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The End of Money and the Liberation of Exchange

June 27, 2007. Prepared by Thomas H. Greco, Jr.. 2. What I Will Cover. Fundamentals of Exchange.The Necessary functions of moneyStages of evolution of money.The abuses of moneyEnabled by centralized control of credit.Decentralized credit clearingAn honest and efficient system of exchange Esca

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The End of Money and the Liberation of Exchange

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    1. The End of Money and the Liberation of Exchange A path toward social harmony and universal prosperity Thomas H. Greco, Jr.

    2. June 27, 2007 Prepared by Thomas H. Greco, Jr. 2 What I Will Cover Fundamentals of Exchange. The Necessary functions of money Stages of evolution of money. The abuses of money Enabled by centralized control of credit. Decentralized credit clearing An honest and efficient system of exchange Escaping dollar dominance A multi-stage plan.

    3. June 27, 2007 Prepared by Thomas H. Greco, Jr. 3 Exchange Requires Three Fundamental Elements A marketplace Where buyers and sellers come together A measure of value For expressing prices A means of payment For concluding a transaction

    4. June 27, 2007 Prepared by Thomas H. Greco, Jr. 4 Basic Kinds of Economic Interaction Gifts -- Transfer of value without any particular expectation of anything in return. Involuntary Transfers – e.g., theft, robbery, extortion, taxes. Reciprocal Exchange – equal exchange of value between two parties by voluntary agreement.

    5. June 27, 2007 Prepared by Thomas H. Greco, Jr. 5 Money Plays Its Role Within the Realm of Reciprocal Exchange

    6. June 27, 2007 Prepared by Thomas H. Greco, Jr. 6 The Evolution of Money Commodity money Tobacco, hides, gold, silver, etc. Symbolic money Redeemable paper, warehouse receipts Credit money - current state Bank credit, central bank notes, private credit and notes Direct Credit Clearing - Beyond political money

    7. June 27, 2007 Prepared by Thomas H. Greco, Jr. 7 Why Reinvent Money? Throughout the world, money has become an instrument of political power. Money and banking are manipulated by and for limited private interests. Political money is exploitative, dysfunctional, and undemocratic.

    8. June 27, 2007 Prepared by Thomas H. Greco, Jr. 8 How is Political Money Dysfunctional and Exploitative? Money created as bank “loans:” Is kept artificially scarce. Is expensive, because interest is charged. Is misallocated at its source, serving to concentrate power and wealth. Forces artificial growth. The Great Depression of the 1930’s provides a prime example of the systemic flaws, as do the innumerable examples of hyperinflation that has occurred in various countries.The Great Depression of the 1930’s provides a prime example of the systemic flaws, as do the innumerable examples of hyperinflation that has occurred in various countries.

    9. June 27, 2007 Prepared by Thomas H. Greco, Jr. 9 “Legal Tender” Serves to Centralize Power Legal tender laws are an abuse of monetary authority. Provides governments and banks with a way to avoid the discipline of the market. Improper and excessive issuance of money would normally be punished by discounting or refusal of the currency. The obliteration of the value standard by legal tender enables abuse to continue. “Inflation” is the result. Example: the definition of the U.S. dollar

    10. June 27, 2007 Prepared by Thomas H. Greco, Jr. 10 Modern money is Credit and Credit is the Life Blood of Business Two distinct credit functions: Exchange Short-term credit (turnover credit or working capital) – Money Finance Long-term investment and savings (value storage) in the form of debt or equity – Not Money Credit Makes the World Go Round Exchange and finance are two related but distinct functions.Exchange and finance are two related but distinct functions.

    11. June 27, 2007 Prepared by Thomas H. Greco, Jr. 11 Credo = Belief > Credit All credit derives from belief in a promise. Credit is based on trust and contractual obligation. Who or what do you trust? Who deserves credit? Whose promise will you accept as payment?

    12. June 27, 2007 Prepared by Thomas H. Greco, Jr. 12 Sources of Credit Banks Loans Customers Prepayments / gift cards & certificates Suppliers and Employees Vouchers, complementary currencies Direct credit clearing The first two of these provide advances of conventional credit-money; the third is the issuance of private credit-money. It provides working capital with less reliance upon bank borrowing and lowers interest costs.The first two of these provide advances of conventional credit-money; the third is the issuance of private credit-money. It provides working capital with less reliance upon bank borrowing and lowers interest costs.

