The Kucinich monetary reform bill

[William Hummel]

On Sept 21, 2011, Rep. Dennis Kucinich introduced an act in Congress to reform the US monetary system.  Details can be seen at http://kucinich.house.gov/UploadedFiles/NEED_Act_FINAL_112th.pdf

 

Following are some highlights of the proposed act:

 

1. An end to fractional reserve banking and the Federal Reserve.

 

2. A Monetary Authority created under the Secretary of Treasury, with quasi independence.

 

3. No borrowing by the government.  All money spent into circulation.

 

4. "The Monetary Authority shall pursue a monetary policy based on the governing principle that the supply of money in circulation should not become inflationary nor deflationary in and of itself, but will be sufficient to allow goods and services to move freely in trade in a balanced manner."

 

5. All deposits in depository institutions treated as transaction money and earn no interest.  Lending involves transfer of actual deposits, with a maximum interest rate of 8%.

 

 

[Terry Hammonds]

Wow, very interesting. Any chance it will be taken seriously?

Sent from my iPad

[John Hermann]

The chance of such a radical set of measures being taken seriously at this point in time is miniscule.  However I suspect that part of the intention is to introduce the ideas contained in the bill to politicians within both major parties, obliging them to begin thinking seriously about the issues that persuaded Kucinich to draft the bill.  Radical changes to the monetary system will require, as a precursor, perhaps two more financial crashes.  When the pain is great enough, change will occur. It seems the pain is not yet great enough.

John.

[Terry Hammonds]

I sent a copy to my (R) Representative and asked him to support it. I usually get some kind of auto-responder reply, but worth the effort.  I'll try to get one of his Town Hall meetings and see if he ever heard of it.

Sent from my iPad

[Mark Bachmann]

One wonders what "quasi independence" would mean in practice. On the surface, fiat money being "spent into circulation" by a monetary authority operating under the control of the Treasury secretary sounds like prescription for total politicization of the central bank. Liberals might be attracted to the proposal with a Democrat in President's office, but how are they going to feel if and when Republicans regain control of it? Kucinich is a left-wing Democrat, yet right-wing Republican Ron Paul has said he would if elected President consider putting Kucinich in his cabinet, painting us a picture of the strange forces arraying themselves in this environment to seize the Fed's power. Interestingly, this bill would seem to represent much the same program that Ellen Brown advocated in Web of Debt. Maybe Dr. Paul would find a spot in his administration for her as well?

 

    Mark Bachmann

[John Hermann]

That's rather fanciful speculation, Mark.  But whatever made you think the Fed is not politicized already?  The architect of the current mess, Alan Greenspan, pursued policies which he perceived to be helpful to powerful vested interests.  As do Bernake and Geithner currently, in my opinion.  That's a form of politicization. 

John.

At 12:14 PM 19/10/2011, Mark Bachman wrote:

One wonders what "quasi independence" would mean in practice. On the surface, fiat money being "spent into circulation" by a monetary authority operating under the control of the Treasury secretary sounds like prescription for total politicization of the central bank. Liberals might be attracted to the proposal with a Democrat in President's office, but how are they going to feel if and when Republicans regain control of it? Kucinich is a left-wing Democrat, yet right-wing Republican Ron Paul has said he would if elected President consider putting Kucinich in his cabinet, painting us a picture of the strange forces arraying themselves in this environment to seize the Fed's power. Interestingly, this bill would seem to represent much the same program that Ellen Brown advocated in Web of Debt. Maybe Dr. Paul would find a spot in his administration for her as well?      Mark Bachmann

 
On Tue, Oct 18, 2011 at 5:52 PM, William Hummel <wfhu...@ca.rr.com> wrote:

On Sept 21, 2011, Rep. Dennis Kucinich introduced an act in Congress to reform the US monetary system.  Details can be seen at http://kucinich.house.gov/UploadedFiles/NEED_Act_FINAL_112th.pdf

 Following are some highlights of the proposed act:

1  An end to fractional reserve banking and the Federal Reserve.

[Mark Bachmann]

