1973 (the ‘Petrodollar’) has also brought helpful demand, but that is fading.

Due to excessive creation of new money (‘traditional’ monetary inflation, plus the Bernanke ‘spike’ in 2008 and recent QE activity), the USD has lost over 95% of its purchasing power (PP) since the Federal Reserve System (the ‘Fed’, our central bank) was created in 1913.

The rate of decline worsened with the end of gold ‘backing’ in 1971. To prevent losses, many nations now avoid owning or using the USD (or other assets denominated in USD), and instead trade with each other using their own currencies (led by the BRICS – Brazil, Russia, India, China, and S. Africa, plus Japan and Australia). This could lead to a major reduction in the USD role as a world reserve currency, and cause a 50% to 90% crash in value (PP) due to reduced demand. Such a crash could happen soon, and would cause; 1) Large losses for all holders (persons, firms, governments) of dollar-denominated assets (cash, CDs, bonds, annuities, life insurance, equities, real estate, etc.), and 2) A major increase in interest rates, which would blow-up the US budget and business loan rates! Thus, we must consider changes that will prevent the crash.

I hereby volunteer to be the collector of ideas, and use this input to write a draft plan, seek approval from contributors, then publish a comprehensive final plan for a modification of the current US Monetary System. The system includes the Fed and its ‘Fed Notes’, Treasury Dept. bonds and policies, legal tender laws, the FDIC, mints, banks and various banking laws and regulations.

The Initial PlanSubject to modification, and with further
definition below, the initial plan is; 1) Terminate the Federal Reserve System,
2) Make existing ‘Fed Notes’, deposits and bonds (M3) immediately redeemable for
gold by any bearer on demand (100% backing will deter a ‘run’ to redeem for
gold), 3) Require that all ‘Fed Note’ denominated cash and instruments be
converted to the new ‘gold money’ (see plan below) by a certain date, 4)
Terminate legal tender and many banking laws to allow private mints and ‘free
banking’ without licenses (but with full disclosure of mint gold reserves, bank
loans, etc. required by law), 5) Create a new system of gold coins, and
redeemable notes and token coins, to replace the current ‘Fed Note’ currency,
with ‘weight of 24 carat gold’ (or more weight for lesser carats) as the unit of
account (no ‘Dollar’ or ‘price’ of gold), and 6) Design and implement the plan
without formal agreements with other nations (this would just dilute and delay
the new plan), but seek their ideas and keep them informed of the US plan and
schedule so they can make compatible plans (or be left out!). This plan is
documented in detail in Chapter 4 of my book Monetary Revolution USA, and posted at part 2 in
the left margin of Forward-USA.org.

History and logic tell us that the above approach will stabilize purchasing
power and bring more peace and prosperity to nations who use it, and all will
convert to gold or no Seller will accept their trash fiat
‘money’.Details of the Plan and ImplementationAs a
starting point, I recommend the Five-Step Plan shown below. While other
private gold standards include ‘parallel government currency’ and other remnants
of the monopoly and Fed system, this version has zero mandatory (but some
optional) control by the government, and banks. The Fed will be gone! Notice
that under this plan money is produced by private firms in the free market where
customers (users of money) decide which source and type of money is best, and
mints compete for customers by supplying a good product. Government mints, if
any, are optional, and have no control or privilege over the private mints. The
free market is allowed to work!Step 1. Repeal: a. All legal
tender laws so private mints can issue new money, b. Laws that tax increase in
market value (then to be known as ‘purchasing power’) of precious-metal coins
(formerly considered numismatic), and c. Any other laws that prevent, inhibit,
or tax the new money. The only government role would be to prevent fraud
(including counterfeiting), and to verify by physical inspection that reserves
are as advertised (but with no reserve ‘requirements’). I recommend that ‘demand
deposits’ (checking) have 100% reserves, and ‘time deposits’ have reserve ratios
based on prudence of bankers and approval of their customers (or they will
withdraw their funds or sell the stock). The Federal Reserve will be abolished
three to five years after private money becomes legal (or if Congress refuses
abolishment, let it atrophy to death from lack of customers and income). Its
useful functions will be done by private firms.

