|Posted by dr.ron45 on May 7, 2014 at 4:35 AM|
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, http://www.monetaryreform-taskforce.net/. 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.
Categories: Greenback Renewal Act