AMERICAN MONETARY INSTITUTE
P.O. Box 601, Valatie, NY 12184
Telephone 518-392-5387, e-mail ami@taconic.net
Website http://www.monetary.org
Dedicated to the independent study of monetary history, theory, and reform
“Over time, whoever controls the money system controls the society.”
Stephen Zarlenga, Director
The American Monetary Act (abbreviated AMA) – FAQs
The Twelve Most Frequently Asked Questions
For more background, see The Lost Science of Money (LSM)
by Stephen Zarlenga, available at our website.
1) Won't the government creating new money for infrastructure and other expenses cause inflation?
No. While this is an important concern, it need not cause inflation, depending on where the new money goes, for example:
When new money is used to create real wealth, such as goods and services and the $2.2 trillion worth of public infrastructure building and repair the engineers tell us is needed over the next 5 years, there need not be inflation because real things of real value are being created at the same time as the money, and the existence of those real values for living helps keep prices down.
If it goes into warfare or bubbles (real estate/Wall Street/etc) it would create inflationary bubbles with no real production of goods and services. That is the history of private control over money creation. It must end now. Government tends to direct resources more into areas of concern for the whole nation, such as infrastructure, health care, education, etc. The AMA Title 5 specifies infrastructure items including human infrastructure of health care and education to focus on.
Also the American Monetary Act eliminates ‘fractional reserve banking’ which has been one of the main causes of inflation. And remember new money must be introduced into circulation as the population and economy grow or is improved or we’d have deflation.
2) How can we trust government with the power to create money? – Won’t they go wild (and again cause inflation)? Don’t you know that government can’t do anything right?
Two Points:
The U.S. Constitution binds government to represent the interests of the American people – “to promote the General Welfare” and empowers our Federal Government to create, issue and regulate our money (Article I, Section 8, Clause 5). We must hold our officeholders responsible to the laws. Do you want us to deny the Constitution? In favour of who?
ENRON? Bear Stearns? J.P. Morgan? Goldman Sachs? Lehman Brothers? Please get real! Our choice is to let those pirates continue to control our money system or to intelligently constitute the MONEY POWER within our government.
Under the American Monetary Act, the Congress, the President and the Board of the Monetary Authority will all be responsible if any inflation or deflation takes place, and the people will know that they are responsible. They are specifically directed to avoid policies that are either inflationary or deflationary.
Do you really trust the “ENRONS” to dominate our money? Look how they have abused that power!
Finally despite the current prejudice and massive propaganda waged against government, you’d probably be surprised to learn that government control of money has a far superior historical record to private control over money systems. See the AMA brochure, and the LSM, Chapter 16. History shows that government has a far superior record in controlling the money system than private money creators have. And Yes that includes the Continental Currency, The Greenbacks, and even the German hyperinflation; which by the way took place under a completely privatized German central bank!
3) Why should we give the government even more power?
Because our money system belongs to society as a whole. It is too important to trust to unrepresentative and unaccountable private hands, preoccupied with private gain, with little regard for the detrimental consequences of their actions on the country.
4) How can we prevent government from abusing its power once it can create money directly?
The same way we prevent it from abusing any power, by upholding the rule of law and by participating in democratic political processes.
5) Should we let private banks keep some part of the money creation privilege?
Absolutely not! History shows that the private interests, if given any power over money, eventually undermine the public interest, and take over the whole thing. We know this from historical case studies in at least 4 major historical situations – the US Greenbacks, The nationalization of the Bank of England, and the Canadian and New Zealand monetary experience. Anyone who proposes allowing the banks to keep any part of the power to create money are either ignorant of monetary history or are shilling for the banks.
Under the American Monetary Act we do have the best of both worlds. We keep the benefits of having the professionalism and expertise of a competitive banking system in the private sector, but we take away the dangers of having them dominate our monetary and public policies with their narrow short term profit focus, by removing their privilege to create money. Ultimately this is a question of morality. No such special privileges can be allowed particular groups; especially the monetary privilege which confers so much power.