Step 2. Private mints are allowed, with government licensing
optional. Banks could also provide mint services. Silver, semi-precious metals,
and foreign coins could be used (based on market demand), but for simplicity,
only use of gold will be discussed here. The mints would introduce new gold
money labeled by law as to the weight and purity (fineness; carats) of gold a
coin contains, or that redeemable tokens or paper certificates represent (thus
‘weight’ is the unit of account). Some might offer ‘Digital Gold Currency’ (see
bitcoin.org). All mints would be
required by law to; 1. Publicize the weight and purity of gold they have as a
reserve for redeeming paper or digital money, and the value of money issued, 2.
Allow unscheduled physical inspections to confirm that the gold is in their
possession, and free of encumbrances such as liens, leases, etc. The same would
apply to base-metal coins. The ‘unscheduled’ requirement will prevent relocating
the same gold to be put on display at different mints, or their branches, ‘just
in time’ for an inspection! The results of these inspections would be published
by the mint’s Internet web site, newspaper, poster in the mint, etc., and
available from a government web site. The inspections would be justified as a
routine function of the government to prevent fraud, but could be done by a
private org. Mints with strong reserves will advertise their strength to attract
customers. Customers will ‘wake up’ and pay attention to reserve status, rather
than assuming the government is protecting them with regulations. The free
market at work! Step 3. Require the Federal Reserve banks,
the U.S. Treasury (Ft. Knox), the Exchange Stabilization Fund, and any other
part of the United States government that has gold, to promptly submit to a
private audit of the amount and purity of gold they own and its title status
(leased?, loaned?), reveal the results to the public, and then give it all to a
‘Redemption Trust’ owned by the U.S. Treasury, to be used to redeem existing
coin or paper currency, ‘digital deposits’, and bonds (such as M3) on demand,
based on a certain weight per ‘Fed Note’ Dollar, in accordance with the plan
below. The Fed would not be involved in such conversions. Some may argue that
the Fed is a private firm and owns the gold it has, but this ignores the fact
that it got it from the US citizens illegally in the first place by issuing fake
Fed Notes, and perhaps some from FDR’s confiscation of gold in 1933. If the Fed
manages to win a court fight on this point, the Treasury could buy it with US
bonds.The U.S. government claims to have 8,134 metric tonnes of gold in
its reserves (an audit is needed). At 32,150 troy oz. per metric tonne, the US
has 260.415 million troy ounces. Others say the US currently holds 261.5 mill.
troy ounces, or 265 mill., but these figures are all close enough for this
analysis. There is also a question as to the purity (fineness; 24 carat is
0.9999 pure) of the US gold (debased or fake bars in storage, or gone on lease
or loaned?). Only a proper audit will tell. The Fed stopped publishing
M3 in 2006 (claiming high expenses; I say to hide its growth!), but private
sources put it at about $15 trillion worldwide in Feb-2012. If 100% of the M3
Fed Note dollars and bonds were made redeemable with our 260.415 million troy
ounces of gold there would be 0.0000186 oz. per dollar (about 2 ‘100
thousandths’; or less if the Fed is lying about how much gold we have!). This
means 53,763 ‘gold-backed’ Fed Note dollars would be redeemable for one troy
ounce of gold. This implies a 96% drop in the dollar's current value versus the
July 26, 2013 spot price of $1,330 per oz.; a ‘gold value’ ratio of about 25:1,
to be known as the ‘Conversion Factor’. Some suggest we repudiate all
federal debt, but this would be immoral Of course, other nations  -- Russia,
Argentina, etc. -- have done it without legal backlash). The dreaded day of
reckoning! But this issue fades as all nations convert to gold money (they must
or no sellers will take their trash fiat 'money' once the US dollar is
redeemable) and there is no ‘price’ for gold, just its weight, because gold
IS money (example; what is the ‘price’ of a Dollar?). We need to
audit and inspect U.S. gold reserves in the Ft. Knox and the New York Fed vaults, and
determine whether some has been secretly removed, leased, loaned, or some bars
replaced by gold-plated base metal. This concern was heightened when in Jan-2013
the Fed told Germany it would take seven years to return the 300 tonnes gold
they were storing for them!.Once the legal tender laws are repealed;