John,

 

No, the Fed can't totally avoid politicization, nor should it ever be able to in my opinion. However, the present governance structure is designed to diffuse control over the bank, putting the power of key appointments into the hands of the executive and legislative branches of the government, while giving representation to the country' regional banking sectors as well. Replacing this with a system that would concentrate even greater powers in the hands of a central authority is an idea fraught with extreme danger in my opinion. It's attractive only if we can imagine this central authority as always being both wise and benign, which I cannot. I'm certainly not going to defend Greenspan at this point, but his policies reflected an overwhelming political consensus at the time. Everybody - republicans, democrats and most independents - seemed to love him, and if his policies were mis-directed, the problem stemmed from a flawed popular vision rather than a flawed governance structure within the Federal Reserve system.

[Terry Hammonds]

Mostly, I think, they were protecting their buddies on Wall Street more than politicians. That is where the power is.  They will probably leave DC and take big paying jobs again in NY. I like the proposed House bill to do away with them all and get us into a 21st Century money system.

Sent from my iPad

[John Hermann]

Precisely Terry.  They come from investment banking backgrounds, and it is no secret where their sympathies lie.   It is no exaggeration to say that the United states has a "Wall Street" administration.  And Obama may be described as a "Wall Street" Democrat.     John.

[George Chandler]

Do you have handy the H.R. number of this bill? I want to follow its progress. Thank you.

[William Hummel]

H.R. 6550

[William Hummel]

In my opinion, placing the Monetary Authority under the Secretary of the Treasury is a serious error, in spite of the following words in the Kucinich bill intended to maintain its independence:

 

    There is hereby established the Monetary Authority as an authority within the Department of the Treasury under the general oversight of the Secretary of the Treasury.

 

    The Secretary of the Treasury may not intervene in any matter or proceeding before the Monetary Authority, unless otherwise specifically provided by law.

 

    The Secretary of the Treasury may not delay, prevent, or intervene in the issuance of any regulation or other determination of the Monetary Authority, including the determination of the amounts of money to be originated and most efficient method of disbursement consistent with the appropriations of Congress and the statutory objectives of monetary policy as specified in this Act.

 

The Treasury Secretary serves at the pleasure of the President whose re-election chances depend heavily on the state of the economy at the time. Some past Presidents have exerted hard political pressure on the Fed Chairman to create overly easy credit conditions for an upcoming election.  That pressure is much less likely to work when the Fed Chairman reports to Congress, as is now the case.

 

William

 

 

----- Original Message -----

From: Mark Bachmann

To: understan...@googlegroups.com

Sent: Tuesday, October 18, 2011 6:44 PM

Subject: Re: The Kucinich monetary reform bill

[Joe Leote]

William,

 

Although there is much to discuss in the K-plan, one thing I note is that it retires all Treasury debt in favor of United States Money, while I think your proposal for a National Depository with money consisting only of Central Bank liabilities would preserve Treasury debt.

 

I am not sure how the monetary authority would be able to control interest rates under the K-plan although I have decided not to try and figure that out pending better understanding of the current nested liabilities and levels so I could then evaluate the plan to make a transition. It may be a few years (or never) before I felt I could evaluate the implications of the K-plan ;)

 

Often leadership in human affairs means providing a vision and letting others step up to solve the details, so I figure monetary reform could work without complete analysis of future outcomes and it could be an improvement, although it could also be a great social disaster, there is much uncertainty, and one at least wants to see a well-reasoned transition plan.

 

Joe

----- Original Message -----

From: William Hummel

To: understan...@googlegroups.com

[William Hummel]

Joe,

 

I think it's worth some effort trying to understand how the K-plan works, but I haven't really succeeded either.  The Monetary Authority must be able to decrease as well as increase the amount of money in circulation.  But without government debt to sell to the public, it's not clear how the money supply can be decreased.  In my proposed debt-free money system, government debt still exists and the Fed buys or sells Treasury securities as needed to adjust the money supply to control the short-term interest rate.  In the K-plan it appears that the interest rate is a residual rather than a control variable. 

