Here’s the Blueprint for Prosperity for All

by Dick Distelhorst, AMI Researcher and Chapter Leader

Burlington, Iowa.  June 16, 2010.

Warren Buffet recently said, “There is a class war going on and my class is winning.”   He is certainly correct.  In September of 2008 when the greed and recklessness of the “too-big-to-fail” banks caused millions of U. S. citizens to lose their jobs, their homes, much of their savings, even their pensions, who did our government bail out, the big banks or the American people?

We know the answer.  The Bush and the Obama administrations made trillions of dollars available to the big banks, now those same big banks are reporting all-time record profits and paying themselves huge bonuses.

There is a way to bail out the American people instead of the very wealthy and return our nation to prosperity.   All we have to do is look at past history.  The answers we need are there.

The best answer to the Great Depression, the “Chicago Plan” of the 1930s was a proposal which would have taken the power to create, issue and regulate money away from the privately-owned banks and return that sovereign power to the people.  An even better proposal to take back our sovereign power to create, issue and regulate our money is ready for America.  Read about this bill at: http://www.monetary.org/amacolorpamphlet.pdf This legislation is the answer to ending the Great Recession.  This brings us to the first three steps of “The Blueprint for Prosperity.”

Step 1:  Incorporate the Federal Reserve Banks into the U. S. Treasury where all money will be created by the government as real money instead of as interest-bearing debt and spent into circulation to promote the general welfare; monitored to be neither inflationary nor deflationary.

Step 2:  Eliminate Fractional Reserve Banking in a manner that makes the federal government the only entity with the power to create, issue and regulate our money, as Article I, Section 8, Clause 5 of the United States Constitution already mandates.

Step 3:  Real U.S. Money will be spent into circulation, starting to rebuild our badly decayed public infrastructure which includes roads, bridges, dams, water and sewage plants, mass transit, schools, etc.  This will create millions of high paying jobs. We include health care and education as part of infrastructure – human infrastructure. If the recession or depression lingers on, a stimulus check of at least $5,000 should be sent out to every American citizen immediately to start getting out of this recession by putting money back in the hands of the American people. (To understand how these three crucial steps are demonstrated in historical case studies, read The Lost Science of Money by Stephen Zarlenga; see http:/www.monetary.org/lostscienceofmoney.html)

These three steps are the way out of the present Great Recession.  All of the  benefits outlined above, and many more, will appear as an interest-free, debt-free, inflation-free dividend for the American people.  Under this legislation, the benefit of that creation will go to bail out the American people not to bail out the big banks.

What the “too big to fail” banks don’t want you to know is that all of their money was created in the form of debt and when they can no longer create more “debt-money” it will disappear, which means we will have to replace their debt money by spending real U. S. dollars into circulation.   Then we will finally get the benefits of the money we should have created in the first place. The real money we need to spend into circulation to replace this bank “debt-money” is literally trillions and trillions of dollars.  And it all will appear as a bonus or dividend for the American people.  Within a few months of the passage of this legislation the present Great Recession will have ended.

One other important legislative action needs to take place in order to end this Great Recession.  After the 1929 stock market crash, Congress passed the Glass-Steagall Banking Act in 1933.  This Act, among other things, separated commercial banking from investment banking.  The Glass-Steagall Act was repealed in 1999 by the Gramm-Leach-Bliley Financial Modernization Act.  That was followed in 2000 by the Gramm Commodity Futures Modernization Act.  Those two bad pieces of legislation opened the big bank gambling casino.  The casino is still open.  The financial reform bill now in Congress does not even mention either Act.  The bill in Congress is over 1,500 pages long and does not solve the problem.  The bill needed to solve the problem can be written in just two sentences.  Here they are.

Repeal the Gramm-Leach-Bliley Financial Modernization act of 1999 and repeal the Gramm Commodity Futures Modernization Act of 2000.  Reinstate the Glass-Steagall Banking Act of 1933.  (That’s it, just two sentences, not 1,500 pages). All the nonsense you may be reading from lobbyists that Glass-Steagall is passé and no longer applicable, are efforts to allow banks to continue their casino games.

In 1932, in the midst of the Great Depression, Franklin Delano Roosevelt was elected and he started the New Deal to bail the American people and put them back to work.  Here are some of the actions taken by FDR during the New Deal years.  The Banking Act of 1933 (Glass-Stegall) was passed to separate commercial banking and the peoples’ deposits from Investment banking.   He started the WPA (Works Progress Administration) and the CCC (Civilian Conservation Corps) to put people back to work immediately.  He promoted unions and also passed the 40 hour work week and time and a half for overtime.  He outlawed child labor.  He passed Social Security. He introduced farm price supports and new agricultural methods promoted by his Vice President, Henry Wallace.  He started unemployment insurance.  And, later, during WWII he raised the progressive income tax to a top rate of 91%, this rate lasted from 1942 to 1961 when President Kennedy reduced it to 70%, a top rate that lasted until 1981 when President Reagan dropped the top rate to 28%

In 2008, in the midst of the Great Recession, Barack Obama was elected and promised us change for the better with the slogan “Yes we can!”  We hoped for a new FDR who would bail out the people, but the new President bailed out the “too-big-to-fail” banks instead of the people; he then expanded War instead of ending it; and his health care plan bailed out health care insurance companies instead of the American people.  Perhaps he followed bad advice from his Wall Street and Big Business advisors, only he knows why he took these actions which helped the very wealthy, not the American people.

