Monetary Reform Task Force

Click here to edit subtitle


Policy Winners Newsletter considers US Note revival

Posted by dr.ron45 on May 7, 2014 at 4:35 AM Comments comments (1)

The May 2014 Policy Winners Newsletter published by Keith Rodgers is devoted to a consideration of the possibility of BRINGING BACK THE GREENBACKS, or more broadly of restarting debt-free government created money as was successfully done during the Civil War period.  Six researchers and writers, including myself, commented on this issue.  I have copied my comment below, and if you want a copy of the whole newsletter, just contact me using the Contact Form on the last page of this site and I'll send you a copy.

Ronald Davis, Assoc. Professor at San Jose State University, teaches topics in management science and decision analysis which he has applied to the subject of monetary reform. A white paper and a detailed legislative proposal are found on his web site, His comment follows:

On rational grounds the choice between debt-based borrowed money creation by the Fed and debt-free output based congressionally authorized money creation by the Treasury is clear: why pay for what you can get free? Creating debt-free money, whether in the form of US Note paper money or its electronic equivalent which we call US Money, is obviously superior to creating interest-bearing debt, so long as the Constitutional provision to regulate the value of money is observed. Elementary math based on Irving Fisher’s fundamental money exchange equation shows that regulating the value of money (i.e. keeping the CPI nearly constant) requires that money supply growth rate be tied to real output growth rate, as shown by the White Paper at our site. The formula relating the two (in times of constant money velocity) shows that money supply growth rate should approximately equal real output growth rate in order to keep CPI growth rate close to zero. This leads to the realization that the true and correct backing for fiat money creation by the government should be seen as the real output of the economy, that is, the very goods and services which change hands through transactions using the money supply. Therefore, the inflation prevention requirement can be accomplished by applying modern stochastic optimal control technology to appropriate macroeconomic models rather than via the interest charge disincentive to create money through debt creation. A money supply feedback control law based on the relevant macroeconomic variables will suffice to prevent inflation in the modern context (no such theory existed in 1913 when the Fed was created). In fact, the little islands of Guernsey and Jersey in the English Channel have been issuing debt free government issued money for nearly 200 years now in a responsible way, with excellent results. If they can do it without math models, then we can surely do it with NASA’s space age technologies.

Therefore we wholeheartedly agree with the drive to “bring back the Greenbacks” and believe that this can be done by coordination of money creation and debt creation. That is, if increases in debt-free money creation by the Treasury are accompanied with decreases in bond issues by the Treasury then net inflation pressures can be kept in check. A bill to reintroduce the US Note issues that provides for compensatory decreases in bond issues would therefore be non-inflationary, and therefore an excellent first step forward towards more substantial initiation of US Money issues in electronic form. The rate of issue needs to be discussed of course, but the $50 billion per month rate suggested by the editor of this newsletter seems very reasonable as a first step. It will eliminate a good fraction of the budget deficit for the current year, and if continued for at least one additional year it will also enable the setting aside of the budget sequestration cuts that have done so much damage to the economy and our military preparedness. Our proposal includes issue of sufficient new US Notes and electronic US Money to refund all allocations cut since sequestration began.

This first step should be followed up with subsequent steps that include government money creation in electronic form, i.e. US Money as well as US Notes. Our EMERGENCY US MONEY STIMULUS ACT of 2014 provides for the replacement of the $85 billion per month quantitative easing by the FED with a balanced increase in US Money issues. The quantitative easing stimulus goes to the financial sector, in contrast, the US Money issues can be targeted at all of the budget items that have been cut by sequestration, as well as infrastructure projects, education, health, and safety net expenditures. This will have a very positive effect on bringing unemployment down and pushing GDP growth up in a way that quantitative easing has failed to accomplish.

Additional elements of our longer range plan include the creation of an independent Monetary Control Authority that would coordinate the various forms of money creation in such a way as to maintain CPI at nearly constant levels, something that historically the Fed has not been able to do. Eventually, US Money could comprise a very significant portion of the money supply, and its debt-free issuance would have saved the American people a great deal in their tax burden, since there is no interest charge for a debt-free issue.

Monetary Authority Membership List Posted

Posted by dr.ron45 on November 14, 2012 at 5:40 PM Comments comments (0)

The countdown to the Fiscal Cliff is on! Awakening the President and the Congress to the GREEN MONEY option is a huge task, one that I cannot accomplish on my own. Your help is needed, and it is so easy. Just send out the Greenback Renewal Act and the White Paper showing the rationale behind it to your Congressmen and Senators, the President, and the would be members of the Monetary Authority should the proposed act pass. This committee is comprised of the people in Washington DC who are most responsible for fiscal and monetary issues anyway, so it is a good place to start. The names of the individuals who would serve on the Monetary Authority are listed on the new page of that name for your convenience.


One of the most prevalent objections raised to GREEN MONEY issues is that then we will have a Santa Claus Congress and much too much money will be issued and the money will devalue and become worthless in no time at all. A quick perusal of the potential membership list will show why this is not really a concern under the proposed setup. Firstly, the Congressional members include some of the most fiscally conservative members of Congress who would be absolutely opposed to excessive issues of GREEN MONEY to greatly expand government expenditures, Paul Ryan being the very first on the list. Even if most Congressional members wanted to fund pork barrel projects for their constituents back home, the Executive Branch and Federal Reserve members would be quite to object based on the need to preserve the value of the dollar for everyone. And finally, the committee includes members who regularly work with mathematical models of the economy which can be augmented with the Inflation Tolerance Inequality derived in my White Paper. These members, including the Director for Macroeconomic Forecasting from the Council of Economic Advisor and the Director of the Division of Research and Statistics from the Federal Reserve System, are required under the Act to perform computer simulations of any policy which might be adopted by the Monetary Authority as a whole. Hence an inflationary expansion beyond the Inflationary Tolerance adopted by the Authority simply could not be adopted as policy. Historically, the tiny island of Guernsey has been able to keep inflation under control, as Canada did also when it issued it's own money for about 40 years before they joined the BIS network. If these other countries can keep inflation under control without the use of mathematical models, then certainly the US can with its highly developed modeling capabilities.