 

I think my system would be much easier to implement.  Aside from creating a national depository, the Fed remains intact and reports to Congress rather than the President.  Monetary policy would be implemented in much the same way as it is now.  In both systems, fractional reserve banking would no longer exist. 

 

William

[John Hermann]

I suspect that the proposal to put the central monetary authority under Treasury was a reaction to the fact that the Fed is a conglomerate of 12 private banking institutions.  However an obvious alternative is to make the central bank a public entity, as indeed central banks around the world tend to be.  The U.S. Fed is a rather odd and eccentric exception to the rule.

John.

At 07:31 AM 20/10/2011, you wrote:

In my opinion, placing the Monetary Authority under the Secretary of the Treasury is a serious error, in spite of the following words in the Kucinich bill intended to maintain its independence:
 
    There is hereby established the Monetary Authority as an authority within the Department of the Treasury under the general oversight of the Secretary of the Treasury.

    The Secretary of the Treasury may not intervene in any matter or proceeding before the Monetary Authority, unless otherwise specifically provided by law.

    The Secretary of the Treasury may not delay, prevent, or intervene in the issuance of any regulation or other determination of the Monetary Authority, including the determination of the amounts of money to be originated and most efficient method of disbursement consistent with the appropriations of Congress and the statutory objectives of monetary policy as specified in this Act.

The Treasury Secretary serves at the pleasure of the President whose re-election chances depend heavily on the state of the economy at the time. Some past Presidents have exerted hard political pressure on the Fed Chairman to create overly easy credit conditions for an upcoming election.  That pressure is much less likely to work when the Fed Chairman reports to Congress, as is now the case.

William

From: Mark Bachmann

One wonders what "quasi independence" would mean in practice. On the surface, fiat money being "spent into circulation" by a monetary authority operating under the control of the Treasury secretary sounds like prescription for total politicization of the central bank. Liberals might be attracted to the proposal with a Democrat in President's office, but how are they going to feel if and when Republicans regain control of it? Kucinich is a left-wing Democrat, yet right-wing Republican Ron Paul has said he would if elected President consider putting Kucinich in his cabinet, painting us a picture of the strange forces arraying themselves in this environment to seize the Fed's power. Interestingly, this bill would seem to represent much the same program that Ellen Brown advocated in Web of Debt. Maybe Dr. Paul would find a spot in his administration for her as well?

[Joe Leote]

William,

 

I think your proposal is simpler and better thought. The K-plan seems to retain and amend deposit insurance legislation which may not even be necessary in a properly designed National Depository. I think a Central Bank can control interest rates by buying and selling private securities if there is no federal public debt although I am not aware of a reference explaining how that works, I think the Central Bank in U.K. in the old days operated in private securities markets according to recollection of publications by Perry Merhling. Today given the depth and breadth of U.S. financial markets it may be unwise to eliminate the benefits of issuing Treasuries, and there is not as much harm as folks think in the public debt. 

[John Hermann]

At 07:31 AM 20/10/2011, you wrote:

In my opinion, placing the Monetary Authority under the Secretary of the Treasury is a serious error, in spite of the following words in the Kucinich bill intended to maintain its independence:
 
    There is hereby established the Monetary Authority as an authority within the Department of the Treasury under the general oversight of the Secretary of the Treasury.
    The Secretary of the Treasury may not intervene in any matter or proceeding before the Monetary Authority, unless otherwise specifically provided by law.

These statements seem to be in conflict. In what sense can the Secretary have "oversight" if there is a "prohibition on intervention in any matter ... ".   Moreover it is very unclear what the addendum "unless specifically provided by law" refers to.      John.

[Dick Knox]

I think the MMT people see the role of taxes as being to decrease the money supply. Taxes that are not necessarily matched by spending.

--
Dick

[William Hummel]

I think the system of district Reserve Banks in a geographically large country like the US makes sense.  They may be structured legally as private banks, but they are not truly privately owned.  To avoid that confusion, they could be made public entities by simply returning the paid-in amounts for the so-called stock and integrating them administratively with the headquarters in Washington DC.  That could be done in the existing system overnight if Congress chose to do so.