a. No additional units (physical or electronic, including new credit) of the
old ‘Fed Note’ money will be issued. The free market will provide new money as
needed; if the Fed isn’t required to stop creating new money at first – due to
politics, etc.- the new private money should proceed in parallel; let the best
money win!,b. Holders of old ‘Fed Note’ physical money would be required
to convert it to new private money within two years of private money becoming
legal, c. The government must accept payments by ‘new private money’ if
the issuing firm’s reserves are at least forty percent, and have been verified
to the public and gov’t, and d. Federal and State governments can issue
new gold money, but it would have no privileges over private issues.
Step 4. To implement the new monetary system, I propose that
Congress create the ‘Currency Act of 2013’. No government ‘commission’ is
needed to ponder whether a gold standard is needed (unless forced for political
reasons!). The Act should: a) Incorporate the ideas and requirements in
‘Redick’s Four Monetary Rules’ (in Chapter 4 of book Monetary Revolution USA, and posted at part 2 in the
left margin of Forward-USA.org) and this ‘Five Step Plan’, b) Set the
weight and fineness of gold that the existing Fed Notes and coins (physical,
bond, or digital) will represent. This will involve debate as to % reserves and
how many USD - M1, M3? - are covered, and the effective date. I suggest 100% of
M3 and activation of the new system within 3 to 6 mo. after the Act is passed.
Using M1 (or repudiating all debt) would have a lower inflationary impact on the
dollar’s value (more gold per dollar), but leave savings accounts, and domestic
and foreign bond owners, with worthless paper, which amounts to default,
repudiation, and theft! Reserves of 40% might be enough (to avoid redemption
‘runs’ that would destroy the new system), but it is better to be on the safe
side. A ‘run’ could ruin the system, just as occurred in the 1960s, ending in
Nixon ‘closing the gold window’ in Aug-1971.c) Require that new money
issued by the U.S. Treasury (no Fed issues) be labeled only by weight and purity
of gold (no ‘name’ or religious content) and made available on the day the new
system is effective. All government transactions (fees, payments, taxes, Soc.
Sec., bond principal, etc.) would be denominated by weight of gold. This will
foster public use of gold weight as the unit of account for pricing.d)
Include lessons from how other nations changed money,e) Publicize the
discussions leading to the definition of the Act so US citizens and firms, and
other nations, are aware and can submit their ideas and make their conversion
plans. I oppose multi-nation planning conferences; they would just cause delays
and dilution of terms.f) The Act should include a ‘Conversion
Factor’ (about equal to the ratio of gold price between the new and old
systems; ‘25’ per Step 3 above) to adjust values in existing agreements (bonds,
wages, loans, mortgages, pensions, insurance, etc.), and set new values by
weight of gold. Using lower reserves, or M1, would reduce this factor but
increase risk of a ‘redemption run’. Pricing for new transactions or agreements
would be set in the free market, and using ‘weight of gold’ as pricing (no
‘Dollars’) would be encouraged. Step 5. Terminate Useless and Harmful
Organizations:

A. Domestic: Abolish the unconstitutional GSEs such as Fannie,
Freddie, Ginnie, and Sallie Mae, FHA, Pension Benefit Guaranty Corp (PBGC),
FDIC, all TARP-Like projects, the Exchange Stabilization Fund (ESF),
Export-Import Bank, USAID, NSA, CIA, NED, etc., etc. All of these are part of
the government’s counter-productive intervention in, and manipulation of, money,
private business, banking, and the affairs of other nations. While at it, end
all unconstitutional departments and agencies!B. International:
Terminate US membership in the IMF (and get our gold back), World Bank, CBGA,
BIS, G-20, G-8, NATO, United Nations, NAFTA, CAFTA, GATT, WTO, and
others. Free trade and embassies are adequate for contact with other nations.
***************Once launched, in my above version of the
Private Gold Standard, gold value (purchasing power) is self-controlled
by supply and demand, with no ‘parities’ to maintain. Gold and money ‘values’
are the same (gold IS money, and there is no ‘price’ for gold). No
‘management’ is needed!Ending on a key point, notice that there will
always be ‘enough’ gold, because as demand goes up, with a near-fixed supply,
Econ-101 says that gold’s value (PP) will APPRECIATE to be in equilibrium
(without government ‘management’ !). We are so accustomed to monetary inflation
and depreciation of the dollar’s PP, it is easy to forget that the PP of
commodity money reacts both ways as demand varies. Another great reason to
USE GOLD AS MONEY!Implementation of the
ProjectThis announcement has been sent to over 100 authors of books,
financial firms, and more to publishers of Internet web sites that include
analysis of money, and to media, academic, and government persons (US and
foreign) who have shown interest in our monetary system, seeking their
suggestions. A list (names and web sites) is available on request.Please
send your comments and suggestions to me at Dave@SaferInvesting.org. All will be
published on http://www.SaferInvesting.org. Thank you. I look forward to
submitting the draft plan to you for your comments.

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