MATTOLE SELF-SUFFICIENCY PROJECT

A National Treasury Monetary System

Three principles of monetary law in a free society

1. The national treasury shall be the one and only creator of money and credit in the economy. This means that Congress should exercise its power under Section 8 of the US Constitution "To coin money, regulate the value thereof ,…." This means that it would no longer be necessary for the private banking system to create money and would eliminate fractional reserve banking. Money would be created by the US Treasury as debt-free expenditures (government spending) or as loans.

2. The national treasury shall service the needs of the private sector with loans. Private banks would continue all of their present services. However, since they would not be able to create money thru fractional reserve banking, they must borrow money from the national treasury in order to make loans. Banks would be able to lend out money they hold on long term deposit (M2), e.g., as certificates of deposit.

3. Government revenue and debt-free government expenditure shall be kept in near balance. Government expenditures would be met by creating debt-free money. Government revenue comes from principal and interest payments made by banks and non-bank borrowers, and from federal taxes. Revenues would be used to "extinguish" the debt-free money that was created to meet expenditures and make loans. The necessary interest rate would be set by law to provide a near balance between expenditures and revenues.

Under a national treasury money system, the extra money needed to pay the interest in the exercise of the previous section is created by government expenditures. In this case, the government would create the $50 as debt-free money and spend it, making the total amount of money in circulation $1050 (the $1000 created from John's loan plus the $50 created by government spending). When John repays the $1050, all of this money is extinguished.

Obviously, people will be borrowing and paying back money on a regular basis so that there will always be money in the system. As the demand for money increases, it is created thru loans. As the demand for money decreases, it is extinguished as people repay loans. As long as the government expenditures are balanced with government revenues, this type of monetary system is stable, i.e., without recessions or depressions.

The transition to a national treasury money system would proceed as follows. First, all bank-created money would become illegal as it would contravene the national treasury's prerogative to create money. This would require each of the commercial banks to issue an interest-bearing bond to the national treasury in the amount of the loans each has created. As loans are repaid to the bank, the bank will in turn pay on the bonds to the national treasury which will then extinguish that amount of money.

US Treasury notes and bonds held by the non-bank public would be paid off on schedule. Those notes and bonds held by the regional Federal Reserve Banks would be negated since they were all purchased with money created by the FRB and the FRB would be required to issue an interest-bearing bond to the national treasury in that same amount, as described above.

Under a national treasury money system, the government revenues from interest on loans would account for almost all of the government expenditures. For example, the present money supply (M1) is roughly $20 trillion. Under a national treasury system with a 6% interest rate, the total revenues derived from this source would be $1.2 trillion, very close to the present operating budget of the federal government. Taxes would be used to fine-tune the balance and could be in the form of import duties rather than income taxes or sales taxes.

Last Updated: 23 Mar 2005