The Third Conception: Growing the Debt

From an Extreme Radical Independent Centrist

– By: Larry Walker II –

In his 1943 study entitled, The New Philosophy of Public Debt, U.S. economist, founder and 1st president of Brookings Institution (1927-1952), Harold G. Moulton expounded on the two conflicting debt philosophies of that era. First was the traditional view, that “a continuously unbalanced budget and rapidly rising public debt imperil the financial stability of the nation.” And, second, the new conception of the day, that “a huge public debt is a national asset rather than a liability and continuous deficit spending is essential to economic prosperity of the nation.”

At the conclusion of Moulton’s study, it was determined that under the latter theory, continuous deficit spending would lead to constant money printing, and thus runaway inflation, culminating in a depression. And, the only way such inflation could be curbed would be through the use of totalitarian methods of control.

“We should have to control wage rates and farm incomes; we should have to regulate corporate earnings; we should have to control investment; we should have to ration commodities; we should have to control rents; we should have to license foreign trade; we should have to supervise, and possibly close the security and commodity markets. Given regimentation of virtually every phase of economic life, the process of inflation might be held in leash.”

However, even advocates of continuous deficit spending rejected such totalitarian control policies, as did the entire nation. Thus following World War II the new philosophy was cast aside, and the United States’ Debt-to-GDP ratio, which had increased from a modest 45.4% in 1941, to a peak of 122.0% in 1946 at the close of the Second World War, was eventually reduced to just 31.8% by 1981 (see chart above).

Jumping forward to today, we find the nation’s debt-to-GDP ratio once again above 100%, currently resting at around 106.5%, as we are lectured by Potus 44 on a completely new conception of public debt. At an Oct. 8, 2013 press conference, Potus 44 broke away from the two prevailing philosophies, debated in Washington D.C. for more than 70 years.

He proffered that there really is no such thing as a debt ceiling, and that even if there were, raising it would not increase the national debt. He declared, “Raising the debt ceiling is a lousy name, which is why members of Congress in both parties don’t like to vote on it, because it makes you vulnerable in political campaigns.” He continued, “Raising the debt ceiling does not increase our debt. It does not grow our deficits. It does not allow for a single dime of increased spending. All it does is allow the Treasury Department to pay for what Congress has already spent.”

Under what we shall term the Third Conception, what federal law calls the debt ceiling is likely just a misnomer, for raising this alleged ceiling won’t increase the nation’s debt, nor increase budget deficits, nor allow for even a single dime of increased spending. In other words, according to Potus 44, scholars of bygone days, including those who once favored unlimited government borrowing and spending, were misguided. Come to find out, there really is no national debt, and even if you choose to call it such, it carries no negative consequences, no matter how high it should climb.

So what are we to make of this? Could it be that the totalitarian control policies required to keep inflation in check are already secretly in place? Or have we drifted so far from reality that we no longer believe what we see with our own eyes? In Budgeting 201: An Immediate Debt Crisis, we saw how the tiny nation of Cyprus buckled as recession hit its economy while its debt-to-GDP ratio stood at around 93%, and we know that this led to the confiscation of funds from private citizen’s bank accounts. Yet our leaders turned a blind eye, as our own debt-to-GDP ratio edged above 100%.

Now, what we hear from Potus 44 is that “all of us need to stop focusing on the lobbyists and the bloggers and the talking heads on radio and the professional activists who profit from conflict and focus on what the majority of Americans sent us here to do. Yes, and what perchance is that, to grow the size of government, and along with it the National Debt?

To rephrase this, what Potus is saying is that since the final popular vote totals were 65,899,660 for Obama-Biden (51.1%) and 60,932,152 (47.2%) for Romney-Ryan, nearly half of us, or 47.2%, need to stop focusing on what we believe in, and in many cases would give our very lives for, and instead focus on whatever he, the person whom the other 51.1% of America voted for, says, no matter how preposterous, and no matter how much damage it may inflict on the nation as a whole. But who’s to say the other 51.1% actually co-signed on the concept of unlimited increases to the national debt? After all, when campaigning, didn’t Potus 44 himself promise to place the debt in check?

If it be not a debt ceiling, then what shall we call it – a debt sky, or maybe a debt horizon? Perhaps we should begin referring to it as simply “not the debt ceiling”. The truth is, no matter what we choose to call it, as soon as Congress voted to temporarily suspend the thing, the national debt catapulted above the $17 trillion milestone.

Thus, the Third Conception fails the reality test. Sorry, but we don’t compromise on principles merely to satisfy the insane whims of any and every brain-dead person around us. Try that in your own life, if you wish. In fact, Potus 44, himself, once voted against raising the debt ceiling while serving in the U.S. Senate.

As a side-note, Hell will freeze over before I ever purchase a commercial health insurance policy through the federal government. Are you kidding me? You thought people would flock to a federal government owned and operated website to purchase commercial health insurance policies from private insurance companies? Uh, what’s wrong with this picture? Do we really need the middleman? Good luck with that scam.

You see, there’s truth, and then there’s politics. One is real, the other make-believe. Does anyone out there know the difference between danger and fear? Danger is real; fear is imagined. So here’s how one can know the difference. Over the last 26 years, the United States has spent a total of $8.9 trillion on interest payments to service its national debt; $2.0 trillion of that since 2009 alone (see chart above).

Yet, according to the U.S. Treasury, the gross national debt was only $10.0 trillion at the close of fiscal year 2008, and it stands at $17.1 trillion today (see chart below). Herein is our dilemma: Unless interest rates hover near zero-percent forever and ever, this adjustable-rate, interest-only, debt bomb will one day explode, and the annual interest payments thereon will eventually consume every dime of tax revenue. Is this real, or imagined? I guess it doesn’t matter to some, as long as it’s not their money.

If the next generation doesn’t care about the size of the national debt, today, then it will reap the rewards of negligence. Those who care now won’t be around forever to warn of the perils of unlimited government debt, so if that’s how you want it, have it your way. But, don’t say you were never warned about the 70% to 90% income tax rates you’ll eventually enjoy, and don’t forget to send my generation every dime we’re due in Social Security and Medicare entitlements while you figure it all out. Have a great future! I’ll leave you with the following words of wisdom.

“If you will not fight for right when you can easily win without blood shed; if you will not fight when your victory is sure and not too costly; you may come to the moment when you will have to fight with all the odds against you and only a precarious chance of survival. There may even be a worse case. You may have to fight when there is no hope of victory, because it is better to perish than to live as slaves.” ~ Sir Winston Churchill

Related: #Debt

What Does Sequestration Mean To You?

Government is the Problem

– By: Larry Walker II –

“Originally passed as part of the Budget Control Act of 2011 on the heels of the debt ceiling compromise, the sequester was intended to pressure the Joint Select Committee on Deficit Reduction (the “Supercommittee”) to agree on a budget of $1.5 trillion by way of spending cuts and revenue increases over the next decade.”

The above excerpt is from the National Council on Disability’s webpage entitled, What Will Sequestration Mean for People with Disabilities? A similar blurb may now be found on about every other government agency website, followed by a breakdown of how many disabled, homeless, widows and orphans will be left for dead, unless the federal government repeals its week-old budgetary cuts and instead raises taxes by around 40.7% across-the-board, which is about what it would take to come anywhere close to balancing the federal budget without such cuts.

But, the real question is what does the sequestration mean to you? I can’t answer that, but I can tell you what it means to me. What the sequestration means to me is that the U.S. government has decayed to the point of passing dummy laws, solely for the purpose of pressuring the very lawmakers who pass them, to enact real laws. In other words, government enacted the Sequester as law; solely as a means of pressuring itself into repealing it, and when its attempt failed, the mock law remained permanent.

