by Bill Parks

Created on: March 07, 2009

Although the figures for the 2010 budget are huge, $3.6 trillion, they are not large enough to replace the money draining out of our economy as interest payments to banks and adding new money for our increasing population and economic growth. Simple calculations indicate that an optimum budget should be in the $4.5 trillion range.

We are currently experiencing a period of severe deflation. Because of the structure of our banking and monetary system, more money is being drained from the economy as interest payments and money destroying defaults than is flowing into it as a resulting from increased investing, lending and government spending. With outstanding loans of more than $53 trillion and an average interest rate of more than 6%, the minimum interest drain on the economy will exceed $3.0 trillion in 2010. Somehow the economy must generate at least $3.0 just to pay the interest on this outstanding debt. A developing money shortage is causing painful economic contractions at this writing.

Of the three entities that create money, the US government, the Federal Reserve and commercial banks, only the US government has the authority, power and flexibility to reverse the money shortage. The Federal Reserve set interest rates for lending to banks, establishes the deposit reserve rated and issues paper currency that makes up about 1.8% of the total money supply. Commercial banks create 98% of the nation's money using fractional reserve banking techniques. However, banks can only lend money, and their loans are causing our financial troubles.

Only government can lend money like banks, issue money like the Federal Reserve and spend that money directly into the economy stabilizing our currency. When government creates and spends money, it is creating a dynamic equilibrium of money flowing into the economy as a result of its spending and the money flowing out of the economy as a result of interest payments and defaults.

Accurate calculations of the amount of money necessary to establish dynamic equilibrium, must include the rate of interest, the total amount of debt and an adjustment to reconcile the growth in population and economy. If the interest rate is 6%, and the adjustment for population and economic growth is 3.0%, the government should spend about 9.0% of the total $53 trillion debt load. An optimum budget for 2010 should be about $4.5 trillion.

Although a budget of $4.5 Trillion requires approximately $2.7trillion of deficit spending, that spending need not create new debt. Government can issue debt free money as easily as it issues bond.

At Abraham Lincoln's order, the Treasury Department issued US currency in the Civil War. After the war, in 1884, in a time of peace, the Supreme Court ruled in the case of Juilliard V Greenman that the US government's authority to issue all money for the people, was inherent in our nation's sovereignty. The case established, once and for all, the government's authority to issue the nation's money supply. Since both bonds and currency are forms of money, the difference being bonds bear interest while currency does not, Congress is free to choose which to issue. Congress can choose to issue $2.7 trillion in currency to pay for the deficit, directly reducing our chronic money shortage.

Before anyone yells, "socialist," we have a public highway system that serves everyone's transportation needs, likewise, we need a public money system to service everyone's financial needs.

The Federal Reserve must be made a part of the government and banks must be prohibited from creating private, legal tender money. Only when the US government becomes a monopoly issuing all money for our economy, will we have a stable currency and a sustainable economy.

Learn more about this author, Bill Parks.
Click here to send this author comments or questions.