6) Well then, should we nationalize all the banking business?
What kind of “kool Aid” are you drinking and who gave it to you? The banking business is obviously not a proper function of government; but providing, controlling and overseeing the monetary system is definitely a function of government. No private party can do that properly. Markets have utterly failed to do that. They have concentrated wealth, have harmed the average American and now broken down entirely, except for assistance from our government. Who would keep money in banks today, except for the FDIC guarantees?
But banks should remain privately owned. They perform very necessary functions, and can do it professionally and conveniently. Who within government would run the banking business? Bankers however, have nothing in their training, experience or their souls that qualifies them as masters of the universe!
Banks should loan money, but not create it. The money system belongs to the Nation and our Federal Government must be the only entity with the power to create, issue and regulate our money as the U.S. Constitution already mandates. We nationalize the monetary system, but don’t nationalize the individual banks. That would be a dangerous step towards fascism. Private enterprise is a powerful mechanism that can produce excellent results. The AMA does not throw out the baby with the bathwater! But it most certainly gets rid of the bathwater, which is private money creation.
We regard this proposal (nationalize all banking) as an attempt to actually block proper monetary reform, because you’d have to change the essence of America in order to do this, and its not going to happen. So it distracts from real reform. The AMA reform that we advocate actually puts into place the system that most people think we have now! People think our money is provided by government. They erroneously believe that the Federal Reserve is already a part of our government! They think the banks are lending money which has been deposited with them, not that they are creating that money when they make loans. Under the AMA all those things people already believe about money and banking, actually become true! It’s a natural fit with already existing attitudes.
7) Doesn’t your AMA proposal merely continue with a fiat money system?
Shouldn’t we be using gold and silver instead?
Our system is absolutely a fiat money system. But that’s a good thing, not a bad one. In reaction to the many problems caused by our privatized fiat money system over the decades, many Americans have turned to blaming fiat money for our troubles, and support using valuable commodities for money.
But Folks! The problem is not fiat money, because all advanced money is a fiat of the Law! The problem is privately issued fiat money. Then that is like a private tax on all of us imposed by those with the privilege to privately issue fiat money. Private fiat money must now stop forever!
Aristotle gave us the science of money in the 4th century BC which he summarized as: “Money exists not by nature but by law!” So Aristotle accurately defines money as a legal fiat.
As for gold, most systems pretending to be gold systems have been frauds which never had the gold to back up their promises. And finally remember if you are still in a stage of trading things (such as gold) for other things, you are still operating in some form of barter system, not a real money system, and therefore not having the potential advantages as are available through the American Monetary Act!
And finally as regards gold and silver: Please do not confuse a good investment with a good money system. From time to time gold and silver are good investments. However you want very different results from an investment than you want from a money. Obviously you want an investment to go up and keep going up. But you want money to remain fairly stable. Rising money would mean that you’d end up paying your debts in much more valuable money. For example the mortgage on your house would keep rising if the value of money kept rising.
8) How can a bank lend money if they have to keep 100% reserves?
Banks will be encouraged to continue their loan activities by re- lending money that has been deposited with them, or lending their capital that has been invested with them. In effect they will no longer be allowed to re-lend any credit that has been deposited with them. New bank accounting rules designed by the Monetary Authority will determine how this is accomplished. Perhaps by computer tagging credit so that when it gets deposited into a bank account it is recognized as a deposit of credit, not a deposit of money. Only deposits of money will be loan able. The process could be similar to the way Swiss and other banks computer tag accounts as in $, Francs, Euros or Yen, etc. Other accounting rules for accomplishing the same objective can also be devised.
Various types of accounts will have differing requirements: e.g. matching time deposits to loan durations. Money market type accounts can be very flexible. The principle applied will be to encourage good lending, but prohibit money creation. Checking accounts will become a warehousing service, for which fees are charged. Good accountancy can achieve these results.