I mean it’s akin to me signing a blood covenant stating that, “In my household, we will do without cable television, cell phone data plans, dining out, movies, snacks, and all other non-necessities, until such time as we actually have the money to pay for it,” but doing so, solely for the purpose of pressuring myself into deciding which we are going to do without – cable television, cell phone data plans, dining out, movies, snacks, or all other non-necessities. However, since there already wasn’t enough money to go around, and since I had already signed the covenant in my own blood, there was really nothing else to decide. So why didn’t I just make that decision from the get go? Actually, I did. “To thine own self be true.” ~ Anonymous

The lesson for government: Don’t pass a law you don’t intend to enforce. And for the public: Government is not the solution to our problems, government is the problem. Signing a bill into law, solely for the purpose of pressuring lawmakers to repeal it, and then whining about it when they refuse, is indicative of the kind of leadership emanating from the White House these days. “In America you have a right to be stupid – if you want to be.” ~ John Kerry, Secretary of State (2/26/2013). Yeah, so who’s looking stupid now?

Passing the Buck and Taking Names | Obama’s GSA

* By: Larry Walker, Jr. *

“Ultimately the buck stops with me… I’m going to be accountable.” ~ Barack Obama *

What a load of bull! Harry Reid’s U.S. Senate hasn’t passed a budget resolution since April 29, 2009. Barack Obama hasn’t presented a budget, at least not one acceptable to either Democrats or Republicans, since the day he set foot in office. Yet he thinks he should keep his job. But that’s not how it works in America. Obama was given a fair shot; he had his fair share of opportunities, but he chose to pass the buck, running his mouth instead of governing, and now it’s time to give someone else a shot.

U.S. Gross Domestic Product has grown by a mere 7.59% from 2007 to 2011, or at an average annual growth rate of a pathetic 1.90%. But Federal Agency spending has increased by 32.04% over the same period, or at an average annual growth rate of 8.01%. Does the fact that Agency spending outpaced the economy by 322% sound any alarms? Well if we had a chief executive who was paying attention it would. This is an outrageous, hair-raising, mind-boggling, egregious, statistical fact, yet all U.S. taxpayers have heard for the last three plus years are threat after threat of higher taxes.

The Bush tax cuts are out, no they’re in. The payroll tax cut is gone, no it’s back. The AMT Patch is dead, no it’s still breathing.’

And now we have to contend with yet another threat, Taxmageddon. Taxmageddon is a $494 billion tax increase that strikes at the beginning of 2013. This time it’s the largest tax increase in U.S. history, scheduled to hit us smack in the face on January 1, 2013. Under current law, tax policies in seven different categories will expire, including the Bush Tax Cuts, payroll tax cut, the AMT Patch, plus five of the 18 new tax hikes from Obamacare will begin, see Taxmageddon: Massive Tax Increase Coming in 2013.

Unusual uncertainty remains unusually uncertain.

With Taxmageddon looming, the GSA scandal is well-timed. It has undeniably exposed the truth. And the truth is that the federal government has been living large through its discretionary spending, throwing our future to the wind, while we’ve been left sitting on pins and needles. Since the economy is practically at zero growth, where do these morons think the money to pay higher taxes will come from? I find it amazing, simply amazing, that no one has been in charge of the national purse for the last three-plus years. Absolutely no one has kept tabs on how our tax dollars were spent. We deserve better.

With an estimated $6.3 Trillion borrowed and squandered on Obama’s watch, and red flags abounding, it makes me sick to my stomach that politicians are suddenly concerned. You would have to be blind or not paying any attention to federal spending whatsoever to not notice the humongous 6,896.30% increase in the GSA’s expenditures from 2007 to 2011. Why blame the GSA? Blame yourselves, or blame Obama. The buck stops with Obama, right? So fire him. Put Obama on trial.

Maybe if someone wasn’t on the golf course, on vacation, or campaigning every other week (at our expense), and instead actually took time to study the budget “line by line”, and to work with Congress on cutting and capping spending, the GSA incident wouldn’t have occurred. I call it not doing the job you were elected to do. But hindsight is 20/20; foresight is not reelecting someone who has proven he can’t handle the job.

Does the following condensed OMB table, Outlays by Agency, which compares government spending growth from 2007 to 2011, raise any flags? If you ask me, the entire record is a red flag. The General Services Administration is an obvious bell ringer, its expenditures having grown from $27 million in 2007, to over $1.8 billion in 2011, or by 6,896.30%. But it’s not the only agency that should concern us, frankly they all should.

As you scan through the following highlights, keep in mind that the entire U.S. economy grew by a mere 7.59% over the four-year period, or at average annual growth of 1.90%.

  • The Department of Agriculture’s four-year spending growth was 65.11%, with average annual growth of 16.28%. You would think they were actually growing crops or raising livestock, but we know that’s not the case, so why have annual expenditures increased by $54.9 billion? Cut it.

  • The Department of Commerce’s four-year spending growth was 53.36%, with average annual growth of 13.34%. You would think they were actually manufacturing products or providing services, but we know that’s not the case, so why have annual expenditures increased by $3.5 billion? Cut it.

  • The Department of Energy’s four-year spending growth was 55.95%, with average annual growth of 13.99%. You would think they were actually producing electricity, mining coal or drilling for oil, but we know that’s not the case, so why have annual expenditures increased by $11.3 billion? Cut it.

  • The Department of Labor’s four-year spending growth was 177.58%, with average annual growth of 44.40%. You would think they were actually performing job placement services, but we know that’s not the case, so why have annual expenditures increased by $84.4 billion? Cut it.

  • The Department of State’s four-year spending growth was 77.29%, with average annual growth of 19.32%. You would think they were annexing nations and granting Statehood, in order to increase GDP, but we know that’s not the case, so why have annual expenditures increased by $10.6 billion? Cut it.

  • The Department of Veterans Affairs’ four-year spending growth was 74.36%, with average annual growth of 18.59%. Is this sustainable on average annual GDP growth of just 1.90%? Not hardly. So why have annual expenditures increased by $54.1 billion? Cut it.

  • The Corps of Engineers–Civil Works’ four-year spending growth was 158.75%, with average annual growth of 39.69%. You would think they were actually building roads and bridges, but we know that’s not the case, so why have annual expenditures increased by $6.2 billion? Cut it.

  • The Small Business Administration’s four year spending growth was 424.51%, with average annual growth of 106.13%. You would think they were actually making loans directly to small businesses, but we know that’s not the case, so why have annual expenditures increased by $4.9 billion? Cut it.

  • The Social Security Administration’s (On-Budget) four-year spending growth was 182.82%, with average annual growth of 45.70%. On-budget spending isn’t mandated, it’s not the entitlements portion in which Social Security Taxes offset payments to retirees and those with disabilities. No, this is interest and principal repayments of previously looted funds, and coverage of shortfalls due to the payroll tax cut and other gimmicks. You would think they were actually increasing benefit checks or lowering Medicare premiums, but we know that’s not the case, so why have annual expenditures increased by $100.4 billion? Cut it.

  • Total Federal Outlays experienced four-year spending growth of 32.04%, with average annual growth of 8.01%. With that kind of spending, you would think our economy would have grown by more than 7.59% over the four-year period, and achieved far more than average annual growth of 1.90%, but we know that didn’t happen, so why have annual expenditures increased by $874.4 billion? Has the economic stimulus program of 2009 become permanent? Cut it.

  • And last but far from least, the General Services Administration’s four-year spending growth was a whopping 6,896.30%, with average annual growth of 1,724.07%. You would think they were throwing some really wicked parties, or something. Oh, it turns out that was the case! No wonder annual expenditures increased by $1.9 billion. Just cut it.

Our government is spending at a rate which is 322% greater than the underlying economy. We call this “unsustainable”. What do you call it? The egregious growth of the GSA’s expenditures should have been caught long before it became a public scandal. Has anyone in the District of Columbia been paying attention for the past three years? You would think Obama would have caught this with his vast experience running companies, governing States, and all. Oh that’s right, he doesn’t have any experience.

I just gave you $340.2 billion of simple budget cuts, while Obama refuses to acknowledge the problem. If you still don’t get it, here’s the wrap.

