28th Amendment – The Rest Explained

Section 4:

Section 4 does two things:  1) designates the Secretary of the Treasury as the point man for carrying out the provisions of the amendment; and 2) limits the power of Congress to do anything about what the Secretary of the Treasury does in doing so, unless the Secretary acts in bad faith.

Who, oh who, would want the job of the Secretary of the Treasury under these circumstances?  Hard to say.  Some heroic individual who is willing to place his life in the hands of some of the most contemptible people on earth – members of Congress – since, as section 10 provides, if those scoundrels determine by a super-majority that he has acted in bad faith he will be put to death in short order.  Unless the president refuses to carry out that provision, in which case the United States is to be dissolved, the situation at that point having become hopeless.

Section 5:

This section simply prohibits the federal government from ever establishing a central bank again.  Good riddance.

Section 6:

It may be better to say that the federal government will not have the power to declare legal tender at all.  This was the understanding of the framers of the constitution, who saw no need to even state such a thing, even as they limited the power of the states to declare legal tender:  Article I, section 10 provides that “…no state shall … make anything but gold and silver coin a tender in payment of debts.”

Nevertheless, this section echoes that limitation and applies it explicitly to the federal government.  It is unfortunate that it has to be said, but the Supreme Court messed this all up a long time ago – in the 1870’s – in a series of rulings called “The Legal Tender Cases”.

I would particularly like to hear suggestions and arguments from others in favor and against the idea of giving the federal government any legal tender powers at all; but for now this is what the amendment provides.  Whatever its flaws, if any, it is obviously a great improvement on the current situation.

Section 7:

This section limits the discretion of the Secretary of the Treasury in his crucial role of defining the dollar in gold terms:  the only thing that is permitted is to define it in such a way that demand deposits and FRN’s are covered.  The Secretary is not to consider any other “policy” which would necessarily favor this group or that, or deliberately favor friends, associates, cronies, banks, etc.

The biggest wiggle room in the whole amendment is that the Secretary must decide what qualifies as the “demand deposits” that will be covered.  Wiggle room means potential mischief, which is why the penalty will be swift and severe if he engages in any.  Bad faith aside, the matter is left entirely to the Secretary’s discretion.  We have to hope he’s a good man and will do the job right; but if he doesn’t, he’ll either be killed or the country will be dissolved.

So, this is an important position, isn’t it?

Section 8:

Section 8 repeals the biggest mistake the framers made in giving power to the Congress under the original constitution.  The Congress obviously cannot be trusted to “regulate the value of money”.  Enough said.

Section 9:

The busy little banksters were busy even in 1868 when the 14th amendment was passed.  Section 4 of that amendment provides a few anachronistic things, but also provides that “the debt of the United States…shall not be questioned”, which is not anachronistic.  It is, however, ridiculous.  People can question debts and so can governments.  Just stupid.  Good riddance.

Sections 10, 11 and 12:

If the Secretary of the Treasury acts in bad faith in carrying out the provisions of this amendment, that constitutes treason and he will be promptly executed, and the president will take his place.  If the president does the same, he will be executed and the vice president will take his place.  And so on.

If the nation can’t produce, between those officials, anyone trustworthy enough to honestly carry out the amendment’s provisions, the US is then dissolved, and it deserves to be.


Filed under financial crisis

9 responses to “28th Amendment – The Rest Explained

  1. Frenchfrog

    Great job…you should post on zerohedge and many other places…


  2. backhousepirate

    You’ve obviously given this a lot of thought and time, thank you. I differ however on your rewarding those among us that have been the least responsible in their financial decisions. I asked previously how a debtor can be rewarded while a saver punished. If the debtor has to either pay for or give up financed assets, ok, but to just be handed clear title? Ahh, no.

    Please explain how this benefits society. I look forward to your response.


    • Hello pirate. Forgive me if I don’t have too much time right now but I’ll try.

      Your first error is in saying that savers will be “punished”. Savers will retain what they have, like everyone else. All of their dollars will be redeemable, unlike a lot of other things.

      Debtors will have all their debts forgiven and nothing will be taken from them. The reason for this is that if every asset that was obtained through a debt that cannot be repaid were “liquidated” you would have about 40-80 million homeless people in the US, to cite just one social calamity that would occur.

      There are many who have raised your objection. You are looking at the relative injustice of the less virtuous (debtors) compared with the more virtuous (savers). But we are well past the point where this is important. I guarantee that you will not want to live in a country where 80 million people have been turned out of their homes. Long before that happens there will be widespread civil unrest. You will have to huddle with your loved ones in your paid for home, probably armed to the teeth and eating out of cans. Is it worth it to do that so that your relative virtue can be vindicated?

      Many of those who would suffer are completely innocent, such as children. Shall we inflict terrible and pointless suffering on them to vindicate your virtue?

      So in the end you have to cancel the debt and leave everything where it is. Once you start down that road it would be folly to exempt anything. There is no way to make principled distinctions between the more profligate and the less profligate, what is reasonable and what isn’t.

