Article 1, section 8, paragraph 5 of the United States Constitution gives Congress (not the federal Reserve) the authority to issue debt free money: Congress shall “coin money and regulate the value thereof.”
The 1862 Legal Tender Act gave president Abraham Lincoln, Congress and the Treasury the authority to issue $449,338,902 of debt free money -- United States Notes (Greenbacks.) This increased the money supply by 25% but caused no inflation. The Federal Reserve didn’t exist in 1862.
The 1963 Executive Order 11110 of President John F. Kennedy authorized the U. S. Treasury (not the Federal Reserve) to issue $4 billion of debt free United States Notes (silver certificates). What happened to Executive Order 11110 and the legal authority to issue silver certificates? Some people claim it is still in effect. Others claim that Congress repealed the legislative authority behind E.O. 11110 in 1982 and Ronald Reagan revoked E.O.11110 with his own E.O. 12608 in 1987. In any case, the issuance of silver certificates was halted after President Kennedy’s assassination, and all were eventually withdrawn from circulation.
Actually, it isn’t necessary to back our currency with silver or gold or anything else. The existence of Federal Reserve Notes proves this point. The only thing we need to back our currency is the law: Congress shall “coin money and regulate the value thereof.”
A quick Internet search of the U.S. Treasury Department web site: U.S. Treasury - FAQ: Legal Tender Status of Currency will reveal some startling facts. Legal tender, debt free United States Notes (Greenbacks) were our national currency for 51 years for before the Federal Reserve and Federal Reserve Notes came into existence. United States Notes are interchangeable with Federal Reserve Notes. United States Notes and Federal Reserve Notes have exactly the same value. $300 million of United States Notes are currently part of our national money supply. The original issuance of $449,338,902 was reduced by Congress to $300 million and frozen at that level. This money can be immediately issued by the United States Treasury and put into circulation.
The amount of United States Notes that can be issued by the Treasury is determined by Congress. The implications of this fact are staggering. Congress can immediately increase our money supply by 25% (per the Legal Tender Act) as was done by Abraham Lincoln in 1862. This would be a $2 trillion economic stimulus that would require no tax increase and no borrowing from the financial markets. If this is true, and it is, why do we have a $12.5 trillion national debt? Why do we have a Federal Reserve when, by law, the Treasury is supposed to issue our currency? Why were debt free United States Notes withdrawn from circulation and replaced with debt based Federal Reserve Notes? How could Congress give away the enumerated power to coin (i.e., create) money without a Constitutional amendment? Why would they want to do that?
Today, the “normal” way our money is created is by the U.S. Treasury selling government debt, Treasury bills, to independent securities dealers. The Federal Reserve buys the Treasury bills from the independent securities dealers and prints money based on that debt.
But, what if the federal government had no debt, what would happen to our money supply? What if we want to put money into circulation without creating government debt to back the money? The answer to this question explains why politicians never talk about paying off the national debt. They only talk about cutting spending or borrowing more money. And finally, what if we wanted to put money into circulation without borrowing it from the banks?
Are we all hopelessly trapped debt slaves to the financial services “industry?” No. All we have to do to escape this trap is to find politicians with the courage to use the enumerated power that they, unconstitutionally, gave away to the Federal Reserve in 1913. It is important to remember that Congress still has the power to issue debt free money.
If currency speculators and the currency markets attack the value of the dollar as a reprisal for us observing the law and following the U.S. Constitution, this would be a violation of the law, and thus, illegal. Why? Because only Congress has the legal authority to change the value of the dollar: (“and regulate the value thereof.”) The American government could pursue civil or criminal action against any individual or organization that attacks the value of the dollar.
The dollar is not a commodity like wheat, soybeans, copper or gold. It is a medium of exchange, legal tender, (actually just paper) with no intrinsic value. It is the law that gives the dollar its value and that law is based on the United States Constitution Thus, the size of our money supply has no bearing on the value of our currency. The size of our money supply, by law, should be set by our government based on the needs of the American people and a just economic system. An objective reading of the relevant passage of the Constitution will debunk the notion that the Federal Reserve and currency speculators have a legal right to determine the size our national money supply. When politicians force the American people to be subject to the arbitrary dictates of the currency markets, they are ignoring the Constitution.
Our government could play the same game the Chinese play by buying and selling currencies on the open market to manipulate the value of the dollar. But we would probably lose at that game. Why? Because China has lots of (our) money and all we have is lots of debt that we owe to the Chinese. This is why the globalization of our economy is a disaster for America. But, beyond that ugly situation, playing the currency manipulation game is a bad idea because it legitimizes the notion that the currency speculators have a right to control the value and quantity of our money supply.
Back in 1972 when Henry Kissinger “opened up China,” the Chinese were smart enough to figure out that if they kept their currency artificially cheap and they kept labor costs brutally low, they could literally loot America of its wealth. But they had a partner in this endeavor, American retailers. China’s cheap currency and brutally low labor costs mean fat profits for the people who sell Chinese products. Very quickly, American manufacturers became importers of Chinese goods. Is this is why some politicians ignore China’s currency manipulation and inhuman labor practices?
The fact that foreign exchange markets determine the value of the dollar relative to other world currencies is a problem only because our economy has been thoroughly globalized. The more dependent our economy is on imports and exports, the more vulnerable we are to the heavy hand of currency speculators. The massive flow of goods, services and money across national borders puts central banks and currency speculators in a position to limit the global money supply and keep much of the world mired in debt and poverty.
We are constantly told that we must export in order to reduce our trade imbalance and increase our Gross Domestic Product. We must stop our dollars from flowing out of the country because foreign countries are getting rich at our expense when we don’t export enough products. But why must we export? We can accomplish exactly the same objectives if we reclaim our own markets. Why does this point never come up in the discussion? Does it have something to do with tax laws that allow “American” multinational corporations to shelter offshore profits?
My research indicates that our trading “partners” have similar tax laws. Does this explain why global trade is promoted as the savior of the world economy. Does it explain why our shut down American plants are being replaced by foreign transplants?
Good Democrats have been trying for years to get rid of the infamous loophole that encourages American corporation to ship jobs overseas. But they could never get the votes to pass the legislation. The Democrats tried again today to get rid of this anti American law and they finally succeeded! Today, August 8, 2010 the House of Representatives passed the “American Jobs and Closing Tax Loopholes Act.” I would like to convey hearty a WELL DONE to my fellow Democrats.
Another benefit to reclaiming our own markets is that we won’t waste enormous amounts of oil and manpower shipping raw materials and products all over the world. And foreign countries won’t waste enormous amounts of oil and manpower shipping products to us.
A comprehensive, detailed plan for sweeping economic and monetary reform is beyond the scope of this article. A general outline of Lincoln/Kennedy Monetary Reform will be developed in other articles on this web site. The purpose of this article is to establish the legality and feasibility of issuing debt free money directly from the Treasury into the economy. Am I calling for the abolition of the Federal Reserve? No. The Federal Reserve can function in much the same way as it does now. The only change will be that it will no longer create money based exclusively on debt.
Will Lincoln/Kennedy Monetary Reform cause the global bond market to collapse? No. However, the global bond market must not be permitted to sap the strength of the American economy and lower the standard of living of the American people. The parasite must not be permitted to kill the host.