A Taxing Problem, III: Where Did We Go Wrong?

– By: Michael D. Greaney – The Just Third Way

Looking at what has happened to the Federal Reserve and the income tax, we have to wonder what is the root cause of the misuse of these institutions? Where, in other words, did we go wrong?

Trying to be objective, we think it is in how people understand private property and contract, and thus money, credit, banking, and finance. Of these, the (mis)understanding of money appears to be the most immediate problem. Not that the others are unimportant, but the vortex, as it were, seems to swirl around money and credit – according to Henry Dunning Macleod, two forms of the same thing.

Money is legally defined as anything that is accepted in settlement of a debt. It is a contract involving “offer” and “acceptance.” It is not, as some theorists declare, a claim issued by the State on the general wealth of society. That is socialism, and is rooted in the understanding of taxation and private property found in Thomas Hobbes’s virtual manual for totalitarian government, Leviathan, that denied (abolished) private property:

A Fifth doctrine, that tendeth to the Dissolution of a Common-wealth, is, ‘That every private man has an absolute Propriety in his Goods; such, as excludeth the Right of the Soveraign.’ Every man has indeed a Propriety that excludes the Right of every other Subject: And he has it onely from the Soveraign Power; without the protection whereof, every other man should have equall Right to the same. But if the Right of the Soveraign also be excluded, he cannot performe the office they have put him into; which is, to defend them both from forraign enemies, and from the injuries of one another; and consequently there is no longer a Common-wealth.” (Thomas Hobbes, Leviathan, Ch. XXIX.)

That is, the king — the State — is the ultimate owner of everything in the State. That being the case, taxes are not a grant from a free citizenry, but a “retaking” of what the State was pleased to allow the citizens in the first place: “[T]he Kings word, is sufficient to take any thing from any subject, when there is need; and… the King is Judge of that need.” (Ibid., Ch. XX.)

It is interesting to note that Hobbes influenced Walter Bagehot (who, incidentally, had enormous contempt for the United States), while Keynes, the virtual demigod of today’s monetary and fiscal policy, revered Bagehot.

The fact is, despite the fixed beliefs of modern academics, it is possible to create money to finance new capital formation without first having to cut consumption and accumulate money savings. Keynes did not understand basic bookkeeping or the accounting equation, assets = liabilities + owners equity. Keynes failed to realize that the “multipliers” developed from his theories, especially the “money multiplier,” are complete fantasy.

The money multiplier relies on counting the same asset multiple times and shifting ownership around indiscriminately to meet political ends. The Keynesian money multiplier embodies a fatal error that is obvious to anyone who understands double entry bookkeeping or (better) money. That is, the money multiplier theory assumes that checks drawn on one account remain on deposit in another account without ever being presented for payment!

Anyone who has ever balanced a bank statement knows that this is not the case. Checks clear, decreasing the amount in the account and thus the amount of money available, or they remain outstanding, in which case you still can’t spend the money because it has already been spent. Drawing checks against money in an account that has already had checks drawn against it is called “issuing bad checks.” It is a civil or criminal offense, depending on the amount of the fraudulent check you issued and the jurisdiction in which you committed the offense. It is what Henry Thornton called a “fictitious bill,” that is, money with nothing behind it.

The Keynesian money multiplier, however, assumes as a matter of course that banks are engaged in a vast criminal conspiracy by creating money backed by nothing more than checks drawn against money that doesn’t exist. (We never claimed that the Keynesian theory made sense — but it’s in all the textbooks.) Today’s academic economists and politicians dismiss as ludicrous the actual case, that commercial banks create money by accepting bills of exchange and issuing promissory notes that back the demand deposits.

Thus, if we accept today’s standard assumptions about money and credit, there is no way to create money for Capital Homesteading so that ordinary people can become owners of capital without first having to cut consumption and accumulate money savings. If we reject the standard assumption, however, and use a little common sense along with some basic bookkeeping, the way is clear for a more rational monetary system than the debt-backed Leviathan that has kept the world locked into the slavery of past savings.