It’s time to give President Obama the right advice.  Send him a copy of this article.  It’s not too late for him to change course and help rebuild the country we all love, the country with a government of the people, by the people and for the people.

Dick Distelhorst, a long time monetary reformer, is also a senior advisor to the American Monetary Institute www.monetary.org Dick is among the most knowledgeable Americans regarding the workings of the Federal Reserve System. He also understands fully which actions have to be taken to end this tyranny of a self declared elite. Our nation and its people cannot survive the continuance of the present privately-owned, debt-based monetary system.   Either we end that system now or it will end our representative democracy.  That is the stark choice now facing us. There is no doubt that the solution to our economic and social justice problems is to institute the debt-free monetary system proposed in the American Monetary and Financial Security Act. Dick is a regular presenter at the AMI Monetary Reform Conference, held annually at University Center in Downtown Chicago. Please see http://www.monetary.org/2010conference.html

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8 Responses to Here’s the Blueprint for Prosperity for All

  1. Alwie says:

    Dear Jamie,

    I don’t get it. What do you mean this act can prevent compound interest?
    Let’s say bank lend me $10.000 with interest of $1.000. Pay back in one year.

    In your system, when I pay back this $10.000, this money will go to government account, since the credit had been monetized.

    Then how about that $1.000? Should I still pay it to the bank?
    If yes, interest still count isn’t it? Compounding interest still exist.
    If not, then bank will go bankrupt, they can’t feed themself without profit..

    Please explain more. Thanks.

    • moneyreform says:

      Dear Alwie,

      It’s really very simple.

      The reason compound interest is stopped is that the interest amount cannot exceed the principal amount. That means that once interest charges reach that level, they cannot go any further. That stops the possibility of compound interest growing on and on infinitely.

      In practical terms it means that if the principal of a loan is $X, the maximum the borrower will pay back, including principal, is $2X.

      Voila! (There!) – Compound interest is ended!! Get it now??

      I trust this answers your question.

      Jamie Walton

  2. Dear Alwie,
    Your questions revolve around the double enty bookkeeping system used by all banks. Your final question is: Isn’t the money supply become double?”
    First, you must understand how double entry bookkeeping is used by the banks to create money “out of thin air.” For example..
    If you borrowed $100,000 from a bank to buy a home, contrary to public perception, the bank does not use anyone’s bank deposits to make that loan. The bank simply makes an entry of $100,000 in your checking account. This becomes a liability to the bank. The bank also makes a Loans Receiveable entry of $100,000. This becomes an asset to the bank. A new $100,000 has just been created and loaned into existence with, of course, an interest rate, say 5%, attached.
    Under the existing fractional reserve system, this is how banks create what I call “debt-money.” Every “debt-dollar” which has been deposited in banks had to be first created in this manner. You must also understand this: just as, when banks create “debt-money” by creating both an asset and a liability (as described above); when the loan is repaid, both the asset and the liability disappear. When the loan is paid, the bank’s Loan Receiveable of $100,000 is marked paid and disappears and so does a $100,000 checking or savings account.
    When banks make loans they create “debt-money,”
    when the loan is paid back that “debt-money” disappears – except for the interest which must also be paid. That interest, in order to be paid, must be taken from some other “debt-money” account. So, you see, in order for the present privately-owned, debt-based, interest-laden monetary system to survive, out debts must always grow larger, forever. And that is exactly what has happened over the years. Since 1945, when the Federal Reserve first started tracking the L1 Total Credit Market Debt, our total debts have doubled every decade. You can see this by going to the link below and clicking on Historical Data to see the L1 report.
    http://www.federalreserve.gov/RELEASES/z1/current/accessible/L1.htm
    When The American Monetary Act is passed, banks will no longer be able to create “debt-money” in the manner just described. Our government, not banks, will create, issue and regulate all of our money. All the existing “debt-money” deposits will disappear as the loans (which created that “debt-money”) are paid. Which means our government will need to create and spend at least that amount of U.S. dollars into circulation to replace the “debt-money” which disappears.
    Now to answer your question about the money supply “doubling.” You are correct, when we, by accounting entry, replace the “debt-money” deposits now in banks with real U. S. money, if we allowed the banks to then use those U.S. dollars to make loans, it would be a doubling of the money supply. That’s why The American Monetary Act requires the banks to repay every U. S. dollar the accounting entry gives to them. That’s what keeps the banks from using those new dollars.
    I hope this has clearly answered your questions.
    Dick D.

    • Alwie says:

      Dear Dick,

      Thanks, but I am still confused. Can you provide an example of the bank’s balance sheet using AMI reform act.

      If liabilities become double, where does the asset become double?

