The National Monetary Insanity Act

Recently by Robert Wenzel: 2010 EPJ Economist of the Year

On December 17th, Congressman Dennis Kucinich introduced H.R. 6550: National Emergency Employment Defense Act of 2010 on the floor of the House.

The bill is gaining supporters from many pockets of the internet. What this indicates is that there is still a lot that needs to be done in terms of educating the public about the basics of economics. This bill is quite simply loony,

Passage of the bill would create even more problems and chaos for the economy than already exist, at an exponential rate.

The bill calls for among other things:

To abolish the creation of money, or purchasing power, by private persons through lending against deposits, by means of fractional reserve banking, or by any other means.

Now, there is nothing wrong with stopping the issuance of loans where a bank doesn’t have the funds on deposit to make the loans. i.e. fractional reserve banking. That’s simply preventing fraud, but to call for the limitation of loans where funds are on deposit is simply mad. An economy grows because people save, deposit money in banking institutions, where the money is lent out. To the degree the money is loaned to the business sector, capital is available for further production. There is simply nothing wrong with this at all.

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The bill also calls for the loans function to be turned over to the government:

To enable the Federal Government to invest or lend new money into circulation as authorized by Congress and to provide means for public investment in capital infrastructure.

This is simply central planning. Instead of money being placed in the hands of multitudes of entrepreneurs via bank loans, this bill calls for loans to be made by the government. The same government, I might add, that funneled billions upon billions in TARP funds to elite banks. Entrepreneurship will thus be replaced by a government power structure that will dole out money based, of course, on influence. Further, it appears that there is no limit set on how much money may be printed for this mad adventure.

The bill goes on:

To incorporate the Federal Reserve System into the Executive Branch under the United States Treasury, and to make other provisions for reorganization of the Federal Reserve System.

The executive branch has gained and continues to gain enormous power. The executive branch now wages wars at will, this bill would give even more power to control the entire economy. "He who has the gold" or in this case, paper money, makes the rules. This is simply mind boggling. It is giving the exeecutive branch the power to declare a great economic war over its own citizens.

The bill also calls for the inflationary idea of printing money to resolve any deficit problems:

In General – After the effective date, and subject to limitations established by the United States Monetary Authority under provisions of section 302, the Secretary shall originate United States Money to address any negative fund balances resulting from a shortfall in available Government receipts to fund Government appropriations authorized by Congress under law.

Even more inflationary, the bill calls for paying off the entire U.S. debt by simply printing money:

Before the effective date, the Secretary shall commence to retire all outstanding instruments of indebtedness of the United States by payment in full of the amount legally due the bearer in United States Money, as such amounts become due.

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January 5, 2011