CESJ‘s Pro-Life economic agenda, for which we make the case in Supporting Life (2010) takes all this into account, reorienting the economy to conform to the natural law-based three principles of economic justice, 1) Participation, 2) Distribution and 3) Harmony (“feedback” or “social justice”), and the four pillars of an economically just society:

  1. A limited economic role for the State,

  2. Free and open markets as the best means for determining just wages, just prices, and just profits,

  3. Restoration of the rights of private property, especially in corporate and other business equity, and

  4. Widespread direct ownership of capital, individually or in free association with others.

In short, to require everyone to pay some tax, regardless whether they have the means or ability to pay, is to force anyone without property — and thus power — into a condition of dependency on the State . . . and keep in mind that “condition of dependency” was, prior to the Civil War, a euphemism for chattel slavery.

Via: The Just Third Way Blog

Related: A Taxing Problem, II: What Happened to the Federal Reserve?

A Taxing Problem, II: What Happened to the Federal Reserve?

– By: Michael D. Greaney – The Just Third Way

Last week we had a few things to say about taxation. Today we have a few more. Mostly today’s posting has to do with the way the tax system has been used for purposes other than revenue generation — and the Federal Reserve has been used to provide money for government instead of the private sector, effectively handing over the key to the “money machine” to the State, which is the last place it should be.

To take up the slack and permit unaccountable spending by the federal government, the Federal Reserve has been hijacked from its original and legitimate mission to provide liquidity for private sector investment by rediscounting eligible paper for qualified commercial, industrial, and agricultural capital projects (vide Alexander Hamilton’s Opinion as to the Constitutionality of the Bank of the United States, 1791; and the previously-noted McCulloch v. Maryland, 1819), and diverted to funding government by accepting bills of credit that, given a strict interpretation of the Constitution, may be unconstitutional, as it exceeds the specific regulatory, not creative, power granted under the enumerated powers.

We see the tragic results of this “new philosophy” all around us. Government debt has virtually destroyed Europe and is endangering the United States and Japan, making serious inroads on our natural, inalienable rights to life, liberty (freedom of association/contract), and property. Forcing people into dependency on the State has made it much easier to coerce people into accepting programs that they would normally find morally repugnant, with “welfare blackmail” ensuring that the rest give in for the sake of the promised State benefits. Further, because the tax system has been manipulated to meet goals other than mere raising of revenue to defray legitimate expenditures, the IRC has grown so complicated that no single person, even group, can understand it. Even if CESJ‘s proposed Capital Homestead Reforms were not manifestly in accordance with justice, the reforms could be justified on the grounds of expedience for the sake of increased efficiency and decreased cost of compliance and maintaining the system…

Continued at: The Just Third Way Blog

Image via: MarineBuzz.com

Resignation of David M. Walker

The most important economic indicator of things to come: The Fall of Rome

Posted by sakerfa on June 18, 2009

Since the global financial meltdown seems to be the main concern with our corporate world, let’s begin with this topic.

David M. Walker and the Fall of Rome

There have been a few major economic events in the last few years, but I consider the resignation, in March 2008, of David M. Walker from his commission of Comptroller General of the United States and head of the Government Accountability Office to be the harbinger of what is to come.

Walker resigned 5 years before the end of his 15-year term expired. His reasons for resigning were that he was limited to what he could do and that the United States was in danger of collapsing in much the same manner as the Roman Empire.

“Drawing parallels with the end of the Roman empire, Mr Walker warned there were ‘striking similarities’ between America’s current situation and the factors that brought down Rome, including ‘declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government’.”

For months before his resignation he traveled the country educating Americans about the financial crisis and the pending bankruptcy of the United States.

60 Minutes segment with David Walker originally broadcast on March 4, 2007 Click Here.

Walker’s resignation six years prior to the end of his 15 year term was a few orders of magnitude greater than the Chief financial officer of the largest non-governmental corporation in the world resigning (more on this later). The position is so crucial to the functionality of the corporate structure of the United States of America that it’s subject to Senate confirmation.