    15. June 27, 2007 Prepared by Thomas H. Greco, Jr. 15 Privatization of the Credit Commons Access to credit is controlled by the banking system in collaboration with central governments. Banks decide who gets access and on what terms. Banks collect interest on all loans. Favored clients get credit on easy terms. National governments have extraordinary access. By their arrangement with the banking system, governments can “borrow” as much as they wish and never repay. Privatization of the commons. The allocation and management of credit is anything but democratic. Banks throttle the credit allocation process and exploit users of credit by misallocating it and charging interest for its use. Central governments spend as much as they wish without regard to the amount of their tax or other revues. This is called “deficit spending” and its result is debasement of its currency unit, a phenomenon commonly referred to as inflation.Privatization of the commons. The allocation and management of credit is anything but democratic. Banks throttle the credit allocation process and exploit users of credit by misallocating it and charging interest for its use. Central governments spend as much as they wish without regard to the amount of their tax or other revues. This is called “deficit spending” and its result is debasement of its currency unit, a phenomenon commonly referred to as inflation.

    16. June 27, 2007 Prepared by Thomas H. Greco, Jr. 16 Two Parasitic Elements of the Conventional Money System Interest Collected by the banking cartel Inflation Caused by government deficit spending

    17. June 27, 2007 Prepared by Thomas H. Greco, Jr. 17 Direct Access to Credit is Possible and Desirable It is our collective credit that supports the monetary system. We have the power to use our credit as we wish. People are free to decide who they will trust and to allocate their credit directly to one another. Whom or what will you trust? Are you trustworthy?

    18. Conventional Payment Process Using Bank Credit Money Alpha owes Bravo $100, Bravo owes Charlie $100, Charlie owes Delta $100, and Delta owes Alpha $100. Typically, one or more of these debtors will borrow from the bank in order to pay what they owe to each other. In the simplest scenario, Alpha borrows $100 from the bank to pay Bravo, who then uses it to pay Charlie, who then uses it to pay Delta, who then uses it to pay Alpha. Alpha can now repay the bank, but, in addition to the $100 principal, it must also pay the bank interest. In sum, each company used the bank’s liability (bank notes) to pay the others what was owed.Alpha owes Bravo $100, Bravo owes Charlie $100, Charlie owes Delta $100, and Delta owes Alpha $100. Typically, one or more of these debtors will borrow from the bank in order to pay what they owe to each other. In the simplest scenario, Alpha borrows $100 from the bank to pay Bravo, who then uses it to pay Charlie, who then uses it to pay Delta, who then uses it to pay Alpha. Alpha can now repay the bank, but, in addition to the $100 principal, it must also pay the bank interest. In sum, each company used the bank’s liability (bank notes) to pay the others what was owed.

    19. The Clearing Process Without Bank Credit Why is it necessary to “rent” a bank’s liability to clear debts owed to one another. In a clearing circle, each company’s debts (accounts payable) are offset by the amounts owed to it (accounts receivable). There is no need to use “money” as a payment medium. It is only necessary that a common pricing unit be used. This can be any national currency unit, or preferably, some independently defined value standard. “Under the politico-financial scheme of things the business man must go to the banker and pay a lending fee for what is merely a clearance service. The government even subjects itself to this tribute-taking device by "borrowing" from banks whereas it could create deposits just as well by non-interest bearing currency or other notes.” – Riegel, Valun Monograph 2.Why is it necessary to “rent” a bank’s liability to clear debts owed to one another. In a clearing circle, each company’s debts (accounts payable) are offset by the amounts owed to it (accounts receivable). There is no need to use “money” as a payment medium. It is only necessary that a common pricing unit be used. This can be any national currency unit, or preferably, some independently defined value standard. “Under the politico-financial scheme of things the business man must go to the banker and pay a lending fee for what is merely a clearance service. The government even subjects itself to this tribute-taking device by "borrowing" from banks whereas it could create deposits just as well by non-interest bearing currency or other notes.” – Riegel, Valun Monograph 2.

    20. June 27, 2007 Prepared by Thomas H. Greco, Jr. 20 Direct Credit Clearing If money allows us to transcend the limitations of barter, credit clearing allows us to transcend the limitations of money. An association of traders can agree to offset purchases against sales amongst one another. In effect, goods and services are used to pay for other goods and services. Another way to describe it is: Accounts Receivable (A/R) are used to offset Accounts Payable (A/P) The same process can be applied by countries within an international trading union. Direct clearing of credits and debits among buyers and sellers is the highest step in the evolution of payment media.Direct clearing of credits and debits among buyers and sellers is the highest step in the evolution of payment media.

    21. June 27, 2007 Prepared by Thomas H. Greco, Jr. 21 When you sell something, your account balance is credited (increased); When you buy something, your account balance is debited (decreased). How Does Credit Clearing Work? Banks still prefer to act as if money is a thing which they can lend out so they can charge interest.Banks still prefer to act as if money is a thing which they can lend out so they can charge interest.

    22. June 27, 2007 Prepared by Thomas H. Greco, Jr. 22 How Does Credit Clearing Work? (2) Ultimately, goods and services pay for other goods and services. Money is just an intermediary device that is supposed to facilitate the process, But money can be dispensed with. Remaining balances may be settled at periodic intervals, or may be carried over indefinitely.