9) If banks are no longer allowed to create money, where will banks get enough money to make loans under the American Monetary Act?
We devote substantial space to this question because economists so used to confusing credit and money have to get used to the idea of money instead of credit. Usually they want to know how the AMA creates money within the present bank accounting framework. Well it does not! The AMA changes the accounting rules to deal with money not credit. By the way the words credit money and debt money refer to the same thing, money created by bank lending.
There will be several substantial sources of money for banks to lend:
a) Title III of the Act converts through an accounting procedure, the existing credit the banks have circulated through loans (about $6 to 7 trillion, roughly the existing “money” supply) into US money, no longer bank credit. That process will indebt the banks to the government for the amount converted over and above their capital. At present when bank loans are repaid to the banks by their customers, those credits/debts go out of circulation, out of existence and the credit money supply contracts as loans are repaid. But under the American Monetary Act, since it’s now money, those monies will not go out of existence the way the credits did. They are repaid to the government in satisfaction of the debt incurred in converting them from credit to money. That goes into a pool which can be used by Congress for the items in Title V of the act (as described on pages 8 and 9), or it can be re-lent to the banks at an adjusted interest rate. Note: this action de-leverages the banks, but does not reduce the money supply.
b) Probably the most important source of funds for bank lending on an ongoing basis will be the continuing government expenditures, over and above tax receipts, such as social security and other payments by government on the items in Title V. Also the engineers tell us that $2.2 trillion is now necessary to make our infrastructure safe over the next 5 years. That’s 400 billion new money per year. Also there is the health care and education provisions in Title V. This can be introduced as new money. And the Title V grants to states? ALL these will eventually be deposited into bank accounts where provisions of the ACT will allow this money to be lent out. The banks will be lending this money that has been deposited with them; not lending credit they create, masquerading as money. They will have to compete to attract such deposits from citizens and companies.
c) Title II of the Act specifies the repayment of US instruments of indebtedness (bonds/notes/etc) instead of being rolled over as at present, new US monies will be paid to the bondholders as they become due. Those people/institutions will be looking for places to invest that money. One place would be in bank stock, which is a source of lending funds for banks. Of the $5 to 7 trillion privately held, about 2 trillion is due within one year, 1.5 trillion is due from 1 to 5 years; .72 trillion is due in 5 to 10 years; .35 trillion is due in 10 to 20 years, and .16 trillion is due in 20 years or more. All these amounts will represent newly created US money and will eventually find their way to becoming new lend-able bank deposits and even investments in banks.
d) Finally the AMA does not allow the banks to decide their own leverage situations. The Act essentially eliminates most leverage from the banking system. That will be good. They will no longer be able to pretend they were “banking” when they made bad loans overextending their positions and creating bubbles, in order to grab huge bonuses on imaginary profits.
10) How will the U.S. Treasury create the money?"
The same way the Federal Reserve does now, as simple account entries, but as income, without the accompanying debt obligations. It’s described in the Act, SEC. 103 NEGATIVE FUND BALANCES: The Secretary of the Treasury shall directly issue United States Money to account for any differences between Government appropriations authorized by Congress under law and available Government receipts.
11) Is there any chance the AMA could eliminate the federal income tax?
That’s not likely in the near future, but it is the direction the AMA goes in. Thanks to the immense savings our government will experience through control over its money system. For middle and lower income groups, taxation should decline substantially.
In addition the ACT should directly lead to substantial reductions in interest rates, because as the US pays off its national debt in money rather than rolling it over, those receiving those payments will be looking for places to loan and invest those funds. Interest rates should drop substantially.
12) Why does the American Monetary Act have an 8% maximum interest rate, including all fees?
Because before 1980/1981, 49 States had “anti-usury” laws which limited normal interest rates to a maximum of between 6% and 10% p.a. The American Monetary Act takes the middle of this range to represent a restoration of the interest rate limits prevailing across the country prior to 1980/1981. See page 9.
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