The selection process is somewhat unusual. A commission made up of congressional leaders presents the president with at least three candidates for the job. The commission is made up of: the Speaker of the Houses, president pro tempore of the Senate, the Senate majority and minority leaders, the House majority and minority leaders, and the chairmen and ranking minority members of the Senate Homeland Security and Governmental Affairs and the House Oversight and Government Reform committees. The president chooses one of the three candidates for the job. His nominee must be approved by the Homeland Security and Governmental Affairs panel and then confirmed by the Senate.”

What transpired with Walker jumping ship and in the first three months of 2008 was nothing short of the beginning of the largest consolidation of wealth in the history of the United States. Walker’s resignation removed the last obstacle for those controlling US fiscal policy to readily make available cheap money. From August 2007 to December 2008 the Federal Reserve lowered the Primary Discount Rate from 6.25% to 0.5%. What followed was a blank check to bailout and buyout banks, defusing a global financial Chernobyl in the derivatives markets some have argued, while at the same time impoverishing American citizens, and eliminating the middle class (more on these later).

Elizabeth Warren: The Coming Collapse of the Middle Class

From 2007 to early 2008, when US national debt was sitting around $9 trillion, Walker compared what was happening to the US with the collapse of the Roman Empire. Let’s see what’s happened since then?

The Largest Ponzi Scheme in History

As of 2 June 2009, the US federal debt is now sitting at well over $11 trillion. This amount does not include the extra $10 trillion to $14 trillion that US taxpayers will eventually be required to pay back for buying toxic assets.

“Make no mistake – we are selling off our future and the future of our children to prevent the bondholders of U.S. financial corporations from taking losses. We are using public funds to protect the bondholders of some of the most mismanaged companies in the history of capitalism, instead of allowing them to take losses that should have been their own. All our policy makers have done to date has been to squander public funds to protect the full interests of corporate bondholders. Even Bear Stearns’ bondholders can expect to get 100% of their money back, thanks to the generosity of Bernanke, Geithner and other bureaucrats eager to hand out the money of ordinary Americans.”

Buying up toxic assets is known as The Troubled Asset Relief Program (TARP) – “a program of the United States government to purchase assets and equity from financial institutions in order to strengthen its financial sector.” When Congress approved this program, “Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. The Federal Reserve so far is refusing to disclose loan recipients or reveal the collateral they are taking in return.”

In the following video “Rep. Alan Grayson asks the Federal Reserve Inspector General about the trillions of dollars lent or spent by the Federal Reserve and where it went, and the trillions of off balance sheet obligations.” The Inspector General, Elizabeth Coleman, states that her office is not tracking this information. In essence, she is confirming that we are witnessing the largest Ponzi Scheme in history unfold in real time.

These numbers, however, are a little misleading. The American public is largely unaware that the true deficit of the federal government is approximately “$65.5 trillion in total obligations”, exceeding global GDP.

The following 2008 documentary, “I.O.U.S.A. – One Nation. Under Debt. In Stress.,” does an excellent job explaining why the current fiscal policy in the United States is unsustainable, and recommends some very painful solutions to resolve the problem.

Keep in mind that all of the above debt is exclusive of the personal debt that US citizens may carry. So even though many, including myself, have compared what is happening to the United States to what happened during the Great Depression, a more accurate comparison was given by Walker, the 2008 recipient of the American Institute of Certified Public Accountants’ highest award and the person holding the highest accounting position in the United States from 1998 to 2008, and he compared the collapse of the United States to the Fall of Rome.

Let me rephrase this another way, if you were an accountant, then professionally speaking, David M. Walker is who you would aspire to be, and he bailed ship in 2008 stating that the game was over for the United States of America.

I hope the above explains the magnitude of our current economic metamorphosis. It will be one of the main themes for our conversation.

to be continued…

Source: http://www.chycho.com/?q=Rome

The above is Part 3 of a conversation about the state of the world:

Source: The Peoples Voice