      In your description, we can see that bank owe a checking account of $100.000, and now also owe government another $100.000.
      But in their asset, they only has loan receivable of $100.000.
      Where should another $100.000 appear in their asset?

      Please provide a more detail example.
      Thank you.

      • moneyreform says:

        Dear Alwie,

        Thank you for your question. This is a very good question.

        An exact balance sheet example will be provided by the advisory team to the Monetary Authority, consisting of representatives of each of the regulatory bodies that oversee banking.

        A bank’s liabilities will not be doubled, and the money supply will not be doubled either.

        The net balance sheet positions of banks will be no better or worse on the day of the change than they were on the day before the change. All bank depositors’ money will be safe and secure. The banking system will be much more stable and trustworthy.

        The main thing to keep in mind is that, from the date of the change, the accounting will reflect the actual facts and will clearly distinguish between money ready to be spent or lent now, and records of claims on money lent in the past and owed in the future. Keep in mind that the accounting rules for banks will change in this regard.

        The net effect of the change will be to, after the fact, render the credit that banks extended as money, as though they had extended money as intermediaries of government. So, what they extended becomes money loaned, not credit loaned, and so what they get back will be money, not credit, and as intermediaries, they will owe the government that amount.

        Did you notice that the new law also has the effect of ending compound interest, by limiting the total amount of return on a loan to twice the amount lent (see Sec. 303, (1)).

        I trust this answers your questions and concerns.

        Jamie Walton

  3. Alwie says:

    Dear AMI,

    Can kindly explain more about your reform act? You say we should monetize all credit in the system. So when people repay their debt, those money will be transferred to government account.

    It means that all money is owed by bank to government. In their balance sheet, isn’t it double entry in bank liabilities?

    If X go to bank and deposit $1 million (bank owe X $1 million), in the current system, bank balance sheet will be like this:

    Asset Liability
    X deposit : 1 million

    If using your reform act, it will be like this:

    Asset Liability
    X deposit : 1 million
    Debt to govenment : 1 million

    Isn’t the money supply become double??

    Thanks.

  4. Dear Tommy,
    While it is true that The American Monetary Act will take away the commercial banks’ power to create “money” in the form of interest-bearing debt and it will make commercial banks actually receive deposits of U.S. dollars and then loan those same dollars back into circulation, (in other words, make banks do what most people think they do now. act as intermediaries between depositors and borrowers,) it is still necessary to rein in the investment banks. At the present time there are no pure investment banks remaining, the Federal Reserve (which is not Federal, but private) allowed the big investment banks, Goldman Sachs, J.P. Morgan, to overnight become both commercial banks and investment banks thus putting federally insured deposits at risk.
    Congress must stop this and separate commercial banking from investment banking. The Dodd Frank Financial Reform Bill does no such thing.
    Here’s are reasons commercial banking and investment banking must be separated. First, when they are combined, as they are now for the first time in our history, they can use depositors money to speculate (gamble) with instead of making productive loans. This means the taxpayers have to bail them out because the deposits are insured by the FDIC. Second, even when investment banks are separated from commercial banking they can still put our economy at risk because investment banks are allowed to leverage dollars up to 30 to 1 and more. If they win their bets, they divert money from the real economy into their own pockets; if they lose, they let the taxpayers bail them out because they are “too-big-to-fail.” This must be stopped.
    There are two kinds of businesses which will remain even after The American Monetary Act is made the law of the land: One, investment banking where rich people get even richer by leveraged speculation and, if they win, taking the money from the productive economy and keeping it for themselves. If they lose, the FDIC (the taxpayers) pick up the tab. Two, the productive real economy, which is where goods and services are produced and is also where jobs are produced. This is the economy that depositors’ money should be used to support. And, under the American Monetary Act commercial banks will support that economy, but the investment banks will continue to speculate (gamble) which is not productive.
    In conclusion, I believe it is necessary to break up the “too-big-to-fail” investment banks, primarily by limiting their size by limiting their leverage to, at most, 10 to 1. We have to make these speculators take their own losses when they make bad bets and not have the taxpayers bail them out. The Dodd Frank bill does not do that. The almost 2,000 page Dodd Frank Financial Reform Bill does not address the real problems. Instead of 2,000 pages, a bill to stop these problems can be written in one sentence. Here it is.
    Restore the Glass-Steagall Banking Act of 1933; Repeal the Gramm-Leach-Bliley Financial Modernization Act of 1999 and Repeal the Gramm Commodity Futures Modernization Act of 2000.
    Unfortunately, if that is not done, the now bigger than ever investment banks will continue to be able to divert trillions of dollars away from the real economy even though they will not be able to create money under The American Monetary Act.
    If you disagree with my conclusions, please respond.

  5. Tommy Gregory says:

    Dick,

    Would your proposed solution to ending ‘The Great Recession’ succeed WITHOUT reinstating the Glass-Steagall Act of 1933? In other words does the proposed American Monetary and Financial Security Act contain within itself all the necessary reforms to fundamental insure the financial security of the United States?

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