Every dollar in your bank account and nearly every unit of
currency in the global economy is born as a liability.
Commercial banks generate the broad money supply as interest
bearing debt, while the federal government funds itself by
extracting wealth through taxation.
A new legislative proposal titled the Sovereign Monetary
Freedom Act provides A blueprint to dismantle and replace this
architecture. As outlined in the Act's
executive summary. The text specifies 3 outcomes,
the end of fractional reserve banking, a national debt
jubilee, and the complete abolition of the IRS.
To anyone versed in modern monetary policy, these
provisions immediately trigger skepticism.
Printing money to eliminate taxes and erase debt
historically leads to rapid systemic collapse and
hyperinflation. We are going to bypass the
political friction of passing such a bill.
Instead, we will strictly reverse engineer the
macroeconomic, legal, and accounting mechanics required to
execute this text. The entire framework relies on a
specific philosophical inversion.
It redefines money, removing its status as a private debt based
commodity and recategorizing it strictly as an accounted public
utility token. To evaluate how an economy
operates with 0 taxes and 0 debt, we first have to rebuild
the proposed money creation engine from the ground up.
Under the current architecture, commercial banks use ex Neolo
money creation. When a bank approves a loan, it
simultaneously creates a new asset, the loan itself, and a
new liability, the deposit, expanding the broad money
supply. Sections 5 and six of the ACT
impose an absolute legal prohibition on this mechanism.
Commercial banks are stripped of their ability to generate new
deposits when extending credit. That exclusive authority is
transferred directly to the US Treasury.
Every new dollar entering the economy must now originate from
the Treasury, authorized strictly by specific acts of
Congress. This shift changes the role of
the Federal Reserve. It ceases to operate as an
independent central bank setting monetary policy.
The legislation reorganizes the Fed into a subordinate
operational arm under the Treasury, officially renaming it
the Federal Reserve Monetary Operations Service.
From an accounting perspective, the national money supply is no
longer a byproduct of private lending, but a strictly
controlled, legally authorized public asset.
Centralizing issuance isolates the national architecture from
private bank runs. However, if commercial banks can
no longer create credit, capital must reach the public through a
different mechanism to fund mortgages or business growth.
This diagram illustrates the proposed supply chain required
to move capital into the economy once the private money
multiplier loop is broken. The process begins with the
Treasury through the monetary operations service it issues and
lends sovereign currency to licensed commercial banks at a
negative interest rate. For every 100 units transferred,
the bank keeps a fixed 3% presage fee as its operating
profit. The bank then returns the
remaining 97% to the Treasury over the life of the loan.
Because the bank secures its profit margin at the source, it
is mandated to lend those funds to the public at exactly 0%
interest. Section 7 of the ACT applies a
similar structural overhaul to consumer deposits.
Rather than acting as unsecured creditors to the bank,
depositors hold 100% segregated sovereign money.
The deposit is no longer a pooled liability on the bank's
balance sheet. It is the direct, fully reserved
property of the depositor. When deposits are fully
segregated and backed one to one, traditional bank runs
become mathematically impossible.
There is no fractional reserve to collapse.
Commercial banks shift from credit creators to public
service intermediaries, managing accounts and evaluating loan
viability for a flat fee. While this removes the
collateral risks of fractional banking, the 97% return rate on
every issued loan creates A continuous revenue stream for
the government. In the context of this
legislation, that 97% return flow is classified as senior
edge. It represents the value retained
by the state on every new sovereign dollar issued for
lending or public spending. The tax utilizes this specific
revenue mechanism to replace the federal tax apparatus, outlining
a three-year phase out schedule. Year 1 mandates a 30% reduction
in individual and corporate income taxes, offset by the
initial influx of senior edge from sovereign loans.
Year 2 requires an additional 40% reduction alongside the
total elimination of all payroll taxes by the end of Year 3.
The legislation requires the complete abolition of the IRS,
estate taxes, gift taxes, and any remaining federal income
tax. The goal is an equilibrium where
infrastructure, National Defense, and social programs are
funded through the issuance and return of sovereign currency
rather than the extraction of private wealth.
Solving for a 0 tax state using Senior Edge is straightforward
on paper. However, it introduces A
vulnerability. If a centralized Treasury prints
capital to fund government operations without limit, the
currency's purchasing power will drop.
Historically, unconstrained Fiat printing by a centralized
government is a reliable precursor to hyperinflation.
To counteract this, the ACT embeds A statutory inflation
anchor based on Richard Werner's quantity theory of credit.
The central rule of this theory dictates that new sovereign
currency can only be issued for productive investments.
Capital intended for factories and infrastructure passes
through. Capital intended for derivatives
or secondary real estate markets is blocked.
The transition guidelines mandate specific criteria to
define what constitutes A productive investment, requiring
increases in capacity and imposing bans on asset
speculation. Enforcement relies on
independent audits for any issuance over $100 million, with
final metrics verified by the Bureau of Economic Analysis.
The funded project must demonstrably increase real GDP
within a 12 month window if the economy contracts.
The Treasury's authorized to issue currency for large scale
public infrastructure to counteract deflationary
pressure. Under this framework, inflation
is neutralized by legally enforcing that every new dollar
printed is matched by an expansion in real goods and
services. Executing this migration
presents operational risk. Moving a $21 trillion debt based
system to a 100% reserve model could trigger mass insolvency.
To manage this, Treasury is required to execute the
Sovereign Monetary Transition Guidelines over a 36 month
period. Phase two introduces a national
debt jubilee. This serves as a mandatory
balance sheet clearing mechanism required to execute the
transition. The guidelines outline a tiered
relief structure providing 100% cancellation for consumer debts
up to $250,000 per household, as well as principal cancellation
on mortgages and student loans. To stabilize the banking sector,
Section 8 mandates statutory safeguards.
Compliant institutions receive perpetual brassage rights and
transition compensation to prevent insolvency.
Existing public debt is restructured into non interest
bearing sovereign currency instruments.
Legacy private loans surviving the initial cancellation have
their future interest rates reduced to 0.
The Jubilee resets national leverage ratios.
This establishes A deleveraged baseline allowing the new money
supply to operate without the pressure of historical compound
interest. The proposed architecture
combines 100% segregated reserves, 0 interest productive
lending and a government funded by senior edge.
The text describes this outcome as an honest fiscal paradise.
However, the system has a single point of failure.
It depends entirely on the rigorous corruption free
enforcement of the productive investment audit criteria.
If the definition of a productive asset is manipulated
to fund speculative projects, the inflation anchor fails and
the system collapses under the weight of an expanding currency.
The political hurdles to enacting this transition are
significant. Yet if executed exactly as
written, the Sovereign Monetary Freedom Act presents a
mathematically structured blueprint for a post debt, post
tax capitalist economy.