Here is an example of an amendment that might be adopted by the states. Please note the list of items in this draft are really all the same item stated in several different ways for clarity and to avoid confusion or subversion of the amendment.
The federal government may not monetize debt, debase the currency, inflate the money supply or artificially lower interest rates by printing or creating money, directly or indirectly. Congress must repeal any legislation that authorizes any organization such as the Federal Reserve System, to do any of these acts, including the repeal of any right by the Fed to monetize corporate, foreign or other debt.
As you have read in these pages, the long term stability of our monetary system will be secured if we, a) stop Congress from authorizing the monetization of debt, b) eliminate the ability of central banks like the Federal Reserve to debase the currency by creating money out of thin air, and c) minimize and debate the risks inherent in the practice of fractional reserve banking. The latter two goals logically follow if the first one is accomplished because there is no incentive for anyone, bankers or Congress, to want them.
The goal of this amendment is to stop Congress from creating an entity with a franchise to create money, like the Federal Reserve System. The Federal Reserve must be prohibited from purchasing assets such as US bonds (government debt), corporate bonds, foreign debt or any other type of debt by creating the money to purchase it out of thin air.
In the definition of the monetization it seeks to stop, the Amendment must allow for natural increases (or decreases) in the money supply.
The Amendment will do two basic things. First and foremost, it will stop the government's current ability to create significant amounts of borrowing for itself through the hidden tax called monetization, etc. That is the primary purpose of the Amendment. Secondly, the Amendment will initiate a much needed discussion on the type of monetary system we should have.
Currently we have a central bank (the "Fed") that has complete discretion in its directors to manipulate and control a fiat, 10% fractional reserve money system in America. It can also manipulate and control other currencies through the monetization process. We have managed to choose a system that is most susceptible to government manipulation and most destructive to the wealth of individual citizens. The only way to make it worse is to further lower the fractional reserve requirement.
Some questions that must be asked are:
- Should we have a central banking system that is either operated by full discretion of its directors (per John Maynard Keynes) or as Milton Friedman suggested, by rule?
- What should be the nature of our money? Should it remain fiat money or should we go back to a commodity standard?
- If we go back to a commodity standard and retain fractional reserve banking, what fraction will be set?
- Should we consider "Free Banking?" In Free Banking there is virtually no government control. Banks use a fractional reserve system that they choose, and it is backed by a commodity such as gold up to the limits of the fraction. One of the assumptions of Free Banking is that its customers understand that their money is being lent out and if they "have a run on the bank" that there will not be enough money to cover all the deposits. Customers decide which banks to use based on their individual risk tolerances. Free Banking would eliminate political intervention in the banking system which is a major problem with our system. Monetization by Congress through an organization like the Federal Reserve would not be possible under Free Banking.
- Should we consider a BFH system? This is an interesting modified form of a type of barter system with credits. We are aware of this suggested system but have not studied it thoroughly. The people we have read that have studied BFH have rejected it.
- Should we consider a 100% gold standard system? This would obviously eliminate many of the problems suggested but, according to the free bankers does not deal well with the needed normal expansion in the monetary system. That expansion would be controlled strictly by prices. The argument is that is not an effective way to deal with the expansion of the money supply.
In any event, these questions would be discussed by debate in America and a decision would be made. In adopting the Amendment, states will have to determine (with our current system of discretionary central banking with fiat money), how to deal with natural expansion of the money supply that is necessary for the natural growth of the economy while ending of the ability of the government to monetize. For the last 100 years, we have become "used to" a central banking system providing for enough currency in the money supply. To break ourselves of that system instantly would certainly require much thought.