Reversing Polarity from Debt to Equity
To recap (from the first two interviews), for the vast majority of people on Earth, the single most important determinant-in-fact of their quality-of-life is money.
Yet paradoxically, and near inconceivably, most people do not know the first and most important thing about money, and that is that there is no money.
Everything that people are habituated to think of as money is in fact a derivative-of-money. There are promises-to-pay money, there are orders-to-pay money, there are various kinds of evidence (exchangeable-evidence-of-debt) that one party owes money to another party, and all of the accounts are denominated in money. But there is no money.
Just as we could have a fully functional otherwise duplicate of the existing system but denominated in unicorn-horns instead of dollars, euros, yen, rubles and yuan. There are no unicorn-horns in fact, but that does not matter because there doesn’t have to be.
The real problems start when the public is deliberately and systematically induced to believe otherwise, and when law or government-policy provides for it to make a difference depending on who you are.
To understand the finance and money (or rather no-money) system, start with the nominal taxation system.
According to the BNA Act (1867), now called the (Canada) Constitution Act (1982), the federal government is granted exclusive jurisdiction over:
The raising of Money by any Mode or System of Taxation.
Really?
What about confiscating the property of randomly-selected people? Does that not qualify as a “mode or system of taxation”? Or more specifically a national lottery that randomly selects people for total-asset-confiscation until the budget is met? That would clearly qualify as “a mode or system of taxation.” In fact, there is very little that cannot be passed-off or pretended as a mode or system of taxation.
And how can government be using it regardless to raise money in a system where there is no money?[1]
But this is not silly speculation – it is exactly what is going on in substance and in practice. Forensically, what government is doing here has nothing to do with taxation.
The nominal Income Tax Act does not deal with taxes at all. The actual legislative model, and the pith and substance of the Act itself, is offence and punishment.
The Act defines the act of earning income as a punishable offence, with fines imposed according to the referenced schedules.
Offenders are also (and unlawfully) required to self-report their offences, and it is an additional and escalated offence (a de facto compounding of the felony) to fail to do so.
There is no taxes about it. It is purely an offence-and-punishment business-model.
The same with capital-gains taxes, so-called. The law simply defines the act of selling a capital-asset, for a greater price than you paid for it, as an offence, and fines it according to the referenced schedules.
Here too, self-reporting of offences is (unlawfully) required.
More frightening still, this legislative-business-model of pretended-offence with real-punishment is spreading like a cancer to all areas of nominal civil-law, and under which the masses are being slowly administratively-criminalized as a means of facilitating broad social subjugation and control.
Reverse the polarity
A way to fix both the nominal financial system and the nominal taxation system at the same time is by reversing the polarity of the nominal taxation system.
The system we have now is based in coercion and confiscation by force-of-law, but we can easily reverse the polarity to one based in equity.
For a number of reasons, Canada is a good candidate for a test country.
Assume that you earn $100,000 per year, and that the government (federal and provincial combined) needs 30% or $30,000 of it as nominal income taxes to operate (I will stay with the same example throughout).
Under the present legal / coercion-based system the government obtains / takes / fines the $30,000 from you, (and also purports to borrow additional money / credit at interest from the private sector), leaving you with $70,000 as net or disposable income.
Under the equity-based system, you would take the same $30,000 and use it instead to purchase shares from pre-approved classes of shares on, for example, the Toronto Stock Exchange.
Those shares are then deposited (or rather reposited) to your personal equity trust account (PETA) where the combined equitable and legal titles are split (this is already done routinely in the markets – even business cash-flow is split between the use-title and the legal-title (the latter by separate Assignment of Rents)).
The legal title to the shares is pledged and encumbered as 100% security for an advance of $30,000 of credit to the Bank of Canada in trust for the government’s operating budget. The $30,000 credit is non-callable and non-interest-bearing. It does not bear interest, and government never has to pay it back (except voluntarily – more on this below).
In effect the government gets its operating budget covered from and by the same nominal taxpayers as before, by giving them equitable credit for their secured acceptance of the tax liability, and / but limited by the labour / production income that also supports it.
Most briefly, the tax revenue is already created by the tax-creditor’s agreement (or tax-payer’s coerced declaration) that they owe it, just as the money or credit for a nominal bank-loan / bank-credit is created-in-fact / practice by the promissory-note-issuer’s assumption and underwriting of the liability.
The government already automatically increases the money supply commensurate with the total value of all cheques written by it against its account at the Bank of Canada – it is the same in this respect as printing the currency and then paying cash for everything the federal government spends on.
The fact or evidence of the order to pay coming from the central monetary authority means that the order to pay the money is the money itself. That is why, for example, it is (or used to be) illegal for a financial institution to impose a charge for converting / cashing any such cheque drawn on the Bank of Canada.