The economy isn’t growing. The government is spending at a rate which is 322% greater than its underlying economy. Every additional dollar of tax revenue sucked out of our stagnant economy will cause the economy to decline further, while government continues to live the high life. Since there is no additional revenue to garner, government spending must be cut. The economy was on fire in 2007 on dramatically less government spending. Therefore, returning to the budget of 2007 damages nothing, other than Obama’s plan to bankrupt the nation. If Obama isn’t trying to bankrupt the USA, then what is he doing?

Fire Obama! Cut government spending. Cut the B.S. Cut it big. And cut it now!


Table 4.1—Outlays by Agency: 1962–2017

BEA—Gross Domestic Product and Personal Income


Endless Stimulus | Payroll Tax Cut

Common Sense vs. Nonsense: Bankrupting the Future –

By: Larry Walker, Jr. –

Facts: The 2% payroll tax cut not only boosted workers’ take-home pay by $120 billion in 2011, but it also widened the government’s budget deficit, and left the social security trust fund in the red.

Since Social Security and Medicare taxes are collected in order to realize future benefits, why would the federal government choose to refund a portion of those collections today? Are its entitlement programs in such good shape that the government can afford to distribute benefits prematurely? I don’t think so. For that would infer that future benefit payouts are on the decline. However, to the dismay of many, in fiscal year 2011 the net cost of social security benefits increased by 18.9%, over fiscal year 2008, while tax collections declined by 13.5%, widening the breach by 1,678%.

Since at least 1975, a growing portion of social welfare spending has been introduced by Congressional tax-writing committees and administered by the Internal Revenue Service. As I outlined in Tax Simplification, Part II, the Earned Income Credit, Child Tax Credit, and Making Work Pay Credit were primarily responsible for IRS administered giveaways of $171 billion in fiscal year 2010, or if you prefer $1.7 trillion over 10 years. In fiscal year 2011 the amount was upped to $231 billion per year, due to the payroll tax cut. And today, some members of Congress are urging others to increase these tax giveaways to $351 billion annually, which I think will end up costing closer to $471 billion (as explained below). But in all of this pandering, what is even more illogical than charging additional debt to Obama’s unlimited credit line, is the rebating of funds “supposedly” earmarked for future liabilities.

As Sherlock and I proved in Social Security: A Breach of Trust, the federal government has summarily confiscated and spent every dime of the $2.6 trillion surplus, which would have comprised the Social Security Trust Fund, and has replaced it with non-marketable, special-issue, Treasury securities. And since these special-issue securities are an asset to the Trust Fund and a liability to the U.S. Treasury, they therefore cancel each other out. In other words, since there is no surplus, every dime of Social Security and Medicare tax collected today is spent today, therefore any shortfall rests squarely on the shoulders of the general budget. And as you may know, the general budget is currently more than $15 trillion in arrears.

When the Making Work Pay Credit expired at the end of 2010, it was replaced with the 2% Payroll Tax Cut, as part of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The newest tax gimmick allowed a 2% cut in payroll taxes for employees, which reduced the Social Security Tax from 6.2% to 4.2%, without affecting Social Security benefits. But in the big picture, all it really accomplished was to elevate the amount of social welfare tax expenditures already in the tax code, from $171 billion in 2010, to $231 billion in 2011, or by another $60 billion (see table below).

According to an editorial in Bloomberg-Businessweek, the 2% payroll tax cut boosted workers’ take-home pay by $120 billion in 2011. The editors contend that, “… this should stay in force for another year, be extended to the employer portion of payroll taxes, and increased for both employers and employees to a 3% cut.” And further that, “… the payroll tax cut should be widened to temporarily relieve employers of the entire 6.2% levy for new hires and pay raises.” They conclude their unbalanced argument by stating that, “Republicans should be willing to go along. We are talking about tax cuts, after all, that would pump some $240 billion into a struggling economy.”

So in other words, Bloomberg-Businessweek thinks that annual social welfare tax expenditures of $171 billion in 2010, and $231.3 billion in 2011 were not enough. According to the editor’s, social welfare tax expenditures should be increased to $351.3 billion, and conservatives should be willing to go along, to get along. But stepping back from the easel, to gain some aesthetic distance, the inference appears to be that a 10-year tax expenditure of $1,710 billion wasn’t enough, that $2,313 billion is insufficient, and that $3,513 billion is somehow the magic number (assuming that expenditures for the child tax credit and earned income credit remain fixed). I don’t know any true Conservative, in my neck of the woods, which would go along with blowing a bigger hole in the federal budget than already exists, for any reason; especially not to extend another temporary economic stimulus, some 29 months after the recession officially ended.

Endless Stimulus

These days, it’s as if every time a temporary measure expires, its reversal is deemed to be a tax hike. But the expiration of this one-year, one-time, re-election ploy isn’t a tax hike at all; it’s merely the death of what was probably a bad idea in the first place. If we follow the logic that every temporary measure is permanent, then Obama’s entire 2009 stimulus spending binge must represent the new normal, and any reduction in government spending must be deemed a deviation from the norm, and thus a bad thing. But if not a descent towards Greece, where will this road end? Italy? France? Sheol?

I am not sure how the editor’s of Bloomberg-Businessweek arrived at their $120 billion and $240 billion figures, but let’s assume the former is correct. If so, then it would seem to me that since the cost of the 2% tax cut was estimated to have been $120 billion, that upping the employee payroll tax cut from 2% to 3%, and adding an employer tax cut of 3%, would come to more than double the current giveaway. Simple math leads me to a price tag closer to $360 billion [(120 / .02) * .06], than $240 billion. And that doesn’t include adding the 6.2% tax cut on new hires and pay raises, which would up the ante even more. Other than that little boo-boo, the major omission from Bloomberg-Businessweek’s one-sided endorsement of Barack Obama, because that’s what it is, is that any cut in the Social Security payroll tax translates directly into an increase in the budget deficit, and by extension, the national debt.

The following table was extracted from the Social Security Administration’s Consolidated Statements of Changes in Net Position for the Years Ended September 30, 2008 through 2011. If you wish, you may view the actual financial statements by following the links provided at the end of this post. After navigating this rather murky tome, the bottom line, exclusive of appropriations and interest payments derived from the general fund, may be summarized as follows:

The total amount of tax revenues collected dropped from $671.2 billion in fiscal year 2008, to $580.9 billion in fiscal year 2011, or by $90.3 billion. And the total cost of operations jumped to $782.7 billion in fiscal year 2011, from $658.4 billion in fiscal year 2008, or by $124.3 billion. In a nutshell, the fiscal year 2008 annual surplus of $12.8 billion has been transformed into a $201.8 billion annual deficit in just three fiscal years. In fact, expenditures have exceeded revenues by $370.9 billion over the past three fiscal years.

In other words, social security tax revenues have fallen by 13.5%, since 2008, while operating costs have risen by 18.9%. Another way of stating this is that the shortfall in Social Security tax collections, versus expenditures, has widened by 1,678%. This is significant because any shortfall, whether covered by interest on the debt or appropriations, must be siphoned directly from the general budget. In effect, these annual deficits have increased the national debt, while simultaneously compromising the future of our troubled entitlement programs.

Following the wisdom of Bloomberg-Businessweek, and implementing this fraction of Obama’s misnamed American Jobs Act, would add another $120 to $240 billion to what is already a $201.8 billion deficit on the Social Security Administration’s account. The idea of a payroll tax cut is not a bad one in and of itself, for a nation where the net cost of social benefits is on the decline, however under the circumstances, which some of us refer to as reality, it is probably the dumbest idea proffered by the Obama Administration to-date (although that’s pretty much a tossup).

Personally, I can do without the 2% payroll tax cut, since it has done nothing to increase my personal consumption, has accelerated the national debt, and has compromised the future of Social Security. No. I’m not on the band wagon with those harping for more social insurance rebates. Nor am I opposed to a surtax on those making more than $1 million per year, as long as it’s accompanied by a greater amount in spending cuts. What good is an equal increase in both spending and taxes? And what government-manufactured problem would a tax cut for some, and a tax hike on others solve? I say, ‘no good’, and ‘none’. As far as I’m concerned, anyone who votes for either keeping or increasing the payroll tax cut, under any circumstance, short of a 10-fold cut in spending, is an idiot. And anyone against raising taxes on taxable incomes greater than $1 million per year, in exchange for a 10-fold reduction in spending, is devoid of common sense.