 

William

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Wednesday, October 19, 2011 4:53 PM

Subject: Re: The Kucinich monetary reform bill

[William Hummel]

Joe,

 

My proposed system does not have deposit insurance since it would be entirely redundant with a single national depository run by the Fed.

 

I doubt that buying and selling private securities would solve the problem of decreasing the money supply whenever the need arose.  The securities have to be bought initially, which increases the money supply.  When sold, only that amount of money can be eliminated.

 

Your point about the importance of the US Treasury securities in the global financial system is well-taken.  Rather than being a problem, the US debt serves the world as a highly liquid interest-earning asset, free of credit risk.  It is also essential to the continuance of the US dollar as the primary reserve currency, which is widely used as the currency of invoice in international trade.  The existence of a reliable reserve currency simplifies settlements even between two countries with their own currencies.

[William Hummel]

Taxes decrease the money supply only if revenues exceed spending.  Most of the time, government spending exceeds revenues. The difference is normally covered by the sale of bonds which leaves the money supply unchanged.  But if the sale of bonds is outlawed, as in the K-plan, the money supply will tend to increase.  And without something to sell to the private sector, the government will find it difficult to decrease the money supply when it needs to.

 

William

[John Hermann]

Yes indeed.  I suspect that a fundamental weakness of the K plan might arise from ignorance of macroeconomic principles.  Obviously the plan would be workable if government spending could be limited to the magnitude of the increase in real productivity.  However I don't think this is what the plan has in mind.  One way in which government spending additional to this might work -- without the need for government issuance of bonds to the private sector -- would entail investing public money in those infrastructure projects which are guaranteed (or likely) to produce a steady financial return to government.  A few examples are the construction of freeways and bridges with a toll fee, new metropolitan transit systems, and electric power stations (using either conventional or renewable energy sources).  If such projects were undertaken during a period of protracted economic stagnation or decline, then the problem of inflation would not arise -- either in the short term or in the longer term.

John.

At 12:16 PM 20/10/2011, William Hummel wrote:

Taxes decrease the money supply only if revenues exceed spending.  Most of the time, government spending exceeds revenues. The difference is normally covered by the sale of bonds which leaves the money supply unchanged.  But if the sale of bonds is outlawed, as in the K-plan, the money supply will tend to increase.  And without something to sell to the private sector, the government will find it difficult to decrease the money supply when it needs to.

From: Dick Knox

I think the MMT people see the role of taxes as being to decrease the money supply. Taxes that are not necessarily matched by spending.

On 10/19/2011 04:16 PM, William Hummel wrote:

Joe,

I think it's worth some effort trying to understand how the K-plan works, but I haven't really succeeded either.  The Monetary Authority must be able to decrease as well as increase the amount of money in circulation.  But without government debt to sell to the public, it's not clear how the money supply can be decreased.  In my proposed debt-free money system, government debt still exists and the Fed buys or sells Treasury securities as needed to adjust the money supply to control the short-term interest rate.  In the K-plan it appears that the interest rate is a residual rather than a control variable. 

I think my system would be much easier to implement.  Aside from creating a national depository, the Fed remains intact and reports to Congress rather than the President.  Monetary policy would be implemented in much the same way as it is now.  In both systems, fractional reserve banking would no longer exist. 

 

From: Joe Leote

William,

Although there is much to discuss in the K-plan, one thing I note is that it retires all Treasury debt in favor of United States Money, while I think your proposal for a National Depository with money consisting only of Central Bank liabilities would preserve Treasury debt.

I am not sure how the monetary authority would be able to control interest rates under the K-plan although I have decided not to try and figure that out pending better understanding of the current nested liabilities and levels so I could then evaluate the plan to make a transition. It may be a few years (or never) before I felt I could evaluate the implications of the K-plan ;)

Often leadership in human affairs means providing a vision and letting others step up to solve the details, so I figure monetary reform could work without complete analysis of future outcomes and it could be an improvement, although it could also be a great social disaster, there is much uncertainty, and one at least wants to see a well-reasoned transition plan.

