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Every dollar in your bank 
account and nearly every unit of

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currency in the global economy 
is born as a liability. 

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Commercial banks generate the 
broad money supply as interest 

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bearing debt, while the federal 
government funds itself by 

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extracting wealth through 
taxation. 

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A new legislative proposal 
titled the Sovereign Monetary 

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Freedom Act provides A blueprint
to dismantle and replace this 

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architecture. 
As outlined in the Act's 

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executive summary. 
The text specifies 3 outcomes, 

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the end of fractional reserve 
banking, a national debt 

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jubilee, and the complete 
abolition of the IRS. 

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To anyone versed in modern 
monetary policy, these 

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provisions immediately trigger 
skepticism. 

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Printing money to eliminate 
taxes and erase debt 

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historically leads to rapid 
systemic collapse and 

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hyperinflation. 
We are going to bypass the 

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political friction of passing 
such a bill. 

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Instead, we will strictly 
reverse engineer the 

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macroeconomic, legal, and 
accounting mechanics required to

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execute this text. 
The entire framework relies on a

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specific philosophical 
inversion. 

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It redefines money, removing its
status as a private debt based 

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commodity and recategorizing it 
strictly as an accounted public 

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utility token. 
To evaluate how an economy 

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operates with 0 taxes and 0 
debt, we first have to rebuild 

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the proposed money creation 
engine from the ground up. 

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Under the current architecture, 
commercial banks use ex Neolo 

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money creation. 
When a bank approves a loan, it 

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simultaneously creates a new 
asset, the loan itself, and a 

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new liability, the deposit, 
expanding the broad money 

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supply. 
Sections 5 and six of the ACT 

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impose an absolute legal 
prohibition on this mechanism. 

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Commercial banks are stripped of
their ability to generate new 

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deposits when extending credit. 
That exclusive authority is 

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transferred directly to the US 
Treasury. 

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Every new dollar entering the 
economy must now originate from 

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the Treasury, authorized 
strictly by specific acts of 

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Congress. 
This shift changes the role of 

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the Federal Reserve. 
It ceases to operate as an 

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independent central bank setting
monetary policy. 

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The legislation reorganizes the 
Fed into a subordinate 

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operational arm under the 
Treasury, officially renaming it

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the Federal Reserve Monetary 
Operations Service. 

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From an accounting perspective, 
the national money supply is no 

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longer a byproduct of private 
lending, but a strictly 

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controlled, legally authorized 
public asset. 

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Centralizing issuance isolates 
the national architecture from 

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private bank runs. 
However, if commercial banks can

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no longer create credit, capital
must reach the public through a 

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different mechanism to fund 
mortgages or business growth. 

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This diagram illustrates the 
proposed supply chain required 

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to move capital into the economy
once the private money 

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multiplier loop is broken. 
The process begins with the 

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Treasury through the monetary 
operations service it issues and

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lends sovereign currency to 
licensed commercial banks at a 

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negative interest rate. 
For every 100 units transferred,

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the bank keeps a fixed 3% 
presage fee as its operating 

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profit. 
The bank then returns the 

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remaining 97% to the Treasury 
over the life of the loan. 

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Because the bank secures its 
profit margin at the source, it 

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is mandated to lend those funds 
to the public at exactly 0% 

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interest. 
Section 7 of the ACT applies a 

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similar structural overhaul to 
consumer deposits. 

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Rather than acting as unsecured 
creditors to the bank, 

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depositors hold 100% segregated 
sovereign money. 

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The deposit is no longer a 
pooled liability on the bank's 

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balance sheet. 
It is the direct, fully reserved

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property of the depositor. 
When deposits are fully 

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segregated and backed one to 
one, traditional bank runs 

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become mathematically 
impossible. 

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There is no fractional reserve 
to collapse. 

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Commercial banks shift from 
credit creators to public 

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service intermediaries, managing
accounts and evaluating loan 

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viability for a flat fee. 
While this removes the 

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collateral risks of fractional 
banking, the 97% return rate on 

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every issued loan creates A 
continuous revenue stream for 

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the government. 
In the context of this 

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legislation, that 97% return 
flow is classified as senior 

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edge. 
It represents the value retained

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by the state on every new 
sovereign dollar issued for 

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lending or public spending. 
The tax utilizes this specific 

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revenue mechanism to replace the
federal tax apparatus, outlining

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a three-year phase out schedule.
Year 1 mandates a 30% reduction 

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in individual and corporate 
income taxes, offset by the 

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initial influx of senior edge 
from sovereign loans. 