      Another weird thing about this objection is that all of these debtors enjoy possession of all their stuff now. It would never be transferred to anyone deserving anyway – just seized by banks, whose debts are always forgiven them with no consequence. If you cancel the debt and leave everything where it is nothing has changed. Why should that bother anyone if it doesn’t bother them now?

      If you can wrap your head around the certainty, the absolute certainty, that a liquidation will be a disaster for everyone, all over the world, then you’ll see that while this proposal seems unusual or even radical it is actually the most moderate and practical thing that can be done.

      I take it you have no objection to the gold standard, which would be re-instituted at the same time.


      • Jimbo

        You’re assuming that the only options are to wipe out debts or liquidate the debtor’s assets immediately so that the debt can be repaid in short order. This is not the case at all! Take a simple example where a bank has only 1 debtor and only 1 depositor and let’s ignore mismatched maturities. Suppose the debt is $100,000 (obviously the deposit is also $100,000) but the debtor loses his job and can’t find another which pays the same. Also, his house is no longer worth what it was and he’s under water on the loan. The market value of the debt might now be only $50,000 so the bank has a problem because its assets (the loan) no longer match its liabilities (the deposit). Its first call is to raise more capital via a sale of stock but it might not find enough buyers. As a last resort it could write down its liabilities (ie cut the value of the depositor’s account balance) to match its assets. This means the debtor would not be given a free ride but the saver would take some of the pain too. Julius Caesar did something similar to this in 53bc. It worked but obviously not everyone was happy about it!


        • Well, if I understand you correctly you are assuming that the “money” that the bank loaned to the borrower was the deposit of a saver. This is not true. Banks actually invent the “money” that they lend by the very act of lending it. There is a loose relationship to what savers have deposited, sometimes. And sometimes not.

          In any case, no savers would actually lose anything in dollar terms under what I have proposed. Savers would have the same number of dollars saved that they did before.

          Regarding your other thought that something other than a total debt cancellation would be better, even if that was true – which I don’t agree with – there is no way to legislate such a thing. Legislation cannot be tailored to this or that circumstance. It paints with a broad brush. You could maybe cancel 50% of debt across the board or 10%, but why would you do that? If you’re going to start down the debt forgiveness road it makes little sense to do it piecemeal.

          Also, and I keep having to say this, the people now living who are most responsible for this mess have already gotten a “free ride”. It is odd that people are not up in arms over that, but get extremely upset that their neighbor, who is more like them, might get the same deal. Why does that bother you so much? I’m having trouble understanding the prevalence of this reaction.


  3. Jimbo

    You misunderstand me on the money and credit point. The bank does not lend money, it extends credit. The credit is used as money and ultimately becomes a deposit. A lot of people don’t understand this and I saw you were likely one of them almost as soon as I started reading your blog. The popular notion of banks creating money out of thin air and charging interest on it is not helpful to the public discourse on the subject of banks, because it is a very misleading description of what banks do and why they do it. Think of a credit card transaction: in essence the buyer has a debit marked against his account and the seller has a credit marked against his. So the debt and the deposit balance, the borrower’s interest is paid to the depositor’s account. If the debt is cancelled then the value which backed the deposit has gone, nomatter how many dollars it is worth. You can replace it with gold but if the deposit loses 80% of its weight in gold then it will lose purchasing power for sure. Check out the 3rd chart on the link below, showing the number of barrels of oil that an ounce of gold can buy. You’re suggesting that a deposit currently worth 1 ounce of gold and $1400 should fall to about 0.05 oz and $1400. To buy as much oil as before, the line on the chart would somehow have to rise to about 180 – 5 times as high as it’s ever been before. I doubt that it will, and with oil being such an important commodity, everything will get more expensive relative to the depositor’s savings.

    A partial debt cancellation does not need to be legislated for or worked out in committee. It would be the natural consequence of devaluing the dollar. There is every reason to do a partial debt jubilee and no good reason to make it a full jubilee. It is neither necessary nor desirable to cancel all debts past the point at which the banking system is solvent again. I am not suggesting the there should be no jubilee at all and using the “free ride” argument in support. I’m not particularly bothered by people getting free rides as a result of a solution to the current problems, but if they’ve promised 30% of their wages for 30 years in return for a house then it makes sense for them to pay SOMETHING for it instead of getting it for nothing! I simply don’t see why there should be a 100% free ride if a 50% free ride would be sufficient to fix the problems in the banking system.

    I can turn your question round and ask it of you: why should people who have NOT caused this mess pay for it to the unnecessarily great extent that you propose? Doesn’t the middle ground make more sense?

    Many years ago, when paper money was certificates for gold, there was still bank credit available, the value of which was backed by debt but redeemable in gold. Today the deposits are backed by debt and redeemable in paper. If we revalue gold so that all notes and coins are redeemable in gold then we will return to the situation as it was many years ago (and as laid out in the constitution), and partially devalue the dollar at the same time so as to fix the system. There is no need to do anything different, no need to have deposits backed by gold instead of debt.

    I expect to see gold revalued as part of a solution to the current problems, whether the revaluation is explicit or done stealthily. Your proposal is on the right lines but it is too extreme to be adopted. It tries to go further than it needs to so it won’t actually go anywhere at all.