Social Security Administration 2011 Financial Statements –

Social Security Administration 2010 Financial Statements –

Social Security Administration 2009 Financial Statements –

Solving the Debt Crisis | A Catch-22

~ Pass The Monetary Reform Act ~

By: Larry Walker, Jr. ~

The Obama administration’s solution for the nation’s impending destruction, due to out-of-control deficit spending, is to increase the debt ceiling now, and worry about spending cuts later. The Obama administration is under the impression that more borrowing power will enable the nation to maintain its AAA Credit rating. The Catch-22 is that an instant increase in the debt ceiling will result in an instant downgrade to the nation’s credit rating. You see, the problem is not the level of the nation’s debt ceiling; the problem is America’s debt-to-GDP ratio. If raising the debt ceiling by $2.5 trillion would result in an equal increase in gross domestic product, then the problem would be solved. However, there is no verifiable link between government spending and economic growth.

The following passage, from Joseph Heller’s book, “Catch-22”, about sums up the whole zero-sum debt dilemma: “There was only one catch and that was Catch-22, which specified that a concern for one’s safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane he had to fly them. If he flew them he was crazy and didn’t have to; but if he didn’t want to he was sane and had to.” The solution to Orr’s problem would be to simply end the war. Similarly, the solution to the National Debt problem is to simply end the Fed.

Obama and his supporters are basically saying, “You have to buy more government bonds, otherwise the bonds you already own will go into default.” In other words, the only way the government can continue to pay the interest on its $14.5 trillion National Debt is through incurring more debt. Like Orr in Heller’s Catch-22, Obama must be thinking: I have bankrupted the federal government and need to borrow more to keep from going broke. If we don’t raise the debt ceiling, the National Debt will be contained, but we will not be able to pay the interest on the current debt. If we raise the debt ceiling, we will increase our debt thus ensuring our demise, but if we don’t raise the debt ceiling then we must declare bankruptcy. If we raise the debt ceiling we will be bankrupt, and if we don’t raise the debt ceiling we will be bankrupt.

What AAA Rating? – While American politicians claim that their intention is to preserve the nation’s alleged AAA credit rating, Dagong Global Credit Rating Co., Ltd. (Dagong), China’s credit rating service, has already lowered its rating to A+/negative. Dagong initially assigned the United States a sovereign credit rating of AA in July 2010, but lowered this rating on November 3, 2010, when the U.S. Federal Reserve announced its QE2 monetary policy. In Dagong’s opinion, QE2 was “aimed at stimulating the U.S. economy through issuing an excessive amount of U.S. dollars”, which it saw as a sign of “the collapse of the U.S. government’s ability to repay its debt and a drastic decline of its intention to repay”. Dagong therefore downgraded the U.S.A.’s credit rating to A+/negative, and has since placed the sovereign credit rating of the United States on its Negative Watch List. But who cares about China’s credit rating service, right? After all, we only acknowledge Moody’s and S&P in the West, because we can always borrow from Europeans, right?

Unasked Questions – The questions that politicians have failed to consider in this entire futile debate are as follows:

Why is the government in debt? – The federal government is in debt because it has given its ability to create money over to the privately owned Federal Reserve, and to privately owned National Banks. Every time the government needs money, it must first borrow it from the Federal Reserve by exchanging bonds for cash. Why? If the government were to simply print its own currency, similar to Lincoln’s Greenbacks, then there would be no National Debt at all. So why not change this first? If the federal government were to pass the Monetary Reform Act, it would be able to payoff the entire National Debt within a year, and would simultaneously extinguish from its budget $400 billion per year in interest payments.

Where will the money come from? – When the Obama administration proposes to increase the National Debt by another $2.5 trillion, it’s most profound that no one is asking where the money will come from. So where will the money come from? The answer is out of thin air. That’s right. The money the government borrows is created out of thin air. But creating money out of thin air has consequences, namely inflation. When the Fed prints money and exchanges it for government bonds, the existing money supply is diluted, in other words, worth less. Who needs QE3, when you’ve got Obama-Year-3?

Dazed and Confused – Many, so called, conservatives seem to be confused on the matter of Monetary Reform. When we say, “Who cares about the banks, let them go broke”, they reply, “but banks are businesses and what you are proposing is anti-capitalism.” It’s funny that when it came to big bank bailouts, the same crowd who was chanting, “Let them go broke,” is now saying, “Don’t take away our precious banks.” I maintain that banks are not businesses. Banks produce no real goods or services; they merely buy, sell and hold debt. They also receive the largest government subsidy there is, the ability to create money out of thin air and to loan it out at interest.

Real businesses produce real products and services such as oil companies. Oil companies drill for oil and natural gas, and then refine it into tangible products sold to the public for profit. When politicians speak of taking away, so called, tax subsidies for oil companies, what they are really saying is that U.S. citizens should pay more in energy costs, not that oil companies should pay more in taxes. When we say, “End the Fed,” what we are really saying is, “End the National Debt”. When we say, “Raise bank reserve ratios from 0% to 10%, to 100%”, what we are saying is, “Take away the national banking system’s ability to create and loan out money that it doesn’t have.”

The Only Solution – Cutting taxes, reducing spending, raising taxes, and increasing spending are proposals which no matter how you structure them will not solve the real problem. Borrowing more to keep from going broke is not only absurd, it’s insane. So who’s kidding who? Passing the Monetary Reform Act will solve the National Debt problem and place America firmly on the road to recovery. In my opinion, there is no other solution.

Until there is reform, “Render unto Caesar the things which are Caesar’s, and unto The United States the things that are the Federal Reserve Bank’s.”

Photo Credit: World Crisis by Petr Kratochvil

The Monetary Reform Act of 201X | Authentic

The Two Step Plan to National Economic Reform and Recovery

Step 1: Directs the Treasury Department to issue U.S. Notes (like Lincoln’s Greenbacks; can also be in electronic deposit format) to pay off the National debt.

Step 2: Increases the reserve ratio private banks are required to maintain from 10% to 100%, thereby terminating their ability to create money, while simultaneously absorbing the funds created to retire the national debt.

These two relatively simple steps, which Congress has the power to enact, would extinguish the national debt, without inflation or deflation, and end the unjust practice of private banks creating money as loans (i.e. fractional reserve banking). Paying off the national debt would wipe out the $400+ billion annual interest payments and thereby balance the budget. This Act would stabilize the economy and end the boom-bust economic cycles caused by fractional reserve banking.

Monetary Reform Act – Summary

This proposed law would require banks to increase their reserves on deposits from the current 10%, to 100%, over a one-year period. This would abolish fractional reserve banking (i.e., money creation by private banks) which depends upon fractional (i.e., partial) reserve lending. To provide the funds for this reserve increase, the US Treasury Department would be authorized to issue new United States Notes (and/or US Note accounts) sufficient in quantity to pay off the entire national debt (and replace all Federal Reserve Notes).

The funds required to pay off the national debt are always closely equivalent to the amount of money the banks have created by engaging in fractional lending because the Fed creates 10% of the money the government needs to finance deficit spending (and uses that newly created money to buy US bonds on the open market), then the banks create the other 90% as loans (as is explained on our FAQ page). Thus the national debt closely tracks the combined total of US Treasury debt held by the Fed (10%) and the amount of money created by private banks (90%).

Because this two-part action (increasing bank reserves to 100% and paying off the entire national debt) adds no net increase to the money supply (the two actions cancel each other in net effect on the money supply), it would cause neither inflation nor deflation, but would result in monetary stability and the end of the boom-bust pattern of US economic activity caused by our current, inherently unstable system.

Thus our entire national debt would be extinguished – thereby dramatically reducing or entirely eliminating the US budget deficit and the need for taxes to pay the $400+ billion interest per year on the national debt – and our economic system would be stabilized, while ending the terrible injustice of private banks being allowed to create over 90% of our money as loans on which they charge us interest. Wealth would cease to be concentrated in fewer and fewer hands as a result of private bank money creation. Thereafter, apart from a regular 3% annual increase (roughly matching population growth), only Congress would have the power to authorize changes in the US money supply – for public use -not private banks increasing only private bankers’ wealth.

