Frequently asked questions about Just Money
Is this socialism?
Socialism is when the state owns the means of production. Just Money changes our money tool from one created by the private banking sector, to a tool owned by the nation. How that tool is created does not determine how people use it. Changing to Just Money allows us to switch from predatory capitalism to caring and sustainable capitalism, and that is a win-win for everyone! Changing who creates our money does not transfer any ownership of any means of production to the government.
Just Money is about government money creation, NOT about government banking. Private banks will still exist and compete in a dynamic marketplace; they will no longer have the power, privilege, and profits of creating our national money. Changing the money system is not nationalizing the banks and it is not socialism.
Will inflation go crazy?
The major cause of inflation is too much money chasing too few goods and services. So whenever way too much money is created, inflation explodes. Our current money system is intended to be mildly, but steadily inflationary. And, it is unstable which makes it vulnerable to outside causes, such as a sudden increase in a critical resource (e.g., when oil prices went sky high in the 1970s). When money is created by bank’s lending, it is vulnerable to the groupthink that leads to overconfidence and booms, and then the timidity of busts. The current system is vulnerable to booms and busts that run up asset bubbles like the housing crisis in 2008, which can trigger general inflation and end with a deflationary collapse. A Just Money system intends to be a steady-value system.
We certainly do not want to collapse our currency in excess or hyperinflation, nor do we want to have excessive deflation collapsing the economy into another Great Depression. Our money system today requires our bankers and financial institutions to worry constantly about inflation and deflation, because in the current system it is a very real possibility. That is a prime reason why we want to change our money to a system that is more stable and less vulnerable.
There is a story that when a government decides to create money for a nation, it always creates too much because it wants to please the people, and politicians want to stay in power by keeping the people happy. This story has been true when kings, dictators, or private bankers have unlimited power to create money. Even in a constitutional democratic republic the story can be true because in a privately created debt-money system, the powerful bankers can buy laws that free them to over create the money supply. However, a nation using a transparent and Constitutional democratic process to create the nation’s money has never hyperinflated their currency. The idea that government money creation always leads to out-of-control inflation is a story told by the banking interests who want to keep the power to create money.
The U.S. government has created our money twice – in the War of Independence and the Civil War. Our politicians did not create too much; they stuck with a commitment to only create what was needed. The Continentals in the Revolutionary War were counterfeited by the British on a ship off our coast and widely distributed by their allies. That is what eventually caused inflation and their value to sink. In the Civil War, the South and the French counterfeited the Greenbacks for the same purpose. All hyperinflation episodes in the past century have taken place in fractional reserve debt-money creation systems – and when private commercial bankers or a despot had the power to create the money. Again, there is no instance of a functioning democratic government creating too much equity money and causing hyperinflation.
Strong constraining law
Those who determine how much new money to create must be constrained by a legal mandate to keep the value steady. Then we can do our best, and be prepared to change course if and when we are too far off our goal of truly steady-value money.
Policies that support steady-value money
Wide and diverse distribution of new money supports steady-value money. It avoids booms and busts in a particular asset class, such as what happens when money is mostly created by loans for mortgages. We can require that new money is introduced in a wide variety of distributed ways.
What we spend on matters. We can spend to reduce the strain on nonrenewable natural resources and promote sustainable choices. This will reduce the unnecessary scarcities that increase prices. We can subsidize the 5Rs – Reuse, repair, recycle, regenerate, and use renewables. This will reduce rising price pressures on our commodities and raw material demands, both renewable and nonrenewable.
The government can encourage competition through antitrust enforcement. Competition helps lower prices, increase productivity and the availability of goods and services.
We can continue to monitor all aspects of the economy and keep everyone informed, so that we have broad participation in determining how much new money we can create in the next round AND keep its value steady. It will and should be an ongoing political discussion.
What happens if or when there is too much money? Correction policies
If our steady-value money agency and Congress have made an error and inflation is rising to excess, there are policies that we can implement to remove excess money from the economy to keep inflation in check. First, we can halt or slow distribution of new money. We can cut back on money creation for the following year. We’re not likely to be so far off in our guess that emergency measures are needed. And we must avoid micro-managing, which would open the door to manipulation by special interests. A very large economy is like an ocean liner, it doesn’t turn on a dime, and changing the amount of new money created on an annual basis is already leaning toward a too short view. We must give the market time to adjust and trust that in our newly freed market system, it will.
To reduce an amount of excess money, we can increase taxation, which will pull excess money out of the economy. We can also sell government bonds, bills or notes solely for this purpose, and hold the income in our government accounts instead of spending it.
