A Picture of Prosperity: America by Utagawa Hiroshige (1797-1858)
It seems to me there is seldom any shortage of people willing to complain about the current system. The real shortage appears when we look for either plans or actions taken to replace the current system with something that would demonstrably be an improvement. Accordingly, I hope you will read this proposed plan to restore sound money, and recognize it as something that is not only rare, but is of exceedingly great importance.
This article is intended for people who know that our monetary system is unsustainable and who want to know, in plain language, how this problem can be fixed. This describes not only followers of Ron Paul, but anyone who knows that the Federal Reserve system is behind many of our economic problems, and who wants sound money. In this article, I explain the problems and offer a solution that will work.
This is a topic that should be of interest to Christians, and to anyone who wants to reduce or eliminate poverty. Even if you only desire to see greater prosperity in the developed world, the monetary system proposed in this article, if implemented, will lead to general prosperity. The reason I know this is because this plan would eliminate debt-based money and provide for a stable currency. Beyond that, this plan can potentially help Americans save hundreds of billions of dollars in taxes every year!
In case you’re wondering where I came up with this plan, the underlying principles come from the Bible. You may be surprised to know that money is such an important topic in the Bible.
By the way, this won’t be another article recommending a return to the gold standard. In fact, I’ll explain why that would not be an effective solution. The Bible does not teach that prosperity comes from gold.
People in ancient times knew about the economic “evil” called debt, which continues to be one of the biggest problems today. I put the word evil in quotes because sometimes we need to borrow, and we should usually pay interest when we do. The evil side of debt lies in the fact that debt with interest can easily reduce people to ruin.
In addition to the Bible, I’ve applied that knowledge that I learned from having read extensively about economics and investing. Such material can be hard to understand because of the way it’s typically presented. I’m going to keep it as simple as possible here, and my proposed solutions are also simple.
The Current System
Federal Reserve Board building (Wikimedia Commons)
The United States Treasury doesn’t create our money, but only prints it. Whenever our Congress spends more money than the government has collected in taxes, it has to borrow money.
The Federal Reserve is the primary institution that is responsible for loans to the federal government. The Fed doesn’t have to either work or borrow to get this money. It creates the money out of thin air, lends it to the government, and collects interest on it.
You might think this is okay because you think the Fed is a government agency. That’s why it’s called the “Federal” Reserve, right? Actually, that would be incorrect. The Federal Reserve isn’t part of the U.S. government. It’s actually a private banking cartel. The Federal Reserve issues and sell shares to the big banks. By this means, the banks own the Fed.
You may think that, even though the Fed isn’t a government agency, at least it’s accountable to Congress. That would be far from the truth. The Fed doesn’t need approval from Congress for anything it does. The Fed chairman only has to go before Congress periodically to discuss economic and monetary issues, and to answer questions—not to take orders.
The Fed has a monopoly on setting interest rates. The Fed tightens the money supply by raising its interest rate, and increases the supply by lowering the interest rate. Our money supply directly affects the value of the dollars we hold. Our dollars are being inflated from year to year, which means they’re losing value.
The Federal Reserve also controls the money supply by regulating the amount of funds that commercial banks must hold in reserve against deposits. This is related to “fractional reserve” banking,” which I’ll discuss later.
Most of the Fed governors and directors come from the large private banks that own it. Those banks can be expected to look out for one another’s interests. We’ve seen this over and over again. The Fed has given trillions of dollars in financial bailouts directly to big banks, but not one nickel to poor people who need the money.
Biblical Principles of Sound Money and Prosperity
The Casting Out of the Moneylenders from the Temple by Lucas the Younger Cranach (1515-1586)
I’m not ashamed to turn to the Bible because its ethical principles are valid to this day, even as they apply to economic issues. Excessive usury (i.e., charging of interest) and financial fraud must be nearly as old as prostitution. God’s prophets weren’t ignorant of these sins, nor of God’s response to them. As unlikely as it seems that they could have been wiser about money than today’s financial “experts,” I think they were. The key word would be “wisdom,” as opposed to mere academic knowledge.
The monetary and financial system that I’m going to propose here is based on two important biblical principles, which are:
1. Interest charges were forbidden. The Law prohibited the charging of interest to fellow Israelites (Lev. 25:35-37, Dt. 15:1-7, 23:19-20). Israelites were permitted, but not required to charge interest to foreigners (cf. Ex. 12:49, Lev. 19:18).
We need to distinguish between things that God permitted under the Law and commandments that expressed His will. For example, the Law allowed for divorces, but that didn’t make it right (Mt. 19:8). The charging of interest was against God’s will because other Scriptures condemn it without qualification (Ps. 15:1, 5, Prov. 28:8, Eze. 18:8, 13, 22:12-13).
Both John the Baptist and Jesus lived under the Law, and they commanded people to give freely, without expecting anything in return (Mt. 10:8, Lk. 3:11, 6:35). The early Christians took this to an extreme by sharing everything in common (Acts 2:44, cf. 2 Cor. 9:7). However, there were some exceptions (Acts 5:1-11).