Support the Monetary Reform Act – write your Congressman today!

Read the full version of the Monetary Reform Act here.

If not now, when?

“I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts.” ~ Abraham Lincoln

“The ignorance of one voter in a democracy impairs the security of all.” ~ John F. Kennedy

Debt Mayhem | End Fractional-Reserve Banking

An Empire Built on Sand ~

~ By: Larry Walker, Jr. ~

Those of us who lived through the financial crisis of 2008 are most familiar with the drawbacks of fractional-reserve banking. It’s core theory, that wealth is created through debt, is now so ridiculously out of control, that every newborn American citizen today enters this world more than $46,000 in debt. Those naive enough to think that America’s most pressing problem started in January of 2001, or some other arbitrary date, need to look back a bit further, to 1913 to be precise. In America, taxpayers have been the suckers, while the “middle class” have been lulled into serfdom. But since we the people are no longer willing to perpetuate this fraud, the federal government, on our behalf, and at our expense, has volunteered to further prop up a broken and obsolete monetary system, yet the days of fractional-reserve banking are numbered.

What is fractional-reserve banking? – Fractional-reserve banking is a type of banking whereby a bank does not retain all of a customer’s deposits within the bank. Funds received by the bank are generally loaned out to other customers. This means that the available funds, called bank reserves, are only a fraction (reserve ratio) of the quantity of deposits at the bank. As most bank deposits are treated as money in their own right, fractional reserve banking increases the money supply, and banks are said to create money, literally out of thin air.

Fractional-reserve banking is prone to bank runs, or other systemic crisis, as anyone who has studied the American economy since 1913 is well aware. In order to mitigate this risk, the governments of most countries, usually acting through a central bank, regulate and oversee commercial banks, provide deposit insurance and act as a lender of last resort. If the banking system could only find a big enough sucker, one dumb enough to borrow say $14.4 trillion or more indefinitely, its prospects would be unlimited.

How does it work? – As an example, let’s say you work hard and are able to deposit $100,000 into Bank A. What does the bank do with your money? I mean if you wanted to withdraw it all in the following week, would it still be there? The answer is yes, and no. You see once you deposit your money, the bank immediately loans it out to someone else, likely keeping none of it in reserve, or at the most 10%. Let’s assume that Bank A is one of the mega-banks subject to the maximum bank reserve requirement of 10%. What happens is that the bank will hold $10,000 of your money either in its vault, or in a regional federal reserve bank, and will loan the other $90,000 to someone else.

Let’s say that Joe, a borrower, walks in to Bank A and applies for a $90,000 home loan on the day after you make your deposit. Bank A gladly gives Joe the $90,000 loan, at 5% interest over 30 years. When Joe closes on the loan, the $90,000 is paid to Jenn, the seller of the home. Jenn then deposits the $90,000 into her account at Bank B. Bank B keeps $9,000 of her money in reserve while lending out the other $81,000. Now let’s say that Jack comes along and secures an $81,000 business loan from Bank B on the day after Jenn makes her deposit. Now Jack deposits the $81,000 into his account with Bank C, and the cycle continues.

Bank A counts the $100,000 in your account as a liability, because it owes this amount back to you, and at the same time counts the $90,000 loan made to Joe, and the $10,000 held in reserve as assets. In effect Bank A has created a $90,000 loan asset for itself out of thin air. Fractional-reserve banks count loans as assets, and then earn their money through charging interest on this fictitious money. They also make money through repackaging loans as investments and selling them on the open market, potentially creating an even bigger fraud.

Following the money, your bank statement shows a balance of $100,000 at Bank A, Jenn’s bank statement reveals a balance of $90,000 with Bank B, and Jack has a balance of $81,000 on deposit with Bank C. The money supply has amazingly increased by $171,000 (90,000 + 81,000), through very little effort. Amazing, considering that the only real money introduced into the system was your initial $100,000 deposit. Through the system of fractional-reserve banking your original $100,000 has been magically transformed into $271,000 of liquid cash, while at the same time creating $171,000 of debt.

So what happens if you come back the following week to withdraw all of your money? Well first of all, Bank A will likely tell you that you need to give them several days notice before making such a large withdrawal, because in reality, they don’t have your money anymore. Bank A is then forced to do one of three things: borrow the money overnight from the Federal Reserve, or another member bank; sell some of its loans on the secondary market; or wait until another customer makes a $100,000 deposit – using $90,000 of that plus the $10,000 it held in reserve for you. If this sounds like a Ponzi scheme, it just might be.

Creating Wealth through Debt – The table below displays how loans are funded and how the money supply is affected. It shows how a commercial bank creates money from an initial deposit of $100,000. In the example, the initial deposit is lent out 10 times with a fractional-reserve rate of 10% to ultimately create $686,189 of commercial bank money. Each successive bank involved in this process creates new commercial bank money (out of thin air) on a diminishing portion of the original deposit. This is because banks only lend out a portion of the initial money deposited, in order to fulfill reserve requirements and to allegedly ensure that they have enough reserves on hand to meet normal transaction demands.

The model begins when the initial $100,000 deposit of your money is made into Bank A. Bank A sets aside 10 percent of it, or $10,000, as reserves, and then loans out the remaining 90 percent, or $90,000. At this point, the money supply actually totals $190,000, not $100,000. This is because the bank has loaned out $90,000 of your money, kept $10,000 of it in reserve (which is not counted as part of the money supply), and has substituted a newly created $100,000 IOU for you that acts equivalently to and can be implicitly redeemed (i.e. you can transfer it to another account, write a check on it, demand your cash back, etc.). These claims by depositors on banks are termed demand deposits or commercial bank money and are simply recorded on a bank’s books as a liability (specifically, an IOU to the depositor). From your perspective, commercial bank money is equivalent to real money as it is impossible to tell the real money apart from the fake, until a bank run occurs (at which time everyone wants real money).

At this point in the model, Bank A now only has $10,000 of your money on its books. A loan recipient is holding $90,000 of your money, but soon spends the $90,000. The receiver of that $90,000 then deposits it into Bank B. Bank B is now in the same situation that Bank A started with, except it has a deposit of $90,000 instead of $100,000. Similar to Bank A, Bank B sets aside 10 percent of the $90,000, or $9,000, as reserves and lends out the remaining $81,000, increasing the money supply by another $81,000. As the process continues, more commercial bank money is created out of thin air. To simplify the table, different banks (A – K) are used for each deposit, but in the real world, the money a bank lends may end up in the same bank so that it then has more money to lend out.

Although no new money was physically created, through the process of fractional-reserve banking new commercial bank money is created through debt. The total amount of reserves plus the last deposit (or last loan, whichever is last) will always equal the original amount, which in this case is $100,000. As this process continues, more commercial bank money is created. The amounts in each step decrease towards a limit. This limit is the maximum amount of money that can be created with a given reserve ratio. When the reserve rate is 10%, as in the example above, the maximum amount of total deposits that can be created is $1,000,000 and the maximum increase in the money supply is $900,000 (explained below).

Fractional reserve banking allows the money supply to expand or contract. Generally the expansion or contraction is dictated by the balance between the rate of new loans being created and the rate of existing loans being repaid or defaulted on. The balance between these two rates can be influenced to some degree by actions of the Fed. The value of commercial bank money is based on the fact that it can be exchanged freely as legal tender. The actual increase in the money supply through this process may be lower, as at each step, banks may choose to hold reserves in excess of the statutory minimum, or borrowers may let some funds sit idle, or some people may choose to hold cash (such as the unbanked). There also may be delays or frictions in the lending process, or government regulations may also limit the amount of money creation by preventing banks from giving out loans even though the reserve requirements have been fulfilled.

