Here at Debtcrash we have dedicated much of our content to determining how the government and banking interests might deal with the failing debt based monetary system here, here, here, and here. This is for good reason since they will likely determine the path taken. I have tried to make it clear that these are not the directions I would like to take our monetary system, so now I would like to offer a first step of what I would consider the right direction. It is only a first small step since changing over 100 years of monetary inertia cannot be done overnight.
I certainly like the idea of allowing a competing currencies as Ron Paul advocates. This would simply allow the use of gold or silver to be used in transactions by eliminating taxes on those assets and removing any impeding laws. At this time, there is no political will to allow competing currencies, the powers that be are far too invested in the current system. The issue with allowing a competing currency is if the next crisis involves a loss of faith in the dollar, a competing currency to the dollar could exacerbate the crisis in the eyes of those making the decisions. There will be plenty of turmoil in the upcoming monetary shift so our goal should be to limit that turmoil. We can keep the competing currency idea in our back pocket as a fall back if there is a complete collapse, but there may be a way of preparing for a competing currency in the future without further damaging the current system that many will want to preserve.
Now to review the problem; we have a debt based monetary system, and an inherent property of such a system is that total debt grows at a faster rate than the money supply and underlying economy. This results in the economy eventually not able to service the total credit market debt outstanding. Under current laws, money can only be created out of debt. Since debt and money are created simultaneously, they cannot create more money to make the prior debt more serviceable without creating more debt thus offsetting that currency creation. It's a classic catch 22. Said another way, they cannot fix the problem of too much debt with more debt.
Because of the ridiculous amounts of debt, over 60 trillion in the United States alone, compared to 12 trillion in currency, even if laws did allow currency creation that wasn’t attached to debt, and currency was created in sufficient quantities to affect the debt load, a loss of faith in that currency would almost be assured. A way to address this issue may be to add to the money supply with dollars that have an inherent value.
The premise of my plan would be that every American citizen would have the right to turn in a small amount of gold and or silver to a US mint and in return they would receive gold and silver coins or Aurum stamped/printed with a dollar amount significantly above the melt value of that metal. For example, citizens would bring 0.051 ounces of gold in an approved form, and in return would receive a 1/20th ounce gold coin or several Aurum notes with a face value of $1000. The same would be done with silver, .51 ounces would be turned in, and you would receive five silver coins with a total face value of $500.
Again this exchange would be for every US citizen. In the case of children and other dependents, the coins would be passed to their parents or caregivers. These coins or Aurum would be created with an identification number that would be used to track who held ownership. The people would have one of two options of what to do with the coins or Aurum. They could take it home and store it themselves, or put it in the banking system and have their accounts credited with an equal amount of dollars. They could not be used as a medium of exchange at this point since the risk of counterfeiting would be too great, though the impressive security features of Aurum might make their exchange possible. The gold and silver purist may not like using the banking system but remember this would be a transition period.
Banks would have to store these coins/Aurum and could only use them for inter-bank balance of payments. After stealing from the people for so long this would initially be done free of charge. No fractional reserve expansion of the money supply could be made using these bullion products as the base. All minting, coin to individual tracking, and other expenses would be covered by the additional coins produced from the 2% seigniorage you probably noticed above. This seigniorage could be adjusted to reflect actual expenses.
If everyone took advantage of such a scheme, it would come to about 475 metric tons of gold and 4750 tons of silver. Much of the bullion would likely come from personal holdings, and the markets would likely only have to supply a fraction of the total. I’m sure there would be effects on price, but since there would be no guarantee that the exchange would happen again, the effects should be limited. If not, so be it.
The implementation of my plan would likely only be possible as a response to the next crisis, and would come alongside “very serious” plans cooked up by the bankers, politicians, and economists to save the debt-based monetary system. Though I think it would have popular support in many circles, I would actually hope the plan would be viewed as side show and a novelty to limit political opposition, likely the main barrier to a competing currency system.
The main effect would be the injection of $480 billion in non-debt based money into the economy. You’ll notice it is not that much different than the size of many of the QE programs that have occurred, and unlike QE the effects would be equal across all classes. The rich probably won’t care enough to collect their 1500 bucks, but the poor and middle class will certainly appreciate the boost considering it would be 6 grand for a family of four.
The secondary reason for this plan is to get real hard assets flowing back to the US or whichever country attempted it. Even if they are able to patch things together by banning cash, imposing negative rates, or an E-Dollar system, having the extra tons of shiny metal in the US could come in handy. It would help bolster metal holdings in the US in case of a complete collapse of debt based money, leaving us just a little more prepared.
As hinted above, when put in place, this plan would not be touted as a recurring event, but I would hope to do it annually, with varying amounts and metals, to limit speculation.
Again I’m sure there are purists who would like to do a more cold turkey method, but I don’t believe such a hard line is politically possible and this would be a good first step to addressing many of the issues of our current system.
If you have any questions on how we got here please read our History and Introduction.