As you saw under the Private Debt Money System, there was a constant shortage of money which caused re-occurring inflation-depression cycles. The Public Credit Money system is designed so that this shortage of money never occurs.
Under the PCMS, a publicly owned national treasury ( Bank of Canada) under the direction and control of the federal parliament, would have the sovereign and exclusive authority over all money creation in Canada, not the private banks! This is absolutely crucial to putting the brakes on the escalating public and private debt and putting wealth back in the hands of the real creators.... the people. As the illustration shows, the Bank of Canada would create all the nation's money for their legislatively approved expenditures, interest free. So , instead of paying for a project two or three times over ( principal and interest under the present private debt money system), the people would only have to pay for it once. As an example, a one billion dollar expenditure for upgrading the national highway system would only cost one billion dollars, not two or three billion dollars. The federal parliament would authorize the Bank of Canada to "create" one billion dollars and spend it into circulation in the economy for the highway improvements. Once the project is finished, the repayment of the "loan" would be accomplished through some form of taxation or user fee. Once the "loan" is paid off, the tax or fee is abolished, (except for a maintenance fee) leaving the asset, the new road, free of any debt.
Of course, we, as individuals, still do need banks from which to operate in carrying out our daily financial activities. This includes consumer loans to the general public and loans to small and large businesses. Under the PCMS system, the private banks can borrow funds from the Bank of Canada at a set rate of interest for the purpose of re-lending the money to individuals and businesses. The bank's interest rate is then set above the BoC rate in order for the banks to make a reasonable profit.
As we can see, under a Private Debt Money System, there is a constant shortage of money in the debt money sink. The public credit money sink is designed so that this shortage never occurs.
In a Public Credit Money System, the national treasury ( a publicly controlled Bank of Canada) is the only source of money creation, not the private banks. Through the elected Parliament, it is the Bank of Canada which is charged with monetary authority; the exclusive authority to create money. The public credit money sink has two faucets and three drains.
This is how it works.
For our example, we will assume that the economy can function on a money supply of $1,000.00. The Bank of Canada exercises its monetary authority and creates $1,000 out of nothing and, in this case, lends it to the private banking system at a rate of 6%. The private banks, in turn, use the money to make loans to businesses and individuals. The banks' interest rate is is set above the BoC's rate so that the banks can make a profit. In this example, the banks lend it at 10%. The treasury (BoC) faucet opens and $1,000 flows into the economy (sink) (via the private banks).
At the same time, the government is approving its annual budget for public expenditures and in this example, we will assume the cost for this year's needed, achievable and authorized projects comes to $200. Exercising its monetary authority, the treasury (BoC) creates $200 to pay for its approved expenditures. The treasury's second faucet opens and this $200 of debt free money pours into the economy.
A year passes and the private sector's debt of $1,000 is due for repayment. The principal drain opens up as the people and businesses repay the private banks and the banks repay the treasury. The private banks borrowed the $1,000 at 6% and lent it at 10%. Therefore, the borrowers pay $100 of interest to the private banks (10% of $1,000). The private banks pay $60 of this to the treasury (6% of $1,000). The $60 flows out of the interest drain and disappears - is extinguished.. The private banks keep $40. to which they are entitled. This $40 that the banks have earned, stays in the economy and is not extinguished.
Because $200 of debt-free money came into the economy, it was not necessary to borrow any money to pay the interest due on the $1,000. You see, both this principal ($1,000) and the money to pay the treasury interest on it ($60) flowed into the economy (through the creation processes explained above) and then flowed out again (the amounts were taken out of circulation) when the loan became due.
The third drain is the government's tax drain which is used whenever government expenditures are greater than the amount of money that is extinguished through the interest drain within a given time. In this example, the treasury extinguished $60. of debt-free money when it received the interest payments from the private banks. The banks retained $40 as their profit and to cover their overhead. These two amounts add up to $100.
The government created and spent $200 (debt free) into circulation and so, subtracting the interest the private banks owed and paid the treasury ($60) and the profits retained by the private banks ($40), from the $200 of debt free money issued, we find that there is $100 of excess purchasing power in the economy. In order to keep the system in balance, this excess $100 will have to be removed from the money supply. The simplest way to do this is to tax it out. (a sales tax or gas tax for example) The $100 is gradually collected by the treasury and extinguished (taken out of circulation) Once the money is extinguished, the tax is repealed or reduced in order to maintain a constant balance of purchasing power in the economy. Thus, permanent taxes are not always necessary.
To summarize how the money flowed in and out of the economy;
|$1,000 loan from Treasury to Private Banks at 6%|
Private Banks charge 10% interest = $100.00
Treasury receives interest (6%) = -60.00
Private Banks keep their earnings = $ 40.00
Approved public expenditures $200.00
Treasury extinguishes $-60.00
Private Banks retain $-40.00
Remaining in circulation $100.00
In order to balance the system, the Treasury must
tax $100.00 out of the economy.
As the economy grows, more money is required to meet the increased demand within the economy. This is done by simply plugging the tax drain and, if necessary, close off the interest drain a bit. This will allow more money to flow into the economy. The prosperity of the people will grow and the amount of money in the economy will be kept in balance with its demand within the economy and this balance will virtually eliminate any risk inflation.
In a free society where justice and human characterize the people's idea of good government, monetary authority MUST ALWAYS be the servant of the people and not the reverse as it is today. The monetary authority - that is the national treasury - must make money available for all needed, achievable and duly authorized public services and projects. Equally, the treasury must see to it that money is readily available for all worthy private enterprise. Money for the private sector is made available through: recycling the people's savings within the banking system; bank-borrowing from the treasury; and, as a last resort and in special cases, via direct loans from the treasury to individual business enterprises.
A Public Credit Money System is free from inflation because the money supply is always greater than the amount of debt in the system and all new money is created usury free. Interest rates and government revenues are regulated to keep the flow of interest and taxes in balance with the flow of debt-free public expenditures. Because of this mathematical balance, inflation cannot occur.
There are many benefits under this Public Credit Money System:
1. Money becomes permanently available at reasonable interest rates.
2. Business activity and employment surge forward.
3. Inflation is halted, protecting wages, savings, and those on fixed incomes.
4. Bankruptcies are no longer necessary to balance successes.
5. Private debt is made payable at all times.
6. Prices fall along with debt and stabilize when debt becomes payable.
7.Cycles of boom and bust are eliminated.
8. All existing primary debt, both public and private, diminish and ultimately reach a level below that of the money supply.
9. Federal government borrowing ceases entirely.
10. Federal taxation is drastically reduced immediately.
11. Provincial and local taxes are gradually reduced to less much lower levels.
12. The national debt is reduced and eliminated, never to grow again.
13. Working people at all levels can afford to buy homes and enjoy comfortable and prosperous lives.
14. Constitutional government rises superior to and replaces private monetary authority, power and influence.
15. The present practice of usury by the private banks is eliminated.
16. No more scrambling for reserve funds by the private banks.
As Canadians, each of us is responsible for learning the truth about why we are buried under this mountain of public and private debt. A debt which we will leave to our children to suffer with. A debt which will drive us to a total economic collapse unless we make the necessary changes NOW! Here is a short list of a few of the basic and necessary changes which need to happen.
Credit Money Bill
This page was last updated on 01/24/06.