Tuesday, May 3, 2011
How to replace the Federal Reserve...
Why the sun will still rise without the Federal Reserve system
Ultimately you don't start by ending the Fed, you start by competing with it, or opting out of it. Here are five alternatives to consider:
1. Gold and Silver: First, by repealing legal tender laws the State will no longer be able to prosecute violators as domestic terrorists for using silver as an alternative currency. As a Constitutionalist, Paul supports gold and silver as a viable currency. Indeed, they have proven to be a safe store of wealth against fiat inflation. Gold and silver money have also been a timeless and border-less medium of exchange that would likely be generally accepted for interstate trade. If HR1098 were ever to pass, a commodity-based economy would likely become very popular as it will operate outside of the Federal Reserve's debt-based, taxable money system.
2. Local Tender: Local currencies are already perfectly legal in the United States "as long as it does not look like dollars, as long as denominations are at least $1.00 value, and if it is regarded as taxable income." In other words, they are essentially tied to U.S. dollars and must be taxed the same. Several communities have adopted alternative paper currencies to stimulate local trade. Many of these currencies have been set up in defiance of the debt-based money system and resemble a barter system. These local tender will obviously face challenges of interstate trade and are, depending on their structure, still somewhat at the mercy of a devaluing U.S. dollars. Under Paul's competing currency act, these local currencies could now be considered "legal" tender, which could conceivably remove their peg to the dollar. However, it is unclear whether they will share the same tax-free benefits as gold and silver under Paul's plan. Either way, they provide an important alternative exchange vehicle should the dollar became completely worthless.
3. Credit Unions and State Banks: Under the current fractional reserve system banks create over 90% of the money in the economy through loans. One way to utilize this power of the banks for the good of the local community is to support credit unions, or by creating state banks modeled after North Dakota. Credit unions may be structured differently depending on the institution; however, they all seem to loan only to depositors for local projects or businesses. They are also typically owned by the depositors themselves. The state bank of North Dakota works similarly in that it only makes in-state loans, fueled by the deposits of the state treasury, and profits go directly back into the state. Both of these entities offer an immediate alternative to the private banking cartel, and could conceivably print an alternative currency, if needed, that would likely be trusted by depositors.
4. Interest-Free Treasury Dollars: Interest-free money issued directly by the Treasury, reminiscent of Lincoln's Greenback, would basically remove the for-profit middleman -- the Federal Reserve. The concept of interest-free money in the U.S. started in Colonial times. Ben Franklin referred to it as "honest money" and wrote "In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to make the products pass easily from the producers to the consumers. In this manner, creating ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one." Naturally, the private banking cartel will deplore this idea, as it breaks their control over the government and the economy. John F. Kennedy was the last president to attempt this on June 4th, 1963 (Just months before his assassination); he signed Executive Order 11110, which gave him legal clearance to create interest and debt-free money directly from the Treasury. What made Kennedy's plan even more secure is that his interest-free money was to be backed by silver bullion in the Treasury. This would seem to be the best national strategy so long as other local competing currencies are still allowed to exist. Otherwise we are just trading one monopoly for another.
5. Barter: Barter is the oldest form of trade. Simply put, barter is the voluntary exchange of goods and services for other goods and services without the need for currency. Because money is completely eliminated from the equation, barter naturally replaces money as the method of exchange in times of monetary crisis. Many local food cooperatives are starting to implement this type of quasi-underground economy based on credits, sometimes tied to currency for easy valuation. These systems encourage participants to produce something for the cooperative and are typically best used at the local level. Many new local currencies are replicated after barter systems, as money is only seen as a medium of exchange, not an instrument of debt or a store of wealth. Barter systems are quite easy to set up and manage these days utilizing the Internet.
Clearly the impact of the Federal Reserve should be a major part of the 2012 presidential campaign. And if it is, Ron Paul has a good chance of victory. However, if we truly believe in the ideas of competition and freedom then each of these alternatives have a role to play in our economic future.