All Terrain Thinking

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The Treasury System vs The Federal Reserve System

Arthur J. Ramous

Zero income tax

How would you like to receive a letter from the Internal Revenue Service stating that your tax due from last years' income is zero? And that your future income will not be taxed by the federal government.

Many people believe that taxes are a necessary evil. It's a patriotic duty to pay taxes. The idea that the federal government needs revenue, from taxes, to keep it operating is totally false. State and local governments do need revenue to pay for their expenses, however, the federal government falls into a different category.

Increase money in circulation

To show how federal taxes can be eliminated it is first necessary to discuss the role of money in our economy. To be able to transfer goods and services from the producer to the purchaser requires money. There must be an adequate amount of money, either instantly available or can be easily borrowed that will allow for an easy flow of trading. Because our economy is continuously growing there is a continuous need to add money to the nations money supply.

If there is not enough money available, much of the goods and services will not be produced or sold, the economy will contract. If the shortage of money continues for a long time there would be a severe downturn in the economy resulting in increases in bankruptcies, company down sizing and job layoffs, what economists call a recession.

Simply, because of national growth and anticipated growth we need brand new money coming into the economy.

Paying government obligations with treasury money

The best way to increase the money supply is have the government, specifically the Treasury, to create money and issue currency and/or checks to people, organizations and companies who are doing business with the government, such as, suppliers, contractors and employees. The government will be paying its obligations through treasury money. The people and companies receiving this money would deposit it into local banks, where the money will become part of our money supply. Thus increasing the money in circulation.

There would be no need for the government to borrow money. This treasury money is created into existence without treasury bonds, without taxes, and without interest charges. This money is not added to the national debt. Eventually, through this system the present national debt could be reduced to zero.

Treasury System

This type of money system, where the Congress controls our money, can be called a Treasury System. Congress sets the monetary policy and the Treasury would be responsible for creating and extinguishing our money. Our Constitution provides Congress the legal right to operate a Treasury System (Article 1, Section 8, Clause 5). Only the Treasury would be authorized to create money. The Federal Reserve banks would become part of the Treasury. Privately owned banks and companies would not be allowed to create money. Loans made by the banks would be based on actual dollars the banks have on their books. Banks would be allowed to charge a small amount of interest on loaned money. Fractional reserve banking and federal bank reserves are out. All checks would clear through the Treasury.

Our country has never operated on a Treasury System model.

Overspending

Even with this system, Congress or the Treasury cannot go crazy and issue enormous amounts of money beyond the growth of the economy. If the Treasury System is operated properly we could avoid the pitfalls of our present yo-yo or roller-coaster economy.

Tax money, over $1 trillion, which is now collected yearly by the government would be available to the people for investment into our economy. If your federal taxes are zero, you can spend more into the economy. The economy will flourish. Inflation and unemployment would be practically eliminated.

The argument often made against the Treasury System is that the government will be producing worthless money because it is not backed by real money. This is pure propaganda. The truth of the matter is that our present money system, which is controlled by the private bankers, creates money out of thin air. Who is backing the bankers? You are. When the bankers get into big financial trouble, who do they run to for help? The government. And, of course, the government then goes to the people, the producers of real wealth.

Occasionally, because of unanticipated circumstances, a need may arise to reduce (extinguish) the amount of money in circulation. To bring the money supply into balance with the economy the government can reduce spending or a federal tax can be placed on a widely used commodity, such as gasoline. In an extreme situation a one time federal income tax may be necessary to calm down an inflationary binge. In any event, all these measures are only a temporary inconvenience. The Treasury System is not prone to create inflation, unlike the present Federal Reserve System.

The Treasury System, which is proposed here, is controlled by the people through their elected representatives in Congress and is backed by the productivity of our society.

Federal Reserve System

Our present money system, the Federal Reserve System, was established in 1913. Congress gave total control of money creation to privately owned local banks and privately owned regional Federal Reserve banks. In the belief that they could solve the nations monetary problems, which has been plaguing this country since its inception.

The word Federal in Federal Reserve does not mean a government operated program. In fact, the Reserve banks are regular business enterprises seeking a profit. Practically all the people who are employed by the Federal Reserve banks are paid their salary by the banks, not by the government.

Federal Reserve game

The Federal Reserve banks and local banks have been given a special privilege to create and control money by our Congress. For example, under the Monetary Control Act of 1980, the Federal Reserve Bank of New York can purchase through its open market operation $10 million worth of Microsoft stock. The bank pays for this stock with its own check, a Fed check or its electronic equivalent. [The Fed check is created from thin air, there are no funds backing this check. No funds!]

The Fed check is deposited, by the stock seller, into a local bank. It is then returned to the Federal Reserve Bank of New York, where the check is cleared and the local bank is given full credit for this deposit. This is all a bookkeeping procedure. Local banks, through their bank deposit / loan cycle can create $90 million from this $10 million initial deposit.

Again, realize that the local banks are creating money from thin air, just as the Federal Reserve Bank of New York created the Fed check from thin air. Obviously, the banks can get fabulously rich under this grand scheme.

It is interesting to note that the 12 privately owned Federal Reserve banks have zero debt. These banks started in 1914 with a worth of $143 million, their present worth is estimated to be half a trillion dollars. Quite a gain.

Now consider our government, it has an astronomical debt of approximately $6 trillion ($6,000,000,000,000) and growing. We, the taxpayers are responsible to payoff this debt.

World domination

The bankers and their paid economists, media people and politicians are moving us into a world monetary system which resembles our Federal Reserve banking system. This is a move away from democracy and toward a system where large global banks and large transnational corporations will dominate the economies and peoples of the world.

Our Congress must start to dismantle the Federal Reserve System and move toward a more workable, stable and equitable money system, like the Treasury System.

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