And, if our Congress is failing to keep the money value steady, or failing to distribute the money in a way that promotes the general welfare and builds a foundation for a healthy and prosperous society, then vote them out of office. This change to a Just Money system will work best in a transparent, participatory, effective democratic republic, which our Constitution intends.
Will this change create economic chaos?
No. The change can be made overnight with accounting entries. Most people will experience no difference at all in their banking, buying, and selling. Since this monetary reform removes the power to create our money from the commercial banking system, this sector will need to adjust its business strategies. However, this is what all businesses face periodically as economies and technologies develop.
Will there be enough capital for business and investment banks to thrive?
Yes. There will be more funds available for investment and bankers can continue to serve as managers and intermediaries between saver-investors and borrowers-investments, just as they do now.
Where will savings and investment money come from?
- $22 trillion in former government debt. Today Government is tying up $22 Trillion with government debt and the government is projected to borrow an average of $1.2 trillion every year for the next 10 years – 4.4 percent of gross domestic product. With no government need to borrow, freeing up 4–5 percent of available investor funds will be a win-win for the bankers, financial services industry, and the government. These funds will be looking for investment opportunities in the private sector, increasing the amount of available investment funds for businesses and bankers. Some government securities cannot be paid off early, so this process will not happen all at once. This returns the investment funds available to bankers to a higher level than is currently available. AND,
- $35 trillion in existing private debt. The Fed reports that in 2018, All Sectors; Debt Securities and Loans total $72 Trillion. Of that, we’ve already mentioned $22 trillion is government-public debt. Of the remaining $50 trillion $35 trillion is private debt using existing money. So, even when the bankers no longer have the power to create (and recreate) the money supply of about $15 trillion, bankers still have roughly $35 trillion in potential loan intermediation business.
This means that if all aspects stayed equal, there would be at least $57 trillion still looking for borrowers and investment opportunities. However changing the money system will have impacts that are deep and broad. Some we may reliably predict, others we will discover as the new system settles into place. Here are some potential ways that funds available for investment may increase further:
- $15 trillion of the debt is the money supply that will need to be recirculated by government. The change to Just Money will immediately remove the commercial banker’s power to create new money. However, the existing loans the bankers have made to create the money supply remain on their books, and it will be as if the government has loaned them these funds at zero interest. As the bank loans are repaid, the banks cancel the borrower’s debt, and the returned funds are paid to the U.S. Treasury, canceling the banks’ debt to the Treasury.
This money is now available for public use. As this $15 trillion is widely distributed into the economy, the general level of prosperity will rise, increasing the number of people who have funds to save and invest. And, Congress may choose to put some of this money into revolving funds that can be managed by banks.
To assure that the transition goes smoothly and bankers have adequate time to adjust their business model, the government may loan a declining portion of these funds right back to the bankers. Even after a total phase out, the government can decide to make some funds available to the private bankers for making loans in the private sector that serve the public welfare.
- Steady-value money. In our current system our money is steadily eroded by intentional inflation. With Just Money’s steady value, people’s money will go further, leaving more people and businesses with money to save and invest. Eliminating the steady erosion of our money’s value will mean that government spending and taxes will not need to steadily increase just to keep up with this inflation. The resulting reduction in taxes will again leave more money in the hands of people for spending and saving, and investing.
Just Money is a Win-Win for people, businesses, AND bankers! With new Just Money, the amount of money available to bankers to intermediate between savers and investors will likely INCREASE!
For those who want more detail, while at the World Bank, Economist Michael Kumhof, Ph.D., ran simulations of the change to a Just Money system, and found that the amount of capital available would increase slightly.16
Is this another government spending program?
YES & NO. Changing the money system is about changing a tool – money. Changing the money system makes it possible for us to distribute enough money to create a better world. But how that money is entered into the economy will be for a Congress representing the people to determine. So, yes, government will be able to spend, lend, give, and invest more. But, it can choose to enter new money in a diversified manner that empowers choices by individuals, businesses, local governments, communities, states, and the federal government.
Are mainstream economists on board?
Classical economists have been trained to ignore the creation of money. The topic of who creates money has been described as a third rail – a topic that could get one fired. And, one can read hundreds of economic text books and find almost no reference to the power of money creation. Money is treated as a minor or neutral factor in their theories and formulas. In reality it is the major factor in an economy. This is changing, as a new generation of economists recognize that following old economic theories has not led to widespread prosperity and well-being. This new crop of young economic students and economists are challenging their professors and the banking establishment to pay more attention to the money creation power. However, the power of money still exerts a strong influence over the economic and academic establishment.
Is this the same as Modern Monetary Theory?
