Reform the Federal Reserve Bank and the fractional reserve banking system

Here are a few basic (and easily verified) facts about the fractional reserve banking system, which, in the US, is integrated with the Federal Reserve Bank and the 12 regional reserve banks:

A) Contrary to common belief, the government does not issue our currency. American dollars are "Federal Reserve Notes" printed by the Bureau of Engraving, but issued by the Federal Reserve Bank which is ostensibly an independent, quasi-governmental entity. In fact, the "Fed" is a trust that has non-transferable shares owned by the regional reserve banks - 53% of which are owned by the Federal Reserve Bank of New York. But the regional reserve banks are in turn owned by private banks in their respective regions.

B) Physical currency (issued as a loan to the US government by the Fed which is essentially privately owned) comprises a small percentage of the overall money supply. Most money does not exist in a physical form - it exists only as binary code stored in bank computers.

C) This digital money is created out of thin air by banks when they make loans. Most people are under the false impression that banks make loans from the deposits of their clients, but that is not the way the fractional reserve banking system works. Banks are required to hold the deposits as a reserve - and they are counted as liabilities. However, banks are allowed by law to loan out nine times the amount they hold in deposits! These loans are counted as assets because the borrower must pay them back with interest. This is how money is created all over the world.

D) There are a couple of serious problems with a privately owned, debt based monetary system. Namely, that it is privately owned, and debt based. By virtue of the fact that the system is privately owned, it will inevitably result in enormous wealth being concentrated in the hands of a very small percentage of the population - i.e., the owners of the banks. How could it be otherwise? The banks loan money into existence, and then collect interest on it! When banks make loans, they create new money, but only the principal - not the interest that the borrower is required to pay.

The net effect is that, at any given time, there is never enough money in existence in the world to pay the aggregate principal plus interest on the total debt that exists at that same point in time. The only way to solve this paradox - temporarily - is to keep expanding the monetary supply in order to create sufficient money to pay the interest on the previously existing debt. But, since the expansion of the monetary supply is itself accomplished by further credit/debt, the problem just grows exponentially worse. Eventually, the debt load becomes overwhelming and unpayable on a large scale, for individuals, businesses, and municipal, county, state and federal governments alike. Failure is built into the system. Under this arrangement, just as it is inevitable that a tiny minority of individuals will end up with larger and larger percentages of the world's wealth, it is also inevitable that a larger and larger percentage of the population will end up with less and less wealth. How does that square with what we are seeing around us right now?

If we can solve the problem of vast inequities in the distribution of wealth, we will thereby solve a host of problems that stem from it. This includes the frequently mentioned and well understood problem that is itself the proximate cause of numerous other problems. I.e., the fact that our political system has been utterly corrupted by the influence of Big Money from extremely wealthy individuals, Big Banks, and their Corporate spawn. We need to consider and follow the chain of causation. In order to get at the root of inequitable distribution of wealth, we must address the problem of a privately owned, debt based monetary system headed by the Federal Reserve Banks - otherwise known as fractional reserve banking.

There are some good proposals out there that would accomplish this end. Here is a quote from an excellent article published in Nation of Change: "a Limited Purpose Banking strategy put forward by conservative economist Laurence Kolticoff would impose a 100-percent reserve requirement on banks. Because banks typically provide loans in amounts many times their reserves, this would transform them into modest institutions with little or no capacity to finance speculation. It would also nationalize the creation of all new money as federal authorities, rather than the banks, would directly control system-wide financial flows. A variety of respected liberal as well as conservative economists have welcomed this strategy—including five Nobel laureates in economics." Read the full article here: http://www.nationofchange.org/occupy-banks-strategies-transformation-1319981929

Dennis Kucinich has introduced legislation called the NEED act that would accomplish the same thing, by explicitly abolishing fractional reserve banking and restoring the exclusive sovereign rightof Congress to issue our national currency (as provided for under article I, section 8 of the constitution), with further measures to incorporate the Fed into the Treasury Department and be placed under the control of Congress, along with massive infrastructure and public works projects - funded by government issued debt free money spent (instead of "loaned") into existence. http://kucinich.house.gov/UploadedFiles/NEED_Act_Fact_Sheet_09232011.pdf

I propose that we endorse the NEED act, or hybrid legislation that reconciles the minor differences between the NEED act and the reforms described above by the economist Laurence Kolticoff (a bill detailed further on The Money Masters site).This reform would result in a complete transformation of our economic system, which in time would in turn transform our dysfunctional political system...by virtue of removing the primary causation of the inequitable distribution of wealth. Over a period of years it would create the conditions that would allow us to constrain the influence of large multinational corporations and reign in their worst abuses, which have included the manipulation of our government into undertaking illegal wars.

Any efforts to reform our political system, campaign finance reform, tax laws, justice system, militarism, environmental issues, etc., etc., etc., will ultimately fail if we do not also, and first direct our attention to the means by which a tiny minority of the world's population accrues such grossly disproportionate percentages of the world's wealth. A privately owned monetary system is, indeed, the root of all evil.