THE BLOG

Platinum Coins Can Save the American Economy

01/11/2013 11:40 am ET | Updated Mar 13, 2013

As we begin another stressful year, it's difficult to be at peace with the relentless pressure to chase "the almighty dollar," a term we owe to author Washington Irving.

Most of us feel like the hub of an old wagon wheel, always under pressure from every direction, and carrying too much of a load, regardless of our path. We can see America getting weaker and we know poverty is increasing. We feel the inertia but can't identify its source.

All the while, the declining physical condition of our nation's infrastructure mimics our personal stress. There is never enough money to properly maintain our aging roads, bridges, utility systems and public buildings.

A 2009 study by the American Society of Civil Engineers showed that 26 percent of our bridges are "structurally obsolete" and one third of our roads are in poor condition. The study concluded that over $2.2 trillion would be needed for repairs over the next five years. The study gave our infrastructure a D grade, just short of failing.

America seems stuck in a quagmire of debt and disillusionment. Nationwide, the total deficits of city, county and state governments exceed another three trillion dollars. Our personal debts and the federal debt loom over us like giant predator space ships. We are paralyzed by the enormity of it all and we feel incapable of doing anything about it.

So, we respond by laying off teachers and closing schools in the same communities where new private prisons for profit are opening. Repairs are delayed on roads and bridges while our tax dollars are spent to buy new surveillance cameras to watch our every move.

We fight a war of liberation in Afghanistan, while we allow Homeland Security and the TSA to strip away our rights. All the while, 50 million Americans live in poverty with no financial liberty. Worst of all, 67 members of the House of Representatives voted against disaster funding for Hurricane Sandy victims.

During the last election cycle, the Republicans talked about eliminating federal funding for Planned Parenthood and National Public Radio. The Democrats defended the war in Afghanistan, which they opposed before President Obama was elected, and they said nothing when he broke his promise to close Guantanamo.

Let's face the truth. America will endure continued fiscal and moral decline if President Obama keeps us on the same political and economic path as previous presidents did. Today, the American system is stressed to the breaking point and some things must change.

In my opinion, nothing will improve until we populate Government with people who possess the life experience and creativity to re-awaken America's potential. Slashing government programs in a bad economy won't fix anything. It's dumber than bleeding people in a barbershop to cure them of disease.

So, let's look at some ways to improve conditions in our troubled country. The tools have always existed under Article (1) Section (8) of the Constitution to create the money we need, and to return America to growth and full employment.

The Constitution clearly gives Congress the right to "coin money and to regulate the value thereof" but the Congress abrogated that responsibility 100 years ago when it passed The Federal Reserve Act. This law put a central bank in charge of our money. The Federal Reserve Act was written to benefit powerful bankers and it transferred almost unlimited authority over our money to these bankers and their descendants, and these same banks are even more powerful today.

The key word is "almost." There is a small loop hole in The Federal Reserve's control of our money.

Under current law, The Treasury Department has the job of stamping coins and printing paper money.

The paper money becomes Federal Reserve Notes upon issuance, which is clearly stated on the note. However, the same is not true of coins. Just look at any coin and read the inscription. It says nothing about the Federal Reserve or any bank.

So, to get around the republican's refusal to increase the debt limit, the president can simply order up some platinum coins in any denomination (let's say one trillion dollars each), and have the value stamped on them. Then, he can deposit the coins with the Federal Reserve Bank (he should probably keep a few in the White House safe) and literally order the FRB to "cash these now" by depositing their electronic equivalent into the operating account of the United States.

The idea is enough to cause CEO's of mega-banks to fall out in a dead faint. Bank of America claims the Treasury Department only has the right to produce commemorative coins, but this is not true and it has it never been true in practice. In fact, The Treasury Department's Bureau of Engraving and Printing is hard at work, day and night, stamping out coins and running the printing presses. The Treasury Department regularly distributes coins and currency into the Federal Reserve's system, but the coins are definitely the property of the Treasury. Coins, as opposed to currency, have nothing printed on them that suggest they are the property of the Federal Reserve. Coins are imprinted with the words, "Liberty," "In God We Trust" and most importantly, "E pluribus unum," which is Latin for "Out of many, one."

