With so much money around, why isn’t money available for better streets, roads and bridges? Why isn’t it available to city and rural school districts to provide their children with good schools? Why isn’t it available to maintain the Social Security system without the threat of its running out of money? Why isn’t it providing jobs that pay well? Why is all this money in the hands of so few people? And why is there so much debt?

What is money?

When people think of money they think of cash in their pockets. Bills and coins, however, make up less than 5 percent of the money in circulation. Salaries aren’t paid with bills and coins; mortgage and rent payments are not typically made with bills and coins. Most of our purchases are not made with cash; they are made with credit cards, electronic transfers, or checks. Ninety five percent of our money exists only as information, that is, as numbers in accounts stored in computers.

Where does new money come from?

The nation’s money supply increases every year. According to the Federal Reserve, $1.5 trillion of new money (cash plus deposits in our bank accounts) was created between October 2014 and September, 2016 (https://www.federalreserve.gov/releases/h6/current/default.htm). Less than 5 percent of it was created as cash by the government. Where did this $1.5 trillion come from?

It came from banks. Every time a bank makes a loan the money supply rises by the amount of the loan. Every time a bank makes a loan the debt level also rises. The debt level rises faster than the money supply because the borrower is in debt both for the amount of the loan and for the interest that will become due over time. So, the debt has to be greater than the money supply. Current debt levels are more than 3 times higher than the current money supply.

Consequences of the present system?

The current system of money creation as debt when banks make loans means that all our money is on loan, and that we are paying interest to the financial sector on every dollar in circulation. It represents a systematic transfer of wealth from the many, the borrowers and users of money, to the few, the lenders. This transfer contributes in a primary way to concentration of wealth in the financial sector.

Because new money is generated by banks, banks get to determine where the money goes. It goes to profit-making for the banks. It doesn’t go to building or repairing roads, unless the state or county government borrows the money from the bank. Then the loan has to be repaid to the banks, plus interest, out of the pockets of successive generations of taxpayers.

Are there alternatives to the present system?

Article 1, Section 8, of the US Constitution gives Congress the authority to create (“to coin”) money. Congress has given that authority away to banks. Instead of creating money to be spent on roads and schools, which it has the authority to do, government borrows the money and pays interest on it. The payment of interest on the federal debt is the third largest expenditure in the federal budget. It, like debt-money creation, constitutes a systematic transfer of wealth from the many, the taxpayers, to the few, the lenders.

If the monetary system worked as most people think it works, the government would create what new money is needed and spend it for public benefit. There would be no federal debt. Banks would loan money they actually have, like other lenders do today, rather than create new money as they make loans. New money created by government, would go to the physical and social infrastructure needed for a healthy economy, instead of into speculation on Wall Street. It would stimulate the economy, provide jobs and put money in people’s pockets. It is time to make our money system work like we actually think it works. It is time to make it work for the many, not just for the few.

A system of money created by government served well in colonial America and during the Civil War. It can work now to meet the country’s acute needs of a decaying infrastructure, social unrest, and the threat of lethal climate change. Legislation, the National Emergency Employment Defense Act (NEED Act), was introduced into Congress in 2012 to reform the monetary system. It needs to be reconsidered at this time, in order to put us on a course to real recovery, security, and a sustainable future.

Additional Sources

Congressional Research Service. 2012. Summary of H.R. 2990 (NEED Act).

H.R.2990 National Emergency Employment Defense Act of 2011 (NEED Act). 112th US Congress (2011-2012).

Howell, John. 2019. “Guide to the NEED Act“. Article – Alliance for Just Money, 9 June 2019.

Yamaguchi, Kaoru. 2012. “On the Monetary and Financial Stability under A Public Money System (Revised): Modeling the American Monetary Act Simplified”. Paper presented at the 8th Annual AMI Monetary Reform Conference in Chicago, USA, Sept. 20 – 23, 2012. Originally presented at the 30th International Conference of the System Dynamics Society, St. Gallen, Switzerland, July 22 – 26, 2012.

Zarlenga, Stephen. 2009 (2006). Presenting the American Monetary Act”. Valatie, NY: American Monetary Institute.

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