What are the Fed’s current reserve requirements? – According to the Federal Reserve, banks with less than $10.7 million on deposit are not required to reserve any amount. When deposits reach $10.7 to $58.8 million the requirement is just 3%. It’s only when deposits exceed $58.8 million that a 10% reserve requirement applies. The table below was extracted from the Federal Reserve’s website.

How much money can our banking system create out of thin air? – The most common mechanism used to measure the increase in the money supply is typically called the money multiplier. It calculates the maximum amount of money that an initial deposit can be expanded to with a given reserve ratio.

FormulaThe money multiplier, m, is the inverse of the reserve requirement R:


A reserve ratio of 10 percent yields a money multiplier of 10. This means that an initial deposit of $100,000 will create $1,000,000 in bank deposits.

A reserve ratio of 3 percent yields a money multiplier of 33. This means that an initial deposit of $100,000 will create $3,300,000 in bank deposits.

A reserve ratio of 0 percent yields a money multiplier of ∞ (infinity). This means that an initial deposit of $100,000 will create an unlimited amount of bank deposits.

What’s the problem? – The system works fine as long as everyone plays along. The biggest problem is that it’s a system by which wealth is only created through debt. Through this system, the lender always wins; while debtors – nowadays referred to as the middle class – always lose. As long as there are willing borrowers, our economy grows. When consumers, businesses, and the federal government stop borrowing, the system shuts down. But one cannot very well borrow into infinity; after all, life itself is finite. “There is a time to borrow, and a time to repay; a time to live and a time to die.” One definitely cannot borrow while lacking the means of repayment, unless of course, it has a seeming unlimited ability to tax.

The next biggest problem is that of absurdly low bank reserve requirements. With bank reserve requirements set at 0% to 10%, what could possibly go wrong? I mean besides banks having the ability to create an infinite supply of make-believe money through debt. The modern mainstream view of reserve requirements is that they are intended to prevent banks from:

  1. Generating too much money by making too many loans against the narrow money deposit base;
  2. Having a shortage of cash when large deposits are withdrawn (although the reserve is thought to be a legal minimum, it is understood that in a crisis or bank run, reserves may be made available on a temporary basis).

Let’s face the facts. Our present monetary policy is a disaster. When too many players wish to withdraw their money to hold as cash, or too many purchases are made overseas, or an excessive amount of loan defaults occur, the house comes crashing down. When all three events occur at the same time, as actually happened in 2008, it should have spelled the end of fractional-reserve banking. But instead, our leaders are in denial. Now “wealthy” U.S. taxpayers are being called upon to bailout the federal government, while at the same time, the government seeks more borrowing power. But when all our wealth is gone, who will rescue us then? And if the entire global monetary system has likewise been built on the same sinking sand, who will rescue them?

Well, hopefully you now have a better understanding of why our present monetary system is dysfunctional, why the federal government wants you to borrow more, and why it wants to borrow more itself. We are a nation built on a Ponzi scheme; one which cannot grow without incurring further debt. But as I said before, growth through debt amounts to nothing more than spending next year’s income today. Man does not live by debt alone.

What’s the solution? – We have to put an end to fractional-reserve banking. It should be clear, to all those with understanding that we need to get off of this merry-go-round. The first step is for the Federal government to take the power of money creation away from the Federal Reserve and from commercial banks by both issuing and controlling the quantity of its own currency (rather than Federal Reserve Notes). The second step is to increase bank reserve requirements to 100%, as banks should never again be allowed to loan out more money than actually on deposit. If there was a way to end the debt-money system and to payoff the national debt within a year or two, wouldn’t you want to know? For the details on how to accomplish this, I implore you to watch Bill Still’s full video entitled, The Secret of Oz (preview).

“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock. But everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.” ~ Matthew 7:24-27 (NIV)


Fractional-Reserve Banking

Principles of Monetary Reform

Federal Reserve: Monetary Policy

Monetary Reform, Part II | Lending and Interest

– By: Larry Walker, Jr. –

The interest that U.S. taxpayers pay on behalf of the federal government, for the privilege of having money in our wallets, and to cover irresponsible deficit-spending, is only the beginning of our woes. When it comes to our personal credit needs, American citizens are once again shackled and sold down river. With regards to borrowing and lending, we may be able to take a few pointers from Islamic banking. I know what you’re thinking, but just bear with me. Let me make one thing clear, I am a Christian, and I do not agree with any of the principles of Sharia, except for those it shares in common with the Bible. Upon these, I think most humans can agree. For in this case, we are not talking about matters of heaven or hell; we’re talking about money.

“If one of your countrymen becomes poor and is unable to support himself among you, help him as you would an alien or a temporary resident, so he can continue to live among you. Do not take interest of any kind from him, but fear your God, so that your countryman may continue to live among you. You must not lend him money at interest or sell him food at a profit.” ~ Leviticus 25:35-37

Interest – Sharia prohibits the charging of interest (known as usury) for loans of money. The Bible is also very clear on the matter of usury. The Biblical term for usury, neshek, is strongly negative, coming from a root whose basic meaning is to strike as a serpent. Islamic banking has the same purpose as conventional banking: to make money for the banking institute through the lending of capital. But because Islam forbids simply lending out money at interest, Islamic rules on transactions have been created to avoid this problem. The basic technique to avoid the prohibition is the sharing of profit and loss, via terms such as profit sharing, safekeeping, joint venture, cost plus, and leasing.

Loans in pre-industrial societies were made to farmers in seed grains, animals and tools. Since one grain of seed could generate a plant with over 100 new grain seeds, after the harvest, farmers could easily repay the grain with “interest” in grain. When an animal was loaned, interest was paid by sharing in any new offspring. What was loaned had the power of generation, and interest was a sharing of the result. Interest on tool loans would be paid in the produce which the tools had helped to create.

Monetary problems didn’t surface until societies began using metals, like gold, as forms of currency. When interest was allowed to be charged on loans of metals, with the interest to be paid in more metal, life became more difficult, particularly with agricultural loans. The problem is that inorganic materials, not being living organisms, have no means of reproduction. Thus, any interest paid on them must originate from some other source or process. The same is true with paper money today.

For example, if you borrow money to start a farming business, the only way to pay it back is if you are able to sell your crops to others in exchange for sufficient paper money to cover your expenses, including principal and interest. If your crops happen to get wiped out one season, then most likely, so do you. Even if you borrow money to start any kind of business, and are successful, you must make enough profit to cover the principal and interest payments on the debt. And in case you don’t know it, principal repayments are never deductible for income tax purposes. So a business with $100,000 in profit, which uses it to repay its debt, must then come up with additional money to cover the income taxes thereon; leading to the incurrence of more debt. What we have in the United States is a system of winners and losers, where the big banks always win, while the citizens of the Republic mostly lose.

Mortgage Loans – Let’s say you decide to buy a home for $110,000 by paying $10,000 down, and taking out a $100,000, 30 year – 5% fixed rate mortgage. When the term is over, you will have paid the lender $193,256, plus your down payment, for a total of $203,256. What you get in exchange is the privilege of living in a home which may or may not be worth its original value of $110,000 in 30 years. If your home loses value midstream, as far as the lender is concerned, “too bad”. If you miss, or are late on a payment, the lender will charge you penalties and destroy your credit, preventing you from obtaining future loans. If you get too far behind, the lender will put you out on the street. It doesn’t matter how good your credit was before your troubles, or how long you made timely payments, you will be destroyed. The lender will then confiscate your home, and sell it to someone else, pocketing any profit in the process.

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase a home, a bank might buy the home itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the bank’s profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The property is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabahah.

An innovative approach applied by some banks for home loans, called Musharaka al-Mutanaqisa, allows for a floating rate in the form of rental. The bank and borrower form a partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rents out the property to the borrower and charges rent. The bank and the borrower will then share the proceeds from this rent based on the current equity share of the partnership. At the same time, the borrower in the partnership entity also buys the bank’s share of the property at agreed installments until the full equity is transferred to the borrower and the partnership is ended. If default occurs, both the bank and the borrower receive a proportion of the proceeds from the sale of the property based on each party’s current equity.