The Law is important because it expressed the will of God. However, many problems would arise with any attempt to impose biblical law on societies today. For example, if we tried to outlaw the charging of interest…
- The attempt would fail since unbelievers are sinners by nature.
- Even Christians can’t be expected to keep the Law, though we have been born anew by the Spirit of God. The New Covenant is based on grace, not on obeying the Law. God is writing His laws on our hearts, not outside of us on things such as stone tablets, paper, or digital documents.
- If Christians want to fully embrace biblical financial principles, we’ll have to share everything in common. The vast majority of us, myself included, are not ready for this.
Of course, I won’t be addressing every circumstance in which one party may lend money to another. My topic is money issuance and central banking. Again, I’m opposed to debt-based money, or money that is created as debt. That is not justifiable by any moral standard. I’m also for…
2. Stable, real currency value. A stable currency would make it easier for people and institutions to engage in interest-free lending, which is a biblical priority as we learned in #1.
The Bible gives every nation a mandate for stabilizing its currency because it prohibits the changing of weights and measures is (Lev. 19:35-36, Prov. 11:1, 16:11, 20:10, Eze. 45:10-11). The value of a nation’s currency is as important to fair trade as the definition of a kilogram or inch. We’re to be followers of God, Who is reliable and unchanging (Eph. 5:1, Mal. 3:6).
The currency should also be real, sound money. This does not mean that the currency has to be 100 percent backed by an asset such as gold. In fact, as I’ll explain, that would be a very bad idea. The currency should primarily be backed by things that are truly important, such as:
- A corruption-free government
- A prosperous economy
- A stable exchange rate
- Political stability
- Little debt
- Peace and security
- Good prospects for the future, and finally…
- Some mixed asset backing behind the currency
The Bible says we are not to love money (Heb. 13:5), but that doesn’t mean we shouldn’t want to have faith in the value of our currency. We ought to be able to trust that our money is good, in much the same way that we should be able to trust a chair to hold us, and the floor as well.
I’ll address the topics of interest and currency stability separately, beginning with…
The Problems With Lending on Interest
The Sailor and the Banker (1799) by T. Rowlandson and G. M. Woodward
Much of the money that the United States borrows comes from China and other foreign lenders. This is a problem because, according to Proverbs 22:7, the borrower is the slave of the lender. This means that the American people have, to some extent, lost control of our own government.
As I’ve already explained, our debt-based monetary system is fraudulent because the Federal Reserve creates the money out of nothing. When the commercial banks receive and lend out this newly created money, further fraud occurs. Those banks are permitted to lend far in excess of their available reserves. This is known as “fractional reserve banking.” Thus, our debt-based money is also fraud-based money.
As you probably know, state and local governments are generally limited to spending only the money that they collect in taxes. When they need extra cash flow or money to pay for a large capital project, they need to obtain short-term financing or issue bonds. Afterwards, they have to repay the money with interest.
The situation is different with the federal government because it has easy access to massive credit. The federal government borrows money, but is unable to pay down its debt. Instead, it keeps becoming more and more indebted every year. Our Congress spends money as if it comes out of a bottomless pit which, in a sense, it does.
It makes no sense for a government such as ours to borrow money from other nations, and from wealthy individuals to fund its operations. The United States government has already taken on an unsustainable level of debt. This has resulted in an erosion of financial independence and national sovereignty, and in the bankrupting of future generations.
A hopelessly indebted government such as ours must do whatever it takes to satisfy bond holders so that they’ll keep buying more debt. When Bill Clinton was president, he is reported to have said, “You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of ####### bond traders?”
Bond purchasers are dependent on governments as well. After all, in this world where the richest one percent of people own 40 percent of the world’s wealth, all that extra money can’t simply go into stocks and real estate. Government bonds are usually considered a safe investment. However, many governments are caught in a debt spiral from which they can’t escape.
Some elitists seem to like it when governments take on unnecessary and excessive debt. One way to get a government to do this is to get it into a war. Further financial gain is possible if the bond investor also owns stock in defense companies. If no excuse can be found for a foreign war, the government can declare a war on poverty, cancer, drugs, terrorism, or whatever the public may be obsessed about at the time. The media is good at scaring the public, and at being cheerleaders for the government’s latest spending plans.
Government bureaucracies naturally want to expand, apart from any external influences. If new employees come in, the existing employee base can get promoted and move up in the ranks. Most government employees detest a stagnant bureaucracy. They don’t want to admit it if their jobs have no meaningful purpose, as long as they’re getting paid.
Not only is our government dependent on debt, so are most consumers. We’re constantly enticed by advertisers to borrow, spend, and invest beyond our means. This also helps contribute to the boom and bust cycle. After all, what good would a financial boom be to the elitists if a lot of “Joe Sixpacks” didn’t buy into it?
The Federal Reserve is responsible for inflating financial bubbles through their interest rate mechanism. When the Fed allows banks to borrow money at low rates, those banks become free to use the cheap money and leveraged financing to create the next bubble. Easy credit encourages people to spend money, but not all spending helps the economy. For instance, it doesn’t help when people take on debt to buy electronic items they don’t need or houses they can’t afford.
