Some words of Stupidity

No, I don't know that atheists should be considered as citizens, nor should they be considered patriots. This is one nation under God.

-- George Bush Sr.

Monday, April 6, 2009

Zero Sum Banking

I want to introduce an idea here. It is a relatively simple idea. The idea is that all banking should be a zero sum game. Zero sum means that for all loans, any money created from nothing must be matched contractually by money owed, and if the money is not created from nothing the banking must be full reserve banking. This simple change in banking practice is enough to fix the Ponzi schemes inherent in banking today.

To add to this I would add that the Federal Reserve needs to go the way of the dinosaur. Additionally, an amendment should be added to the constitution that Jefferson would have wanted, which is that the Federal Government can never go into debt. All funding for government projects must be Greenback based. No tax for any US company or person at any time and all projects by law must be competitively financed through open bidding, again also by law. Add to that the same for local, county and state governments as well and there would be enough freedom and economic independence to go around. There are a laundry list of other such great ideas that have been floating around, such as limiting terms for senators and representatives to two terms, but for the rest of this article I would like to cover what I call Distributed Fractional Reserve Banking and how it fits into Zero Sum Banking.

Zero Sum Banking using Full Reserve Banking does not need to be covered here since it is an idea that is more then adequately covered by other websites, such as those that talk about Austrian Economics. To understand instead how Zero Sum Banking would need to work if money was created from nothing the rest of this blog entry is dedicated. This method of banking as I stated earlier is called Distributed Fractional Reserve Banking.

One of the problems with Fractional Reserve Banking is not that it creates money from nothing, but that it does so with interest added and never redeems the principal of the loan back to society. The interest that is thus owed is not a paltry portion either. We are talking about 200 to 300 percent for homes and comparable amounts for other types of loans such as for a car. If the bank through double-entry book keeping does not create the excess percentage of interest, a quick question is where does it come from? The answer is people have to fight for it. The first thing to do is get rid of allowing banks to charge front-ended loans where one pays 95% interest on the first payment, then 80%, 72% and so on until you reach 6%. This is how home loans work. So when a bank says a loan is for 6% this is what is meant. This unscrupulous practice needs to end immediately. All loans by law should be simple interest loans where any and every payment takes out the interest part and nothing more.

The next thing that could be done is to have interest accounted to the banks books immediately and be the only profit the bank can have, by law. No charges for withdrawal, no charges for late fees or other arbitrary such petty tricks. Each loan would then have an accounting entry that acts like negative money in that paying into it would make the loan amount owed less. The total loan amount would be the loan principal plus interest. There would be three types of loan payments at the discretion of those having a loans. A loan can either increase, decrease or keep the amount of money in circulation the same. The loan that keeps the amount of money in circulation constant has been described already. The other two types of loans are to be described next and use the static loan as a base.

The other two options for a loan payment are for the money supply to increase or decrease. These two options obviously have opposing goals. There is a pool account to handle the difference in money entered in either type of payment to account for these opposing goals. If someone pays into a loan with the option to increase the money supply this counts as a plus in the pool for how much they paid minus interest, or if they say decrease it, this counts as a negative in the pool minus interest. If the pool is below zero for some fixed time period it is set to zero. The pool is then divided up equally (or by some other rational method to be set by laws) among all people with checking accounts every period. This would mean I hope a democratically controlled monetary policy that would most likely have small inflation and be very flexible (for instance around Christmas time people would probably want more money, so they would choose the option that increases the money supply).

If someone does not pay back a loan, the government takes care of that. The reason is simple, money is backed by the full faith and credit of the US government (or hopefully the will of the people), if someone does not pay back their loan then they are dishonoring the credit of the US. So the government will take the house from the trust of the bank possibly after going to court, resell it, refund the amount that the person has put into the house to the person with the original loan and put it back into the trust of the bank for whoever buys the house next. The government does not make money for this except maybe some fine to the original loan recipient to cover costs to the government for processing. This would probably be done at the state level.

Paper, gold or silver money (non-account money) is the responsibility of the government and the banks in this system. It is their responsibility to have enough on hand to meet transfer from account to non-account money and back requirements of the general public. The bank does not own any of the non-account money and acts only as a trust in storing it. This means there can never be a run on the bank since all that would be required is for the Government to print up more. Non-account money is owned by the people of the US, and rightfully so. Non-account money (paper money) would once again be printed with the words "US Treasury Note".

A symbol for Zero Sum Banking is a good idea. The symbol I suggest is an equation, 0 = 0. This simple statement is a counter to the ideas inherent in all of the skulduggery associated with the Ponzi Schemes that are given by the names Fractional Reserve and Centralized Banking. Patriotic Americans and anyone else who is tired of being ripped off by banks should put the equation on the bumpers of their cars, and store owners who are like-minded should show their support by putting the equation on storefront windows. Another way that this equation is nice symbolically is that the zero numeral '0' is shaped like a coin, stating that one coin unit should equal any other coin unit. In the words of the tortured man from 1984, "Freedom is being able to say two and two makes four." The equation 2 + 2 = 4 is logically the same as 0 = 0. Poor Winston was right, Big Brother Banker wants us to think that 2 + 2 = 5 and pocket the difference.

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1 comment:

  1. Here is another proposed idea. Every loan is on account complete with routing and account number. To 'zero' out the loan, one would only need to log into an ACH portal, enter in the corresponding account and routing number then enter in the amount to zero out. For instance, Phil took out a loan for $4,000 with XYZ bank. Phil was able to acquire the correct routing and account number from the holding bank and was able to zero out the loan by applying the principle to be paid in equal amount to loan balance. The payment posts and as soon as ACH clears, the loan is paid in full. Since Phil was the one who actually created the funds by signing the loan instrument, he also has the power to settle the loan with the instrument of choice in this case, ACH. This works but locating the correct account details can be quite daunting.