A Report to the Banking Committees of the House and the Senate

This report evolved into our "Silver Bullet Plan" which we completed in May of 2009 and sent by first-class mail to every member of the finance committees of both houses of Congress. We also personally hand delivered State-related information from the plan to California Governor Schwarzenegger's receptionist and about 15 other California officials in Sacramento.

We received no replies

Your advice is requested on (A) any aspect of the report and (B) how we can best use our time to publicize the report while we are in Washington.

Seven Overlooked Minor Problems That Are Crippling The Banking System ... and ... The Simple Legislative Action Congress Can Take To Solve Those Problems

Problem #1: A Belief That An Increase In The Money Supply Will Always Lead To Inflation
Problem #2: Banks Do Not Suffer When They Make Bad Loans
Problem #3: The Government Does Not Use Conventional Double-Entry Bookkeeping
Problem #4: Contract Laws Are Not Routinely Applied To Monetary Transactions
Problem #5: The People of “We The People” Are Not Encouraged To Start Banks
Problem #6: The American Public Does Not Understand (a) Our Money System And (b) Fractional Reserve Banking
Problem #7: The Government borrows money and pays interest on that money when it should be creating that money in accordance with its sovereign and Constitutional right to create money.

These seven problems may look rather trivial at first glance, but it is our belief that they are crucially important: remember -- "for want of a nail, a kingdom was lost".

------------------------------------------------------------------------------------------------------------------
Problem #1: A Belief That An Increase In The Money Supply Will Always Lead To Inflation
Discussion: Lots of people have a deep-rooted belief that a significant increase in the money supply will always lead to inflation -- which is a devaluation of money. We think that is nonsense. If the newly created money is put into the system in such a way as to increase wealth (those things that we value and which lead to a better average life) -- the added money will not be inflationary. In addition, money that is put into a system by lending is extinguished when the loan is paid back --- it is only in the system for a definite, finite time.

Actions Needed: (1) Laws should be passed that will specify banks will primarily lend money to people and corporations who have (a) adequate collateral and (b) a good plan to create wealth with that money. (2) The Government should directly invest money in wealth producing national projects and related infrastructure.

Problem #2: Banks Do Not Suffer When They Make Bad Loans
Discussion: The “fractional reserve system” is often seen as being the main source of economic problems, because it “(a) creates debt-money out of thin air, (b) leads to an unhealthy increase in the money supply and (c), inevitably, inflation”. I believe these three negatives are always the result of (1) risky lending and (2) a lack of natural “Carrot & Stick” controls that guarantee banks suffer when their loans go bad. Under the present system -- the banks sell off most of their loans (to Freddie and Fannie) and escape what should be the bank's loss when loans go bad. They take the Carrot -- but avoid the Stick. That can easily be corrected by laws which forbid the selling-off of loans by the creator of those loans. The enormous natural downside leverage of fractional reserve banking will the insure that banks make reasonably safe loans. See a separate one-page report on the downside leverage built into competitive fractional reserve banking.

Action Needed: Laws should be passed that will mandate banks must not transfer ownership of the loans they create before the loan is paid back. The borrowers should know that they will deal with the known lender for the life of the loan. This will stop bundling of loans into exotic debt instruments that nobody understands. It will also obviate the need for Freddie Mac and Fannie Mae.

Problem #3: The Government Does Not Use Conventional Double-Entry Bookkeeping
Discussion: The government should change to a conventional double-entry bookkeeping system wherein all transactions involve (1) assets, (2) liabilities , (3) income and (4) expense. Such a system is universally recognized as being the only way to keep track of the financial status of any enterprise. The main advantage of doing this is that government “spending” on worthwhile infrastructure would not immediately be considered an “expense”. The money spent in this way would go into an “asset” account that would be counted as an expense in accordance with a dedicated depreciation schedule. The public should be able to track all wealth-creating programs on the internet.

Action Needed: Laws should be passed that will mandate conventional double-entry bookkeeping on all monetary transactions.

Problem #4: Contract Laws Are Not Routinely Applied To Monetary Transactions
Discussion: All monetary transactions should be considered contracts and should be analyzed in terms of contract law. Reasons and expected results follow.
(a) Contracts have a long legal history in English Common Law and an extraordinary written record in our law books -- both statutes and case law.
(b) Definitions for all words and principles used in contract law are well established in law books.
(c) If we establish that all paper money is essentially a contract between two human entities, it should be relatively easy to describe “paper money” in legal terms and perhaps accounting terms -- because the law is very familiar with accounting.
(d) It can be convincingly shown that barter was originally, and still is, simply a contract between two traders.
(e) The use of gold and silver to facilitate trading could also be shown to be a contract.
(f) The law generally and specifically prohibits the Federal or State governments from interfering with contracts unless the contracts violate existing laws.
(g) Consideration of the above naturally leads to a reasonable conclusion that traders can either use paper money or gold in their transactions as long as (a) they both agree that they understand the terms of the contact, and agree to those terms and (b) the contract does not violate any law
(h) Since the government may not interfere with private contracts under our laws, the government should not pass laws that would prohibit or mandate the use of paper money or the use of gold as money. Both should exist unhampered by government interference.

Action Needed: Laws should be passed that all monetary transactions should be covered by Federal Contract laws

Problem #5: The People of “We The People” Are Not Encouraged To Start Banks
Discussion: Congress should encourage the establishment of banks by common people and groups of people -- such as community organizations, Credit Unions, homeowner associations, charities and such. The Constitution gives that right to the people. See a rather complete plan and discussion here.

Action Needed: Congress should pass Federal Laws that will encourage The People and their institutions to start banks. That would practically guarantee a competitive banking market.

Problem #6: The American Public Does Not Understand (a) Our Money System and (b) Fractional Reserve Banking
Discussion: Congress should encourage the education of the American People on the principles of (a) and (b) above

Action Needed: Congress should pass Federal Laws that will encourage our educational system to address these issues. A well informed public is probably our best defense against inefficient and wasteful systems.

Problem #7: The Government borrows money and pays interest on that money when it should be creating that money in accordance with its sovereign and Constitutional right to create money.
Discussion: No discussion is needed. The advantages are self evident. Why would any nation borrow money when it has the right to create money? Third- and fourth-world countries might not understand this -- but the United States Government should certainly understand this obvious truism.

Action Needed: Congress should simply implement such a program and stop borrowing money. Money should be created to pay off all existing debts.

I invite your comments on all of the above. Help us refine our thoughts.

Martin R. Carbone / 5123 Don Rodolfo Drive / Carlsbad CA / 92010

martycarbone@yahoo.com
http://www.alphabeticalist.com
------------------------------------- end ----------------------