No. Modern Monetary Theory (MMT) is about justifying borrowing and spending more money in our existing system, not about changing the money system itself. It is founded on the assumption that our existing money is the definition of money, claiming that all money is debt-credit. This simply isn’t true. Money can be created as an asset, and most of us think of money as such. MMT also claims that our government creates money when it authorizes and guarantees the money that is created by our commercial banks. This twist in defining creation is useful to those who support maintaining the existing system.
MMT presents a model of the economy as it functions within the existing money system. Some financial investors find this model useful in predicting how public and private spending relate. This model is used to support the idea that government debt doesn’t matter, government austerity measures are a bad idea, and that governments can go into as much debt as is needed to pay for investments in the commonwealth. We agree with the conclusion that austerity measures are a bad idea, but believe that it makes more sense for the government to take back its Constitutional mandate to create the money supply, instead of going into debt to the commercial banks and to the extremely wealthy. We the People can create what is needed to strengthen our economy.
MMT also makes strange claims about taxation, saying that “taxes do not fund government spending.” Government accounts at the U.S. Treasury show that this is simply wrong. We need to change the money system! The change to a Just Money system is about real change, more transparency, more diversity in distribution, without any debt!
Is this a new idea?
Monetary reform has roots that go back centuries with precursors in ancient Greece and elsewhere. Ideas have been percolating and advocates gaining strength over many years. (Two examples: A New Monetary System by Edward Kellogg, (published in 1861); and Sovereign of the Market: The Money Question in Early America by Jeffrey Sklansky, 2017)
In 1933, in the wake of the Great Depression, a group of University of Chicago economists, supported by numerous notable economists nationwide, published a concept for monetary reform that came to be known as The Chicago Plan.
In 1996 dedicated money reformers established the American Monetary Institute (AMI) to research, report, and promote money reform. In 2002, AMI published Director Stephen Zarlenga’s book, The Lost Science of Money: The Mythology of Money – The Story of Power.In the last chapter Zarlenga lays out the history and contemporary relevance of the Chicago Plan proposal. His efforts were the catalyst for nearly a decade of work that resulted in a Monetary Reform Act, which drew from the work of the Chicago Plan economists. This became HR 2990, The National Emergency Employment Defense Act of 2011 (NEED Act), and was introduced in the U.S. House of Representatives in 2011. This Act included provisions to address the struggling economy after the 2007–2008 Great Recession, and remains the basis for our monetary reform efforts today.
In 2018, the Alliance for Just Money (AFJM) was formed in the U.S. to educate citizens about money and our choice for a better system. AFJM joined twenty-two national movements for money reform in the International Movement for Money Reform (IMMR).
What about the rest of the world?
Today, the money system is global. Change will not come in a vacuum. Many private global banks are creating our dollars and using them around the world. This practice will stop, and compliance will require global cooperation.
How will innovations in digital and cryptocurrencies fit into money reform?
Digital and cryptocurrencies use new blockchain technology. Currently, this technology is primarily in use by supplemental currencies, some of which, like Bitcoin have been designed to be a virtual asset for speculative gaming, rather than a useful and efficient currency. However, the technology they use is revolutionary and will impact how our money works in the future.
Blockchain is a new open source software that will radically alter how we make exchanges and contracts. In 2016, Don and Alex Tapscott published, Blockchain Revolution; How the technology behind bitcoin is changing money, business, and the world. They quote Marc Andreeson, cofounder of Netscape, who hails blockchain technology as “...one of the most fundamental inventions in the history of computer science.” As such it is bound to have a significant impact on money and finance.
The technology offers a way to establish extremely secure blocks of information that connect in forking chains. The forked lineage is nearly impossible to replicate by hackers. This technology is being developed rapidly, with billions in venture capital flowing into its development every quarter. The technology can be adopted by any kind of banking or money system. It provides a faster and more secure way to store, account, and transfer funds – all basic banking functions. One could use blockchain technology within our existing system to improve basic bank functions, and our existing banks are working on doing that. In this case, using blockchain technology would not save the system from its weaknesses and volatility, previously described.
Or, one could use the new technology in a Just Money system, in which the creation of money is restricted to a government of, by, and for the People. In this case, the use of new technology would be in service to an improved and Just Money system. Several European monetary reform groups are looking into this possibility, and sharing their research through the International Movement for Money Reform.
And/or, one could create a supplemental currency that is used within a limited community and that must be exchanged for our national currency to be used in the general economy. Supplemental currencies can add resilience to a national system. However, in a system that allows giant monopoly marketplaces, such as Amazon or Facebook, allowing supplemental currencies that also have the power to create money for use within their marketplace by issuing loans, would be a step toward monopolized private corporate rule. In short, a bad idea.
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