Business Loans – U.S. banks lend money to companies by issuing fixed or variable interest rate loans. The rate of interest is based on prevailing market rates and is not pegged to a company’s profit margin in any way. U.S. banks currently borrow the money they lend to businesses at rates as low as 0.25%. When was the last time you saw an ad for small business loans charging 0.50%, which would give the lender a 100% return? The fact is that banks are still charging rates of between 4.0% and 30.0%, in spite of the cost of money. When prevailing interest rates are too high fewer businesses are able to borrow, thus inhibiting economic growth; and when rates are too low, profit-dependent banks are less willing to lend, also hindering the economy at large. If a business with a profit margin of just 5.0% could only borrow money at interest rates of 10.0% or more, why would it bother?

Islamic banks lend their money to companies by issuing floating rate loans. The floating rate is pegged to the company’s individual rate of return. Thus the bank’s profit on the loan is equal to a certain percentage of the company’s profits. Once the principal amount of the loan is repaid, the profit-sharing arrangement is concluded. This practice is called Musharaka.

Risk – Under our present system, if a company has a bad year and misses a few payments, it may be forced into bankruptcy. In the U.S. the risk of failure is placed squarely on the back of entrepreneurs. If a small business owner defaults on a loan, he is run out of business and his future ability to borrow is destroyed. In the case of government guaranteed loans, which are backed by the full faith and credit of you and I, the banks get their money back, while the failed entrepreneur, having been made a personal guarantor, is hunted down by his own government, like a fugitive, for the rest of his days.

Islamic banks also lend through Mudaraba, which is venture capital funding to an entrepreneur who provides labor while financing is provided by the bank so that both profit and risk are shared. Such participatory arrangements between capital and labor reflect the Islamic view that the borrower must not bear all the risk/cost of a failure, resulting in a balanced distribution of income and not allowing the lender to monopolize the economy.

End Usury, Now – Our monetary system needs a complete overhaul. But so far, the only reforms offered have been to further back big banks, at the expense of U.S. citizens. This is not acceptable. Until there is real reform, you and I, our children and grandchildren will remain enslaved. Backing our currency with gold is not the answer. The first step is for the government to begin printing its own fiat currency. The second step is to outlaw the practice of charging interest.


Islam in the Bible – Usury

Islamic banking

Leviticus, Chapter 25

Monetary Reform, Part I | End the Debt

~ By: Larry Walker, Jr. ~

The rich rule over the poor. The borrower is servant to the lender. ~ Proverbs 22:7 ~

Free Our Money – So what’s the problem? You know, you think about it all the time. It’s debt, debt, debt! The way our economy is set up now, the only way it can grow is through incurring more debt, either through government, business or consumers. Our economy cannot grow without increasing its money supply, and the only way that new money can be introduced, under the present monetary system, is through debt. But growth through debt really amounts to nothing more than spending next year’s income today. It’s a vicious cycle, one which has reduced millions to poverty, and to lives of indentured servitude. It’s time to end the debt, now. I believe that most good ideas are simple, and that any lasting reform must, like our very Constitution, be rooted and grounded in Judeo-Christian Principles.

There are two ways to approach monetary reform. One involves making changes to our current system, and the other involves a complete overthrow, starting over from scratch. I believe that one method is practical while the other is not. I am from the school of thought that believes it impossible to make the necessary reforms within the present corrupt system. Our monetary system has failed. Revolution is the only solution.

Under the current debt regime, there are two primary ways that our money supply is increased.

  1. The first way is that the Federal Reserve (the Fed) prints new money and loans it to the federal government by purchasing Treasury Bonds through Open Market Operations. The cash then enters the economy by being deposited into regional Federal Reserve banks accounts. Thus, the federal government, as it is today, can only create money through borrowing.

  2. The other way that money is created is through fractional-reserve banking. Under this system, Federal Reserve member banks are allowed to loan out at least ten-times the amount deposited with them in checking and savings accounts. When fewer loans are demanded, the supply of money contracts. It’s only when loan demand is high that the money supply increases.

Let’s face the facts. Consumers are tapped out. Most Americans have lost the equity in their homes and are buried in consumer debt. It’s not that banks aren’t willing to lend, it’s that nobody is willing to pay 4.0% to 30.0% interest on money the banks borrow at 0.25%. The system is broken. So today, our economy is being propped up mainly through deficit-financed government spending, but this will not continue. We have already passed the point of no return. This mark was decisively breached in early 2010, when per capita national debt surpassed per capita personal income. At this point there is no longer enough income to support the federal debt. Every additional dollar the government borrows merely expands the base of government-dependent citizens. If the course is not altered today, the government will eventually run out of other people’s money, leaving its citizens vulnerable to enslavement by an alien entity. So the problem is the federal government’s inability to create new money without incurring debt. If we can fix this, the problem is solved.

What happens when population growth outpaces its money supply? As an example, let’s say we have a two person society comprised of you and me, with a total of $1,000 in our economy. Our per capita money supply is $500. Now let’s say two more people cross over the border and become members of our society. Without an increase in the money supply, our standard of living will decline to $250 per person. This is also known as a recession or even depression. Recessions occur coincident with declines in the supply of money, as there is no longer enough to go around. Economic activity declines without an ability to increase the money supply. In order to maintain our standard of living, our money supply will need to increase from $1,000 to $2,000.

As long as there is population growth, the supply of money must constantly increase. In fact, regardless of population changes, in order for there to be any meaningful economic growth at all, a society demands steady increases in its supply of money. That’s our dilemma today. With U.S. population increasing by approximately 1.0% per year, the money supply must keep pace. However, the only way that the money supply can increase, without reform, is through debt.

Who’s to blame? – We the people have knowingly or unknowingly subscribed to a monetary system in which the Federal Reserve is our master, and we are its slaves. In this respect, we are not truly free. Some blame the bankers; others blame politicians; while still others blame more affluent taxpayers such as small businessmen or corporate jet owners. (By the way, corporations and their assets, including jets, are owned by shareholders; so if you own stock either directly, or through a retirement plan, you might be a corporate jet owner yourself.) In reality, you and I are to blame. We are the ones who have elected ignorant and corrupt politicians, who have allowed our government to maintain a flawed monetary policy.

When our monetary system achieved total failure in 2008, we had an opportunity to institute real reform, but instead we were conned into bailing it out, again at our own expense. The present administration promised change, but instead has delivered more chains. Next time will be different. We know that if we want a different result, we have to try something different. Any political candidate who doesn’t have a monetary reform plan which promotes the creation of debt-free money (fiat money), and solid debt reduction, and balanced budget plans is dead in the water.

“The ax is already at the root of the trees, and every tree that does not produce good fruit will be cut down and thrown into the fire.” ~ Matthew 3:10

Who’s Getting Hosed? – Under our present monetary system, the federal government, through the Treasury Department, prints Federal Reserve Notes and hands them over to the Fed. The Fed then lends the same money back to the federal government in exchange for U.S. Treasury Bills, Notes and Bonds. The Fed then sells some of these Treasury obligations at a discount to its member banks, investors, and foreign governments. The interest paid on these bills, notes and bonds is paid from income tax revenue collected off of the backs of U.S. taxpayers.

If the federal government could ever pay off its debt and balance its budget, it wouldn’t need to borrow as much. With the national debt already in excess of $14.4 trillion, it has become a burden for our government to meet its real responsibilities. This is the main reason why the national debt matters. As politicians do battle over whether or not the debt ceiling should be raised, in this case, to cover its own irresponsible spending, a more critical issue, the creation of money has been left in the hands of the Fed. Under our current system, the money supply cannot increase without adding to the debt. But if there was a way that the federal government could simply issue its own debt-free currency (fiat money), rather than Federal Reserve Notes, it would never have to borrow money from anyone ever again.

The more the federal government borrows, the more it binds U.S. taxpayers to cover its interest payments. It makes you wonder why a U.S. citizen would ever invest in Treasury obligations at all. I mean, in a way, the same citizen who buys this debt is also responsible, through income taxes, for paying the very interest he or she receives. And to make matters worse, the same citizen is taxed again on the interest earned. It’s a spiral of negative returns in which those who actually pay income taxes and invest in government debt are the losers; while the Fed, its member banks, and foreign investors can’t fail.