So, what happens if the president orders up about a dozen One trillion dollar coins or better, 12,000 one billion dollar coins? First, our country will instantly have more than enough funds to operate the Government for a long time into the future without depending upon the Chinese Government or bond salesmen on Wall Street. Our country will have enough funds to make federal grants to restore the budgets of every financially strapped city, county and state government.

This debt-free money will flow through the local economies and increase the local GDP and local tax revenues, which, in turn, will flow back into our local communities.

As any economist will attest, the multiplier effect of the money changing hands will expand local economies, such that some of the original amount will find its way back to the federal treasury in the form of taxes and will eventually help to balance the federal budget.

I seriously doubt that the Obama administration will take this step, because it would undoubtedly result in a political battle rivaling President Andrew Jackson's take-down of Nicolas Biddle's Second Bank of The United States. Administrations are reluctant to use this authority for fear of empowering you and me at the expense of mega-bankers who benefit from the current system.

The point of exploring this fanciful alternative is to help more of us to understand money, and to realize that we do have alternatives. We can jump-start the economy and we can rebuild our infrastructure with American companies and American labor earning living wages if the president will simply do it.

According to Dr. John Rutledge, Chairman of Rutledge Capital and advisor to Presidents Reagan and Bush 43, America is worth about 200 trillion dollars.

We can assume that such a tremendous asset base allows us to draw down a few trillion dollars of operating capital now and then, if we really need it to restore America's "Ship of State."

We should use at least three trillion dollars of our draw to balance the budget of all municipalities and governments below the national level. The new funds will employ contractors to make infrastructure repairs and rehire essential teachers and public workers. It will take some cities out of bankruptcy and save others from bankruptcy.

At the same time, the banks must be prevented from re-loaning the new funds each time they are spent locally and re-deposited.

Here is a stark example of what happens when you deposit $10,000.00 into your bank, which operates under the Federal Reserve's practice of "fractional banking.".The following example is taken from LivingEconomics.org

The Money Creation Process

Let's follow the step-by-step process of money creation in the banking sector.
Suppose you deposit $10,000 into Bank A.
In a fractional-reserve system, bankers don't need to keep your $10,000 in their bank.
They are only required to keep 10% of your deposit.
They are only required to keep $1000 and the rest ($9000) of your money is considered excess reserves which can be loaned out to someone else who will pay the bank interest on your money.
Let's assume that your neighbor borrows your $9,000.00 and deposits it into his Bank B account.
Again, only 10% of the $9,000.00 needs to be kept at Bank B and the rest of the funds totaling $8100 can be loaned out to earn interest for Bank B.
Let's assume that the $8100 gets borrowed and ends up in Bank C.
Let's assume bank C loaned your "reserve" again which is now $7290, and so on...
After many rounds of lending your money, the banks "created" $90,000.

Now let's assume each bank charged an average of six percent interest on these loans. This is $5,400.00 of annual interest charged against your original $10,000.00 deposit but no one borrowed the $5,400.00. Remember, $95,400.00 will become due when the notes mature but only $90,000.00 was created. So where does the money come from to pay the interest? It must come from perpetual borrowing. This explains the fundamental cause of inflation and how it is deeply rooted into the structure of the Federal Reserve's fractional banking system.

So, it's obvious that the banks must be prevented from debasing the value of these new, debt free dollars that we all want our president to spend, rather than borrow into circulation.

The banks must not be allowed to convert the new money into interest bearing Federal Reserve Notes through the practice of fractional lending, which, as shown above, is the re-lending of the same money over and over each time it is re-deposited. Rest assured, they will do so if given the opportunity, and then they will blame the resulting inflation on the president.

Unless we choose a course that makes drastic changes to monetary and fiscal policies, each successive generation of Americans will work away their lives in quiet frustration in a system that guarantees repeated recessions, depressions, inflation and perpetual poverty in the midst of plenty.