Joe

From: William Hummel

In my opinion, placing the Monetary Authority under the Secretary of the Treasury is a serious error, in spite of the following words in the Kucinich bill intended to maintain its independence:

There is hereby established the Monetary Authority as an authority within the Department of the Treasury under the general oversight of the Secretary of the Treasury.

The Secretary of the Treasury may not intervene in any matter or proceeding before the Monetary Authority, unless otherwise specifically provided by law.

The Secretary of the Treasury may not delay, prevent, or intervene in the issuance of any regulation or other determination of the Monetary Authority, including the determination of the amounts of money to be originated and most efficient method of disbursement consistent with the appropriations of Congress and the statutory objectives of monetary policy as specified in this Act.

The Treasury Secretary serves at the pleasure of the President whose re-election chances depend heavily on the state of the economy at the time. Some past Presidents have exerted hard political pressure on the Fed Chairman to create overly easy credit conditions for an upcoming election.  That pressure is much less likely to work when the Fed Chairman reports to Congress, as is now the case.

From: Mark Bachmann

One wonders what "quasi independence" would mean in practice. On the surface, fiat money being "spent into circulation" by a monetary authority operating under the control of the Treasury secretary sounds like prescription for total politicization of the central bank. Liberals might be attracted to the proposal with a Democrat in President's office, but how are they going to feel if and when Republicans regain control of it? Kucinich is a left-wing Democrat, yet right-wing Republican Ron Paul has said he would if elected President consider putting Kucinich in his cabinet, painting us a picture of the strange forces arraying themselves in this environment to seize the Fed's power. Interestingly, this bill would seem to represent much the same program that Ellen Brown advocated in Web of Debt. Maybe Dr. Paul would find a spot in his administration for her as well?

[Joe Leote]

John,

 

I think there are realms of human activity beyond the concept of economic productivity in traditional market theory, such as, for example, education, infrastructure projects which are natural monopolies and therefore have no advantage from encouraging market competition, and in these areas it might be possible to use Treasury Money up to a point (I define Treasury Money as government spending without a combination of offset taxes or bond sales). However it would be hard to limit so-called "liberals" to those purposes and it would be hard to convince so-called "conservatives" that such social purposes might be optimized by by-passing markets. As it is, the pet theory that markets work best has only resulted in much privatized gains to crony lobbyists and much moral hazard in transferring the risk of loss to taxpayers, so conservatives in government cannot (as a group) claim credit for "walking the talk."

 

Joe

 

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Wednesday, October 19, 2011 10:33 PM

Subject: Re: The Kucinich monetary reform bill

[Dick Knox]

William

"Taxes decrease the money supply only if revenues exceed spending."

Exactly - and the MMT folks propose that when you want to decrease the money supply you have taxes exceed spending. It can be done by always having a larger tax rate than needed and modulate it by changing the spending to get the desired net effect. It can be done in the short term by always having a group of "shovel ready" projects waiting to be funded. I say shovel ready metaphorically since I dont advocate construction as the mechanism. It worked when we were kids - when dirt was dug by hand with shovels and put in wagons pulled by mules. I dont think construction is currently is an effective way to increase employment; but congressmen like construction because they can give it to the contractors who fund them.

--
Dick

[John Hermann]

Getting the right mix of public and private enterprise is not an easy task.  Those who imagine that you can have one without the other (like love and marriage?) are simply not living in the real world.
John.

[Jean Erick]

     Nice thinking.

 

James

----- Original Message -----

From: Mark Bachmann

To: understan...@googlegroups.com

Sent: Tuesday, October 18, 2011 9:16 PM

Subject: Re: The Kucinich monetary reform bill

[Jean Erick]

     Well, there must be something very wrong with public debt.  It obviously must contain some great evil for people to be complaining so much about it while ignoring the five

times as large private debt.  Who knows what  evil lies in the heart of public debt?  The shadow of the Koch brothers do.

 

James