The Myth of Constitutional Money
By Staff News & Analysis - October 04, 2011

Rep. Dennis Kucinich (left) Wants Constitutional Money … Rep. Dennis Kucinich (D-Ohio) on Sept. 21 introduced the National Emergency Employment Defense Act (NEED), H.R. 2990, which would remove the power of creating money from the privately owned and controlled Federal Reserve System and restore to Congress to constitutionally create money interest-free. The bill closely reflects the American Monetary Act (AMA), model legislation developed by the American Monetary Institute, which is headed by noted money historian Steve Zarlenga. – American Free Press

Dominant Social Theme: If states could print money everything would be OK and the economy would work again for everyone.

Free-Market Analysis: So Rep. Dennis Kucinich wants "interest-free government money spent into circulation – as the Constitution mandates – instead of being borrowed into existence from the private banking system at ruinous interest." He is not alone. Ellen Brown has been banging the drum for this (in these pages sometimes) and so has Steven Zarlenga. They've both written books on the subject, though Kucinich hasn't, not yet anyway.

According to Kucinich, H.R. 2990 "would . . . reassert congressional sovereignty and regain control of monetary policy from private banks." [The bill would] "address our structural economic problems directly by creating over 7 million jobs," when "the nation struggles with long-term unemployment at rates not seen in generations, and as infrastructure crumbles across the nation."

And the article tells us, "Fractional-reserve lending – money lent beyond what banks have in their reserves, using a multiplier effect – would be eliminated, and the nation's endangered infrastructure would undergo an unprecedented overhaul to account for much of the proposed job and money creation." Here's some more:

A fact sheet from Kucinich adds: "The conflict of interest between private ownership of the 12 Fed banks and management of our nation's monetary policy is ended by incorporating the Fed into the Treasury. The Fed is put on a budget and made accountable to the American people; A separate Monetary Authority (part of Treasury) made up of experts is made responsible for managing monetary policy. Its governing principle is to ensure that the money supply is sufficient to meet the demand in the economy, and is not inflationary or deflationary. The Fed executes monetary policy actions."

Moreover, "banks could continue to make profits by lending money that savers and investors make available to them for that purpose. Banks may also borrow from the Treasury," says the fact sheet. "The Monetary Authority advises Treasury how much money is needed in the economy. Treasury advises Congress how much recycled or new money is required to pay off debt (as it comes due) and supplement existing revenues to fund infrastructure renewal, grants is required to pay off debt (as it comes due) and supplement existing revenues to fund infrastructure renewal, grants and loans to state and local governments, education and other priorities, as appropriated by Congress."

When pressed about whether the national debt should be repudiated, Zarlenga said: "If there is illegitimate debt then it doesn't have to be repaid." Investigative writer William Norman Grigg researched the Fed's founding regarding the late Col. Edward Mandel House – a shadowy White House "assistant" who labored to create the Fed behind President Woodrow Wilson's throne. Grigg feels that the Fed "has to be destroyed, from root to branch."

All this doubtless sounds good. But here at DB, we've always argued against the idea that Washington DC, or even states, should print money and distribute it, presumably through banks. It's a kind of elite-driven dominant social theme in our view, though one, we've granted, that might be a bit better (at least in the short term) than what we've got now …

The trouble is that, contrary to arguments of the public money crowd, the Anglosphere elite that wants to run the world probably doesn't much care where central banking is lodged so long as it exists, or not at this point anyway. By now governments are in their collective pocket. Public, private or standing on its head, the very presence of central banking in any form may guarantee its continuing abuse by the same crowd of controllers.

In any event, parts of the public-money argument seem false to begin with. The Fed is NOT an entirely private institution. To argue that the US government has no influence over what the Fed does is incorrect in our view. The US political system has a good deal of say over who populates the Fed and in fact, the Fed only came into existence after the passage of enabling legislation.

To maintain, as public money critics do, that the Fed is entirely a private entity is simply not correct. It has considerable public exposure and public opinion, and Congressional criticism has an effect on policy (a variable one to be sure), as we have seen throughout this latest crisis.

The reason to label the Fed as "private" is because people like Brown and Zarlenga want to propose "public" solutions to the problems caused by greedy "private" bankers. The entire debate is structured this way in order to provide socialist solutions that will replace the "free-market" ones of the current Fed system.

Never mind that the Fed is to the free market what a shark often is to a surf-boarder, the argument continues to be advanced in this manner. In fact, the Fed and other central banks fix the price of money, causing distortions in the economy that inevitably lead to ruinous inflation, booms and then busts.

To advance the idea that this financial syndrome would be halted by taking the Fed's mandate and placing it in the hands of Barney Frank and Nancy Pelosi is nonsensical. Just because money from nothing would be printed by the government at federal or state levels instead of by the Fed would make no difference in terms of its ultimate destructive effects.

It's nice to believe the money would be issued interest-free, but the larger issue is not one of individual solvency but of endless inflationary pressures giving rise to the same boom-bust cycle that is in place now. it sounds like a panacea but it seems to leave fundamental problems unaddressed.

Bottom line: In simplest terms, those who print paper money delinked from assets will never know how much to print. It is simply impossible to tell how much money the economy needs and therefore paper money would continue to be over-printed and highly stimulative no matter who printed it. Wall Street abuses would therefore continue; main street insolvency would rise over time. And most likely, the power elite would continue to exercise the power of the purse through the elected officials it controls.

The only solution to this dilemma is monetary competition and to create a free market in money, one that no one group of individuals can control. Inevitably this would include free banking (PRIVATE, non-monopoly fractional reserve lending) along perhaps with Real Bills and other forms of money stuff. Here at DB, we believe what would win out ultimately would be gold and silver as money likely within the context of free banking. A private gold and silver standard has been employed historically and for good reason.

A gold and silver based system moderates the problem of money printing. When there is too much money in circulation, hoarders cease to de-hoard and wait for prices to go up. When there is too little gold and silver in the market, hoarders de-hoard and eventually the price goes down. Mines and mining are also sensitive to price and might play a role in such a market-based system.

Anyway, it is a system based on market demand not on some artificial judgment of unelected bankers and bureaucrats as to how much money the system needs. Ms. Brown's argument (and likely Zarlenga's, too) would be that the economy's "demand" for money would moderate money production. But this is a very amorphous perspective.

What is demand? How much "demand" is functional? If someone wants to build a floating hotel in the Mississippi during flood tide, should money be made available? Ultimately, only the market itself can decide on the market and value of money. Anything else is price fixing – with all the ruin that comes with it. That's what we have today. That's what we will have tomorrow if the US government takes over money printing from the Fed.

After Thoughts

As The Who famously sang, "Meet the new boss, same as the old boss …"

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