    23. Mutual Credit Issuance and Circulation Participants in a credit clearing association utilize their own credit to facilitate the exchange process, directly within a network of trust. They allow one another to draw upon the common credit pool. Participants in a credit clearing association utilize their own credit to facilitate the exchange process, directly within a network of trust. They allow one another to draw upon the common credit pool.

    24. June 27, 2007 Prepared by Thomas H. Greco, Jr. 24 An Example Suppose $1 million worth of clearing credits are created and spent into circulation by the associated businesses. That means that their collective cash expenditures have been reduced by $1 million. That $1 million remains within the association instead of flowing out to pay for imports.

    25. June 27, 2007 Prepared by Thomas H. Greco, Jr. 25 An Example - continued If the turnover is 10 times a year, that means $10 million in additional local sales. If the rate of profit on sales is 20%, that will result in additional yearly profits of $2 million.

    26. June 27, 2007 Prepared by Thomas H. Greco, Jr. 26 An Example - conclusion Further, the issuance of clearing credits allows some interest-bearing debt to be retired. If the interest rate on debt is 10%, the businesses will together save cash interest costs of $100,000 each year. Every dollar’s worth of clearing credit issued means: one less dollar that needs to be borrowed, one less dollar that needs to be spent, one less dollar that needs to be repaid with interest.

    27. A Successful Example Established in 1934, the WIR Bank has continued to thrive. The WIR Bank clearing system now serves more than 60,000 small and medium sized business members. Credits cleared: $1.35 billion (2004) Here I am in front of the WIR Bank headquarters in Basel, Switzerland in May 2005. Cleared credits CHF 1.65 billion annually (as of 2004) = US $1.35 billion.Here I am in front of the WIR Bank headquarters in Basel, Switzerland in May 2005. Cleared credits CHF 1.65 billion annually (as of 2004) = US $1.35 billion.

    28. June 27, 2007 Prepared by Thomas H. Greco, Jr. 28 A Likely Scenario Stage one: Independent Trading Blocs (already underway) Many Islamic countries, under the leadership of Malaysia, form an Islamic trading bloc. Other trading blocs are emerging in Latin America and elsewhere. Stage two: Payment offset (already underway) These nations begin trading with one another under bilateral and multilateral agreements that utilize credit clearing intermediaries that offset payments for imports against receipts for exports and settle accounts at periodic intervals using some mutually agreed currency (dollars or euros). Stage three: Use of Gold Dinar (being considered) Member nations adopt the gold dinar as the common value standard and the settlement currency.

    29. June 27, 2007 Prepared by Thomas H. Greco, Jr. 29 A Likely Scenario - continued Stage four: Clearing union Member nations form a clearing union in which sales to members offset purchases from members. They abandon gold as the payment medium and utilize the gold dinar only as a measure of value and pricing unit. Stage five: Settlement suspended Member nations begin to realize that the period between settlements can be increased without adverse consequences, so they gradually lengthen the period more and more, but as balance of payment difficulties become evident, limits are set on clearing account balances to prevent payment deficits from becoming chronic for any nation. Stage six: Mutual finance Associated countries create mutual assistance programs that provide development finance on a shared risk basis, using temporary equity-investment to help countries with adverse balance of payments problems to become more productive.

    30. June 27, 2007 Prepared by Thomas H. Greco, Jr. 30 A Likely Scenario - concluded Stage seven: Adoption of a composite commodity standard Realizing that because the gold market is easily manipulated by the central banks and governments of the developed countries, the Islamic trading bloc countries abandon the gold dinar as the value standard and adopt a common pricing unit based on a “market basket” that is composed of a handful of freely traded basic commodities. Stage eight Non-Islamic countries, seeing the benefits of this system, seek to join the Islamic trading union, or form clearing unions of their own, all of which are ultimately networked together, creating a global association for fair trade and mutual assistance.

    31. June 27, 2007 Prepared by Thomas H. Greco, Jr. 31 Conclusions Political money is credit money that is used to concentrate power and wealth. Private initiative and enlightened government action can evolve credit money into credit clearing to serve the common good. With credit clearing as the means of exchange, gold can be the pricing unit. True Islamic prosperity can be achieved through the organization of direct credit clearing associations. Dollar hegemony can be transcended by organizing trading blocs that use credit clearing instead of international currencies for payment.

    32. June 27, 2007 Prepared by Thomas H. Greco, Jr. 32 Suggested Sources Explore the website: http://www.ReinventingMoney.com Monitor the blog: http://beyondmoney.wordpress.com Read, Money: Understanding and Creating Alternatives to Legal Tender, and Money and Debt: A Solution to the Global Crisis by Thomas H. Greco, Jr.

    33. June 27, 2007 Prepared by Thomas H. Greco, Jr. 33

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