The Supreme Court of Canada even or also specifically acknowledged the judges’ awareness of the fact of it in a 1978 decision regarding the accidental destruction of Bank of Canada notes / currency in a fire:
“What is said to be an unconditional promise to pay a sum certain in money is itself money. The words on the face of the paper money, “will pay to the bearer on demand”, cannot alter its character as money and turn it into a different document which calls for the payment of money.” Bank of Canada v. Bank of Montreal, [1978] 1 S.C.R. 1148 at page 1155.
The substance of the decision here was, and remains, that it is the Bank of Canada’s undertaking or bare-agreement that it owes money to the holder / bearer of the currency which makes it money (gives it financial value), with or without any further undertaking to convert it into some other form or different derivative of money.
But the converse is also true. The fact that the PETA / Tax-creditor agrees that it owes a given / certain amount to the central monetary authority creates, or is, the tax-money itself. The limiting factor is the Tax-creditor’s earned income, just as it is now.
The objectively irrational act or non sequitur in the current process is for the government to demand conversion of the tax-creditor’s underwriting when it achieves exactly the same financial result or capacity from allowing the tax-creditor to carry the debt as a fully-secured non-callable non-interest-bearing credit to the central monetary authority.
The current arrangement cannot qualify as a social-contract, because it does not qualify as a contract at all. A contract must be to the mutual benefit of both parties, while the current arrangement is mutually harmful, and destructive and detrimental to both parties, jointly and severally. Legally, it is mutually-harmful and prima facie evidence of the diminished-mental-capacity of both parties.
Also, and back on the financial side, it is by design always over-funded. By the time, for example, the Tax-creditor has made their tenth annual contribution / investment of $30,000 for a total of $300,000, the central bank still only owes them the total $300,000. With each passing year, with normal inflation, the government’s interest-free aggregate relative debt gets smaller and smaller, while the total pool of assets securing that credit / debt gets ever larger and larger.
At the end of the 10-year demonstration period, the government will have received a total of $300,000 of secured operating credit from this single Tax-creditor, and a total of $3 trillion from ten million such Tax-creditors across Canada.
But that $3 trillion of non-callable-non-interest-bearing credit will then also be secured by the legal titles to about $6 trillion worth of real-market-value shares and other assets ($3 trillion directly, and another $3 trillion indirectly).
Then at retirement age, the Tax-creditor can begin to draw down their credit balance with the central bank. In the longer term, it can (also) completely eliminate both interest and pension-costs from government budgets.
Equity / Use-Title
The equity-title or use-title to the shares, however, remains vested in the PETA so as to entitle the beneficiary (you as Tax-creditor) to the dividends and capital-value-appreciation.
Now consider the two systems in parallel over and for a ten-year period of assumed stable prices and constant rates.
At the end of ten years under the equity tax-investor / equity-credit system, you have made ten annual contributions by share purchases of $30,000 for a total of $300,000, and you have pledged and encumbered the legal titles to those shares as 100% security for a total of $300,000 of secured credit to the Bank of Canada.
On the asset side;
You have $300,000 of shares purchased at par (the price you paid for them when you bought them) in your PETA (and to which you still own and possess the equity-title).
You have advanced and outstanding $300,000 of secured credit to the government through the Bank of Canada (which is a $300,000 asset on your books (and as, or funded by, a conversion of the legal titles to the shares)).
And assuming (the maximum potential) that you have rolled-over or reinvested your ongoing dividends from the $300,000 of initial-share-purchase shares (to buy more of the same shares instead of otherwise spending the dividends as they are paid and received), then at an average annual yield of about 10% you will have another $300,000 increase in (or by reason of) the increased total number of shares in your PETA, plus whatever increase from par in the then-current-market-value of all of the shares in your PETA.
On the liability side, you have $300,000 of non-callable non-interest-bearing credit outstanding to the Bank of Canada (which is a liability on your books).
So your net is a $900,000 increase in assets as measured at the end of ten years (from $300,000 of direct input from labour income, plus $300,000 of normal investment-asset-growth and reinvestment of dividends, plus another $300,000 from general inflation or nominal capital-gains).
Under the legal-tax coercion-based system, you make the same annual $30,000 investment and contribution as under the equity system, but at the end of ten years and a total of $300,000 paid in, you have nothing. In fact you have substantially less than nothing because you also have an imputed share of the government’s debt to the private sector that also relentlessly increases under the coercion-based system.
So what happened?!! Where did all that financial wealth come from? Or should that be disappear to?
The short answer is that it is paid-for through a cancellation of the free-lunch and free-ride currently enjoyed by the private system without the public knowing about it.
But it is regardless far from the mere financial benefits.
The privilege of being an income-limited and secured-tax-creditor to the Bank of Canada is limited solely to beings of conscience or equity – meaning humans-only, and no corporations or other legal-constructs.