The Federal Reserve Board and the big banks have a virtual stranglehold on the U.S. economy. They control the money supply and the financial system for their own gain. Former congressman Ron Paul charged the Fed with having been “the chief culprit” behind the economic crisis.
When a financial bubble bursts, it bankrupts both businesses and the employees who lose their jobs. Middle class people and small businesses pay higher costs for necessities such as housing during the boom, but have nobody to bail them out when the economy crashes. On the other hand, the big banks always get their bailouts, no matter how much money they need.
All debt-backed currencies impoverish their home nation. The money is created in such a way that the original principal is funneled back to the banks, along with interest. There’s never enough money in circulation to repay all the debt because all the new money comes into existence as debt. As people and companies repay debts, that money goes out of circulation. Therefore, the Federal Reserve must create an ever-increasing supply of money to keep up with the demand. This gives the illusion that there’s always enough to go around. However, too much money is now being printed. That leads to inflation, which is a fixture of our economy.
In the long run, the too-big-to-fail banks always hurt the economy and reduce job opportunities for Americans. As you may recall, the housing bubble resulted mostly from historically low interest rates and lax lending practices. While some people will always need access to credit, debt can never serve as the foundation of a sound economy. Unfortunately, debt is practically the only thing that most central banks have to offer a nation.
The private banks that own and manage the Federal Reserve have no right to issue the currency, create and deflate financial bubbles, and otherwise engage in profiteering to the detriment of the national interest. For these reasons, I agree with congressman Ron Paul and others who want to abolish the Fed.
The U.S. Congress didn’t have constitutional authorization to pass the Federal Reserve Act in 1913. Section 8 of the Constitution only gives Congress itself the right to issue money. Conceivably, the Congress might have been within its rights to delegate some limited authority to an independent commission. What it did instead was to give full powers to a banking cartel. The Federal Reserve is as “federal” as Federal Express.
The Problems With Currency Instability
Should advanced economies have to ride this kind of roller coaster? (Wikimedia Commons)
When I say that a currency should be stable, I’m not suggesting that it’s possible to live in a world with no fluctuations whatsoever in currency values. That would be inconceivable. I’m only saying that monetary systems should be designed with currency stability as the primary objective.
When the value of a currency fluctuates greatly from month to month and year to year, it can wreak havoc on the economy through recessions, inflation, and possibly even hyperinflation. Currency instability is associated with economic instability, and may lead to social unrest.
Many fiscal conservatives insist that we should base our paper and digital money on the gold standard. They say this would keep central banks and governments from creating inflation with their printing presses.
The “gold bugs,” as they’re called, make some good points, but are mistaken in key areas. First, the price of gold can easily be manipulated by extremely-wealthy people. Even if we were to add a silver standard, silver is in short supply and constant demand. Therefore, its price is even easier to manipulate than the price of gold. We can rest assured that wealthy elitists already own large quantities of gold, silver, and other precious metals.
The Adoration of the Golden Calf, before 1634 by Nicolas Poussin
You might wonder why anyone would want to manipulate the price of gold or other precious metals when it can do so much damage to an economy. They could be enemies backed by a foreign government, or they could simply want to accumulate more wealth.
If you’re wondering how they take advantage of the gold standard, I’ll explain it for you. First, a government makes the foolish mistake of fixing the value of gold to the nation’s currency. The government makes these promises to everyone, rich and poor alike:
- If and when you request it, we’ll give you a fixed amount of gold for each dollar you exchange, regardless of current market conditions.
- Whenever our supply of gold becomes depleted in relation to the amount of paper and digital money outstanding, we’re obligated to purchase large quantities of gold at the prevailing market price.
- This plan has the word “sucker” written all over it, or rather “suckers” since taxpayers must foot the bill. By adopting the gold standard, this not-so-hypothetical government has committed itself to buying and selling gold at the behest of outside parties, on their timing. Any person or group of people with enough wealth to manipulate gold prices can easily take advantage of this situation by manipulating the markets and profiting from the undervaluation or overvaluation of gold in relation to the currency. In the process, they wreak havoc on that nation’s economy.
The gold standard has been tried, but has failed many times in the past. Former presidential candidate William Jennings Bryan stated in a famous speech in 1896, “You shall not crucify mankind upon a cross of gold.”
The gold bugs might argue that it’s better to take this risk that to continue with the existing monetary system, which is dependent on fraudulent lending. However, as bad as our debt-based monetary system is, many financial experts fear that a gold-backed currency would be even worse. Wealthy elitists have proven time and again that they can easily manipulate gold prices, even to such an extent that they bring economies to their proverbial knees. A gold-backed currency could even make the Federal Reserve Bank and fractional reserve banking system seem like a good idea by comparison.
People who want to change our monetary system need to propose a better system than the one we have now, not something that’s even worse. We need a plan that will permanently free us from elitist control, fraudulent money issuance, and fractional reserve lending. To this end, I offer a plan to restore sound money and prosperity in Part 2 of this series.