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“Let There Be Darkness: Fiat Money and Citizen Ignorance”

Several months ago, our SupremeLaw discussion list on the Internet was grappling with the many facets of the money problems facing America. Because public schools have now been fingered for promoting a deliberate dumbing down of the American People, we felt it was not too late to put some simple examples on the table, to help our fellow Americans overcome that disability.

One such example that we offered was a simple amendment to the rules of the once popular board game Monopoly. Under the regular rules, each player gets $200 upon passing the square marked “GO”. Our simple amendment requires that each player pay the bank $200 upon passing “GO”. Also, to get the game off to a roaring start, all the bank’s cash is distributed evenly to all the players.

We never got around to filming this experiment. Nevertheless, we feel quite confident when we predict that this modified Monopoly game will come to an end when all the players are bankrupt and the bank has recovered all of the cash it distributed at the start of that game.

The process of money creation in America is not all that different from this modified Monopoly game.

Let’s illustrate with an overly simplified example, in order to drive home a key point. In a certain Fiscal Year, Congress decided to spend $100 more than it had in its Treasury. So, it told the Bureau of Engraving and Printing to manufacture one Treasury Bond with a face value of $100, which it sold to a Federal Reserve Bank for $100 plus interest at date of maturity.

It is very important to understand what the Federal Reserve Bank did next. Instead of buying that Bond with its own money, it told the Bureau of Engraving and Printing to manufacture one Federal Reserve Note with a face value of $100, and to pay for that Bond with this newly printed $100 FRN.

So, you can see how an exchange occurred: the Bank became the holder of that Bond, and the $100 FRN was effectively loaned to the Treasury. That much is pretty clear. What is not very clear is that the face value of this $100 FRN and the interest that accrued on the Bond, both became obligations to the Federal Reserve Bank that holds the Bond.

In other words, being an obligation of the United States Federal government by law, the interest and the principal amount both must be returned to the Federal Reserve Bank.

Let’s focus on that interest, for the moment. If the FED pumps $100 into the economy, using the fiat mechanism described above, and then the FED sucks $100 out of the economy, where will the interest come from? Answer, it must be paid with some other asset, like someone else’s money or by liquidating someone else’s assets.

This is the aspect of U.S. monetary policy, as currently enforced, which escapes almost everyone’s awareness, attention and understanding.

Money is not created unless it increases the total debt which the U.S. government owes to the Federal Reserve Banks!

Now, let’s change this mechanism in one important way. Instead of issuing new Bonds and paying for them with fiat money that must be repaid to the FED, the Bureau of Engraving and Printing can begin to print United States Notes instead of Federal Reserve Notes. BEP stops printing FRNs.

There are many ways in which these U.S. Notes can be put into circulation. One very simple way is to credit the bank accounts of all Federal personnel with newly printed U.S. Notes, in payment for their employment services to the Federal government. President Lincoln resorted to a similar solution to pay Union soldiers at the end of the Civil War, after he refused to accept exorbitant usury offers of the banks.

The printing of new U.S. Notes does not address the existing supply of FRNs that continue to circulate, however. As long as FRNs continue to circulate, they remain obligations of the Federal government to the Federal Reserve Banks, barring any significant changes in the law.

Our solution to the problems that remain with a money supply of circulating FRNs is to formalize a program to recall them completely from circulation, and then to destroy them without depositing them or crediting them to any FED bank account.

We have already proposed such a FRN Recall Program to President Trump, at least twice now.

It should be fairly easy for the Treasury Department to formulate Regulations which implement such an FRN Recall Program in a fair and efficient manner. We believe a straightforward one-to-one exchange will encourage Americans to surrender their existing FRNs and exchange them for USNs at participating financial institutions, without needing to file Cash Transaction Reports.

When a certain volume of surrendered FRNs accumulates, the financial institution simply “trades” that bundle for an equivalent bundle of USNs, and the FRN bundle is then returned to BEP for prompt destruction.

Another simple way of putting U.S. Notes into circulation is to credit the bank accounts of existing Treasury Bond holders with newly printed U.S. Notes, in payment for such Bonds when they reach maturity. As writer and activist Bill Still has wisely explained, a sizeable portion of the Federal debt is in the form of short-term obligations that mature in 3 years or less.

Although Bill Still’s video presentation did not propose any particular chain of possession, the redemption of such Bonds does not require the newly printed USNs to be conveyed physically to the Bond holders. Their bank accounts can be credited electronically, and the physical USNs can be warehoused in one of the financial institutions that participates in the FRN Recall Program.

There is another important legal reason why FRNs should be withdrawn from circulation and destroyed. The Grace Commission under President Reagan found that Federal income taxes are not paying for Federal government services. Those taxes are being used to make interest payments on the Federal debt, i.e. the interest that continues to accrue on FRNs still in circulation.

A U.S. Bankruptcy Court in eastern Washington State has already accepted and filed a formal DECLARATION OF INSOLVENCY by which the U.S. government announced that it was now insolvent and unable to pay all of its current and future debts to the Federal Reserve Banks.

The legal mechanism invoked in that DECLARATION was the automatic STAY authorized by Federal bankruptcy laws. That automatic STAY should have caused the FED banks to stop collecting and depositing Federal income taxes, but unfortunately those FED banks are now in contempt of that automatic STAY.

Their contempt of that automatic STAY is doubly important, chiefly because there is no Act of Congress which creates a specific liability for Federal income taxes imposed by subtitle A of the Internal Revenue Code.

That “liability” was attempted by means of an implementing Regulation published in the Federal Register. However, the U.S. Supreme Court has already ruled – correctly -- that a tax liability may not be created solely by means of implementing Regulations, absent the required Act of Congress.

For now, the question of inflation still remains. That topic will be considered in a future article.

Further reading can locate relevant topics in the Supreme Law Library on the Internet by using search engines like Google and BING as follows:

Google “recall of Federal Reserve Notes”

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