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Year 2 requires an additional 
40% reduction alongside the 

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total elimination of all payroll
taxes by the end of Year 3. 

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The legislation requires the 
complete abolition of the IRS, 

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estate taxes, gift taxes, and 
any remaining federal income 

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tax. 
The goal is an equilibrium where

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infrastructure, National 
Defense, and social programs are

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funded through the issuance and 
return of sovereign currency 

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rather than the extraction of 
private wealth. 

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Solving for a 0 tax state using 
Senior Edge is straightforward 

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on paper. 
However, it introduces A 

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vulnerability. 
If a centralized Treasury prints

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capital to fund government 
operations without limit, the 

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currency's purchasing power will
drop. 

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Historically, unconstrained Fiat
printing by a centralized 

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government is a reliable 
precursor to hyperinflation. 

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To counteract this, the ACT 
embeds A statutory inflation 

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anchor based on Richard Werner's
quantity theory of credit. 

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The central rule of this theory 
dictates that new sovereign 

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currency can only be issued for 
productive investments. 

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Capital intended for factories 
and infrastructure passes 

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through. 
Capital intended for derivatives

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or secondary real estate markets
is blocked. 

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The transition guidelines 
mandate specific criteria to 

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define what constitutes A 
productive investment, requiring

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increases in capacity and 
imposing bans on asset 

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speculation. 
Enforcement relies on 

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independent audits for any 
issuance over $100 million, with

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final metrics verified by the 
Bureau of Economic Analysis. 

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The funded project must 
demonstrably increase real GDP 

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within a 12 month window if the 
economy contracts. 

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The Treasury's authorized to 
issue currency for large scale 

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public infrastructure to 
counteract deflationary 

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pressure. 
Under this framework, inflation 

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is neutralized by legally 
enforcing that every new dollar 

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printed is matched by an 
expansion in real goods and 

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services. 
Executing this migration 

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presents operational risk. 
Moving a $21 trillion debt based

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system to a 100% reserve model 
could trigger mass insolvency. 

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To manage this, Treasury is 
required to execute the 

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Sovereign Monetary Transition 
Guidelines over a 36 month 

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period. 
Phase two introduces a national 

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debt jubilee. 
This serves as a mandatory 

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balance sheet clearing mechanism
required to execute the 

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transition. 
The guidelines outline a tiered 

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relief structure providing 100% 
cancellation for consumer debts 

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up to $250,000 per household, as
well as principal cancellation 

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on mortgages and student loans. 
To stabilize the banking sector,

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Section 8 mandates statutory 
safeguards. 

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Compliant institutions receive 
perpetual brassage rights and 

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transition compensation to 
prevent insolvency. 

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Existing public debt is 
restructured into non interest 

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bearing sovereign currency 
instruments. 

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Legacy private loans surviving 
the initial cancellation have 

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their future interest rates 
reduced to 0. 

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The Jubilee resets national 
leverage ratios. 

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This establishes A deleveraged 
baseline allowing the new money 

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supply to operate without the 
pressure of historical compound 

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interest. 
The proposed architecture 

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combines 100% segregated 
reserves, 0 interest productive 

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lending and a government funded 
by senior edge. 

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The text describes this outcome 
as an honest fiscal paradise. 

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However, the system has a single
point of failure. 

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It depends entirely on the 
rigorous corruption free 

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enforcement of the productive 
investment audit criteria. 

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If the definition of a 
productive asset is manipulated 

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to fund speculative projects, 
the inflation anchor fails and 

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the system collapses under the 
weight of an expanding currency.

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The political hurdles to 
enacting this transition are 

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significant. 
Yet if executed exactly as 

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written, the Sovereign Monetary 
Freedom Act presents a 

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mathematically structured 
blueprint for a post debt, post 

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tax capitalist economy.