    • Well, first of all I’m going to think long and hard about some of what you have suggested. I hope you won’t get impatient with me, but try to understand that I have had no significant, detailed feedback on these ideas at all. You’re the first one, really. A lot of that is due to the fact that almost everyone instinctively recoils at the idea, as I can assure you I did myself when I first thought of it.

      Your description – “extending credit”, rather than mine – “creating money out of thin air” is better in the sense of being less inflammatory, so you are right there. But I don’t think a difference in phrasing amounts to a difference in understanding.

      This part of your comment, I think, is particularly interesting: “You can replace it [i.e., deposits] with gold but if the deposit loses 80% of its weight in gold then it will lose purchasing power for sure.”

      Are you sure about this? Granted, it will by definition lose its purchasing power with respect to gold. So what? People don’t eat gold or drive gold to work. What will be the effect on the pricing of other items like that? It is very hard to say. Since far, far less money will actually be available system wide in the absence of liberal “credit extension” – and there may be little or no credit extension at all for quite some time – “dollars” may be hugely devalued relative to gold, while at the same time being very, very dear in terms of their ability to purchase other things. In fact, as I see it this is the most likely immediate consequence.

      I’m going to say one other thing here: your idea of a “partial” jubilee is geared towards providing sufficient relief while preserving the system in all its essentials. There is merit to this objective. I’m not saying I’m in favor of it, but I’m sensitive to the problem of making the perfect the enemy of the good. Even so, I think you are underestimating the difficulty, and perhaps the impossibility, of providing “sufficient” relief. This would still have to be done by law; it is not something that can be left to bureaucratic tweaking.

      Many people, myself included, believe the system in its essentials is more or less rancid and should be abolished. But I recognize the difficulty and danger, not to mention the unlikelihood of attempting that from where we are now.

      Thank you for giving me some important food for thought.


  4. Jimbo

    On the subject of credit, the important thing to note is that the loan comes first and the deposit is received at the same time or later. The idea that banks take in deposits and then lend them out is false and, I believe, leads to a false impression of what money is. Money is nothing more than an accounting system for production and consumption, it doesn’t have to be something physical. When a bank credits the account of a producer and debits the account of a consumer it is performing the function of money.

    I’m pretty sure that $1400 would lose its purchasing power in all commodities if it would suddenly buy only 1/20th the gold it currently does. The oil/gold chart was an example of this – just price things in gold and see what would happen to currencies pegged to gold. There would be the same number of dollars, the same amount of gold and the same number of Euros as before. But if the dollars could buy the same amount of oil but only 1/20th the amount of gold then what would happen to people buying gold and oil in Euros? There would be a huge gain to be made from arbitrage and prices would all settle to a new equilibrium – probably with gold, oil and euros all worth roughly what they are today and the dollar being worth far less.

    Anyway, if the dollar didn’t lose any purchasing power then the problem would not be fixed! The problem if that the dollar is overvalued. If the daily output of someone working in a US factory (whether they make shoes, watches, cars or whatever) can be swapped for a barrel of oil then his income would be the value of a barrel of oil – about $100. But if his debt repayments and essential living costs are $30 and $80 per day then he will not be able to repay the debt. His bank has liabilities which it balances against this debt so it tries to maintain that the value of the debt is the same as it always was, whilst hoping that the worker will benefit from government stimulus and the low interest rate policy and eventually be able to produce enough to cover his debt and his living costs. If the dollar is devalued but oil remains at $100 then the situation does not change. If the dollar is devalued by 50% and oil commensurately rises by 100%, so that a barrel now costs $200, then the situation is resolved: the worker’s production is now worth $200/day and his debt is still $30. His living costs may also double to $160 but his income now covers his costs. There is no need to cancel his debt – only to revalue the dollar.

    That is an “all things being equal” example of course. As you’re aware, there would be a great shock to the economy as it works out where the wealth is following what would amount to an enormous transfer of wealth (eg. exporters would benefit before the service industry does, whilst importers would suffer most). But after that, the principle is the same.

    Your proposal is to replace Federal Reserve Notes with gold certificates, cancel all debt and replace bank deposits with gold. I don’t see how the “bureaucratic tweaking” argument could favor that proposal over the simpler proposal of replacing Federal Reserve Notes with gold certificates.


    • “On the subject of credit, the important thing to note is that the loan comes first and the deposit is received at the same time or later. The idea that banks take in deposits and then lend them out is false and, I believe, leads to a false impression of what money is.”

      No argument here. I’m in complete agreement.

      “Money is nothing more than an accounting system for production and consumption, it doesn’t have to be something physical. When a bank credits the account of a producer and debits the account of a consumer it is performing the function of money.”

      Whoa. This is the thing in issue, so we can’t just gloss this over. There are those who agree with you, and those who don’t. I pretty much don’t. But the established order, for want of a better term, does. I’ve dealt with this issue a lot on this blog, such as here:


      and in several posts entitled “money”. As well as other places, I am sure.

      I think responding to the rest of your comment is going to take another post. You raise some very good and very interesting issues.


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