In short, the structure of the Monetary Authority makes excessive inflationary monetary expansions extremely unlikely. Also, because of the quarterly policy update cycle, any errors on the side of excessive inflation can be rapidly corrected. For all of these reasons, inflation is just not something to worry about under the Greenback Renewal Act.

Sequestration Cuts Cancelled

Posted by dr.ron45 on October 24, 2012 at 2:25 PM Comments comments (0)

When I first wrote the Greenback Renewal Act, my focus was on the threat of a national debt default coming in February next year when the authorization for borrowing runs out. Now it is clear that the threat of sequestration budget cuts is much more worrisome to those who might be affected as early as January. Hence I have just now posted a revision of the Act which puts elimination of the sequestration budget cuts up front and center in the focus of the bill, thereby enhancing its relevance to the perceived economic problems of the day. So even if you downloaded it before, download the Greenback Renewal Act again to see these enhancements. Cancelation of sequestration budget cuts is now explicit in Title II of the revisted draft.


Another change made, in order to make it easier to pass the bill through Congress rapidly, is to exempt the Federal Open Market Committee (FOMC) and the Federal Advisory Council from the annual Fed audits, since the Fed will almost certainly move to kill the bill if they are included. Congressmen have been trying to audit those parts of the Fed almost since the Fed was created 99 years ago, and each time the legislation has been derailed somewhere along the line. We don't know exactly how they do it, but perhaps by bribes, perhaps by blackmail, and perhaps even by babes, the Fed has always been successful in stopping the audit legislation. Since the urgency of passage of the Greenback Renewal Act is so high, I feel it best to let the Fed have its secrecy with respect to the detailed policy makibng processes, at leat for the time being. Also, if things are found to be amiss in the partial audits that are conducted on the rest of the Fed, including the Federal Reserve Board and Federal Reserve Banks, the Act can be amended to include the policy making groups at that time when there is a clear justification for doing so. Of course Ron Paul's HR 459 has passed in the House, and if that is approved by the Senate (S 202) then we will have the complete audits. But it is important that we have the greenbacks flowing even if Paul's audit bill fails. Hence the exemption of the FOMC and the Federal Advisory Council from the partial audit plan.


I also changed the budget defit fortecast from $1.3 Trillion to $1.2 Trillion to make the numbers come out rounder, and to reflect the fact that the most recent deficit number was slightly less than this. I also added a $ column in the table showing the ramping up of greenback issue so that the percentage numbers could be more easily interpreted in absolute $ values.


Posted by dr.ron45 on October 9, 2012 at 1:40 PM Comments comments (0)

It is important to point out that the dynamic systems modeling and analysis effort in relation to the Greenback Renewal Act has not yet been done (however we are seeking funding for carrying out this work at present), What Professor Yamaguchi has done so far is to model the existing purely debt-based money system (i.e. the Federal Reserve System)) and the purely debt-free money system based on the Chicago Plan as developed by the American Monetary Institute and introduced in Congress by Dennis Kucinich as the NEED Act in 2011. The bottom line of his research, which is confirmed by IMF researchers in their recently released research report "The Chicago Plan Revisited" (August 2012), is that the national debt can be paid off with higher employment and output, with greater stability, while keeping inflation under control. It is clear that this would be a much better economy than what we have now from a public interest perspective (bankers may object because of a fear of losing unearned profits, but we are viewing this from the public welfare perspective, not from the private profit perspective).

The focus here is to start the work of finding a feasible transition path from where we are towards where we would be under the NEED Act. . In my view this cannot be done all at once in one step with one bill because nationalization of the Fed and elimination of fractional reserve banking provided for in the NEED Act will not be found acceptable by Congress as first steps in monetary reform. The risks of making such large changes, especially in the midst of a financial crisis, will be deemed to be too great. Instead, a multi-stage transition plan must be developed that allows for learning and adjustments all along the way. It must start small and grow big gradually in order to avoid taking on excessive risk along the way. It would be the "conservative" approach to monetary reform, not the "radical" approach embodied in the NEED Act,.

During the transition period, government issued money and bank created money will coexist in a hybrid money system as they did from 1862 to 1976 when the Cash Door at the Treasury Dept was closed. Hence I feel that the first step in reform must be the renewal of Greenback issues of the Lincoln era modernized and extended with their electronic counterparts. This was the best money issued in American History, being debt free and without interest obligation. It worked before to win the Civil War, and I believe it can work again to prevent the Great Crash of 2013 that is brewing at the moment.

The purpose of the White Paper presented at this site is to show that in fact the double barreled threat to the US economy posed by the sequestration cuts and the national debt ceiling can be overcome with government issued money (I believe this has been shown even without the more detailed analysis that Professor Yamaguchi can provide). Elementary math models are presented that show that by increasing reserve requirements, inflation can be kept under control as budget deficits and even the national debt itself are brought down in such a way as to avert the crash that is looming now. The greenback (or green money as they may be called when the electronic form is included) injection schedules presented satisfy the deficit reduction requirements of the Budget Control Act of 2011 so the sequestration cuts can be avoided, and they are also great enough to stop the growth in national debt before the current debt ceiling is reached so that the threat of a national default can be avoided. These two threats pose major secutity risks to the US, and elimination of both of them must be seen as a task with very high priority.