The Fed also loans some of this borrowed money to its member banks and to other “too big to fail” entities at interest rates currently as low as 0.25%. The banks then provide you and I, and our businesses with loans, or allow us credit, for the privilege of paying them anywhere from 4.0% to 30.0% interest, plus other transaction fees, pocketing the difference as profit. Banks even allow us to open checking or savings accounts for the additional privileges of earning next to nothing, and paying them even more in transaction fees, for the use of our own money. So we pay interest on debt just so the government can issue currency, we pay interest on the national debt, and then we pay more interest for banking and loan privileges. These are hidden taxes of which certain politicians, those who are always harping about higher taxes, seem to be completely ignorant. But we know better.

End the Debt, Now – Why does the federal government print money, give it to the Federal Reserve, and then borrow its own money back at interest? Couldn’t the government simply print United States Notes, rather than Federal Reserve Notes, and spend it into the economy without a middle man? According to Bill Still, yes it can. In fact, Mr. Still says that if the government took this route, it could repay all of its existing debt within a year or two, by simply replacing the old notes with new ones. For more on this, I recommend that you watch his video entitled, The Secret of Oz.

“There is no retreat but in submission and slavery! Our chains are forged!” ~ Patrick Henry

Other References:

Oz Economics

Saving Our Way to Prosperity

Yes. You Can.

– By: Larry Walker, Jr. –

According to Barack Obama, “We can’t simply cut our way to prosperity.” Prior historical references: None. Upon hearing such an absurd statement, and being of the homo economicus persuasion, my first instinct is to define what it means to me, and then to determine whether it has any relevance in my life. If we are honest, we must each define what the word prosperity, or rich, means to us. Only after we have defined its meaning are we able to chart a course.

In the article, “How to get rich,” there are seven steps, the first of which is to define the word “rich.” Obviously it means different things to different people. According to Obama, the word rich means making more than $250,000 per year. A more formal definition of prosperity is “to be fortunate or successful, especially in terms of one’s finances.” For others it means achieving a certain level of prestige, or being able to afford a comfortable retirement, neither of which necessarily involves making $250,000 in a year. How would you define prosperity?

Homo Economicus

The term Homo economicus, or Economic human, is the concept in some economic theories of humans as rational and narrowly self-interested actors who have the ability to make judgments toward their subjectively defined ends. My definition is that men and women are primarily interested in making judgments which will improve their own economic condition. My goal is not to be a millionaire, although that would be nice. My goal is to be able to meet my obligations in life and to remain self-sufficient upon retirement.

In John Stuart Mill’s work on political economy, in the late nineteenth century, he further defined this economic man as “a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labor and physical self-denial with which they can be obtained.” I have to admit that my goal is also to get the most out of life with the least possible amount of labor, but that’s not exactly how it’s been working out. I work much too hard. What’s your goal?

Yes. You can.

Notice that Obama uses the words, “we and our”, as in, “We can’t simply cut our way to prosperity.” Exactly what does that mean? The last time I checked, “we” wasn’t responsible for paying my bills. Actually, you and I just might be able to cut our way into relative prosperity. But I don’t believe that the federal government can tax and spend us into a utopian paradise. If this were possible, wouldn’t we already be there?

Returning to “How to Get Rich,” the 4th Step is entitled, Delay Gratification, under which we find the following guidance on the path to prosperity:

  1. Are you spending money on things that won’t get you rich?

  2. Are you sticking with a job that doesn’t make that much money to begin with?

  3. In order to get rich, you’re going to have to give up some of the things you enjoy doing now, so that you can enjoy those things without restriction later. For example, you might like having free time, so you give yourself a few hours a day to do nothing. But if you were to invest those few hours into getting rich, you could work towards having 20 years of free time (24 hours a day!) with early retirement. What can you give up now in exchange for being rich later?

  • Cut expenses
  • Get a job that pays more or get a promotion
  • Downgrade or give up your car
  • Downgrade your apartment or house
  • Reallocate your spare time

Although there is an element of truth in the statement, “we can’t cut our way to prosperity”, the fact is that you and I can, individually. The act of cutting, or reducing, my personal expenses causes me to save money. So to cut means the same as to save. By substituting the word ‘cut’ with ‘save’ in Obama’s original comment; what he is really saying to me is that, “We can’t simply save our way into prosperity.” Why, that’s preposterous! It’s as if he is implying that I should empty my emergency fund and retirement savings, spend it all today, and I will be magically ushered into prosperity. But if I did that, then I would be forced to borrow huge sums of money when ready to invest in furtherance of my dreams. But this won’t work out too well, especially since banks normally require a down payment.

The 5th Step in How to Get Rich is entitled, Save Money. It states, “You’ve heard the phrase “It takes money to make money.” So start socking away the extra money you’re making now that you’ve delayed gratification as outlined previously. After all, what’s the point in giving up the stuff you like if you have a hole in your pocket? Start building a “get rich fund” at the bank. Always pay yourself first. This means before you go and blow your pay check on a new pair of shoes or a golf club you don’t need, put money aside in to an account that you don’t touch.” This makes much more sense to me than the idea of squandering my savings, as implied by Obama. So for me, yes, I can save my way into relative prosperity, and so can you. The federal government could do the same, after paying off its massive $14.4 trillion debt, that is. This ought to be Obama’s goal. Yes. You can.

No. Government Can’t.

He jabbers on, “We need to do what’s necessary to grow our economy; create good, middle-class jobs; and make it possible for all Americans to pursue their dreams.

There he goes with that “our” stuff again. We need to do what’s necessary to grow our economy. That sounds appealing, but fortunately my economy is not yours, and yours is not mine. My economy is comprised of my household, my family, my business customers, vendors, lenders, employees and other obligations. I don’t know where Obama is coming from, but there is one way that the federal government could help to grow my economy, and that would be to stop taking as much of my hard earned money in taxes. That would help quite a bit. If I didn’t have to pay any taxes at all, my economy would be doing pretty well. Try that one on for size! If the government concentrated more on how to take less of my money, then my economy would improve, and so would yours. This simply requires cutting the size of government.

Next, he says that we need to create good, middle class jobs. What exactly is a good, middle class job? Does it require picking up a shovel? The idea of having a good, shovel-ready, middle class job doesn’t exactly mesh with prosperity, at least not in my book. Thanks but no thanks. I don’t really want a middle class job; I would rather have more freedom and prosperity. I don’t believe that group effort is required in job creation. I believe that one economic man can create many jobs. In fact, the true economic man is going to need a lot of help upon reaching his own prosperity. He’s going to need employees, suppliers, accountants, attorneys, financial planners, housekeepers, gardeners, service people, travel agents, retailers, restaurants, auto dealers, gas stations, chauffeurs, etc. It seems to me that Obama’s goal should be to inspire more economic men and women, and greater prosperity, rather than higher taxes, and more mundane, government-manufactured, temporary, shovel-ready, middle class jobs.

Finally, Obama says that we need to make it possible for all Americans to pursue their dreams. But all that’s required here is freedom. Are we not free? As long as I am free, I can do anything, and so can you. Nothing can stop me from pursuing my dreams, yet my dreams are not yours, and yours are not mine. Maybe your dream is to manufacture a product, while mine is to provide a good quality affordable service. Someone else’s dream might involve freeloading off of the toil of others. Just as the word prosperity means different things to different people, our dreams are not all the same. “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” The federal government didn’t give these rights to me, and it can’t take them away. You sir, cannot spend our way into life, liberty, and the pursuit of happiness, they are the gift of God.

The bottom line: Yes we can save our way to prosperity. That’s how it works in this Universe. It takes money, to make money. Here are a few more steps we can follow along the path to prosperity. Step 1: Cut discretionary government spending back to 1996 levels. Step 2: Force the federal government to start making principal payments against its debt. Step 3: Abolish every new governmental regulation established since January of 2009. Step 4: Get rid of Barack Obama and his queer notions about the economy.