But the owners of the corporations cannot complain because the corporations become income-tax-free. They are not allowed to advance any equity-secured-tax-credit to government, but they don’t have to pay any either. The first nation to do this will in theory attract corporate-investment from all over the world.
Above all it will eliminate one of humanity’s largest sources of coercion and all-around-negative-energy.
Now instead of being hunted-down and hiding from the taxman, people will have to go and seek-out the taxman to convince them of the amount and genuineness of their income, and commensurate right to advance secured-credit to underwrite and fund the budget.
A world where the taxman is loved and welcomed, instead of one where they are feared, hated, and personally shunned.
The approximate $10 trillion ($10,000,000,000,000) difference (in Canada) at the end of the last 30 years (1990 to 2020) is the same $10 trillion that the private banks have stolen / defrauded over the same period – it is just another way of measuring it.
If this equity system had been in place since 1990, then today there would still exist the same extra (otherwise unaccounted for) $10 trillion of financial assets, but they would be owned instead by 10 million Tax-creditor households in Canada (at an average of about $1 million each (by some form of Bell-curve according to income-level)) instead of by five private banks.
Although, I think that once the interest is eliminated, the present level of broadly-defined government services could be maintained with a 15% to 20% tax-credit rate (instead of 30% as used in the example).
In any case, it is really quite simple and it would work (assuming good-faith implementation and that 2 + 2 = 4), and it is relatively easy to administer. Perhaps build a political party around it?
Again, the catch is that the private banking / financial system becomes or would be compelled to become 100% equity-secured – which it should be anyway – but they will fight to prevent that from happening. They shouldn’t – but they will. A rational banker (and true equity-investment-money-lender) will always prefer a 100% equity system as long as no one is exempt.
The flip-side of a 100% equity-secured system is that the economy could otherwise 100% collapse, and the depositors would still get 100% of their money / capacity. The current system uses the nominal depositors as unfunded hostages to wring an endless stream of concessions – or else (Gasp!) the system will collapse.
Most briefly, this equity configuration of the financial system takes-away and transfers the massive systemic advantage and unjust enrichment of a relatively small number of financial corporations (and the people who own them), and gives it instead to living people only, and apportioned according to their earned income – just like it is now.
It is very good for The 99%. The 1% – not so much.
Actually, it is the best thing in the world that could happen to The 1% – but they’ll never see it that way, at least not until they have been through rehab.
Mandatory-Savings Account
There is also a Mandatory Savings Account (MSA) for each Tax-creditor as a consumer-price-inflation-control-device.
If the money-supply needs to be generally constrained to limit price inflation, then people will be required to make commensurate deposits / reposits to their MSA in lieu of taxation.
It is the same as government raising nominal sales-tax and nominal income-tax rates, for example, to reduce purchasing power to limit consumer price inflation, except that the tax-creditor still owns it, even though it does not pay them any interest.
If government later wants to increase consumer spending for whatever reason, it can reverse the flow by permitting commensurate withdrawals from the aggregate MSA’s.
As a kind of macro-summary, over the post-World-War-II period, especially, government has acted as a de facto agent of the entrenched-money-power to employ the finance-and-taxation system as a weapon by which to reduce the relative average wealth (and political power) of the masses.
But it is also equally capable of being used as a tool so that the lead-underwriters and equity-creditors-in-fact, who do the work to earn the income to provide the revenue, get the maximum credit that the financial system is capable of returning to them. It’s just equity.
The real purpose of the nominal Income Tax Act is to create gratuitous / artificial tax-debts to convert the legal status of the country’s largest equity-investor-group (tax-creditors) to that of tax-debtors, so that they can be deprived of their equity-underwriting-credit for their acceptance, assumption and underwriting of the liability, and treated more generally as debtors-in-law, instead of what they are, which is creditors and equity-investors-in-fact.
Is that clear?
Canadians are not taxed, per se. They are in substance required by statute to make mandatory equity-investments in the country to fund the government’s budget (with equity-investment-amounts as determined under an offence-and-punishment business-model).
They remain in substance equity-investors, and not tax-debtors.
All that is necessary to accommodate the equity system is to legislate (and mean it) all nominal creditors into 100% money-lenders, and not credit-reinsurers (as they are now).
As a good overall measure of the technical difficulty in so doing, if you are currently employed in the nominal banking business, then unless you are specifically involved in exploiting this particular device (i.e., by directly gambling for the bank in the markets), you won’t be able to tell the difference.
Banks and all other nominal creditors will still decide to whom they advance credit, on what terms, at what rates of interest, and on what security. All it does is shut them out of the side-businesses they are not supposed to be in anyway.
The only other quasi-essential element is that government be given a budget and stick to it.
Under the current system, government is in a perpetual state of raising nominal tax rates as a purported means by which to control price inflation, but what it really wants is the corresponding increase in revenues (and corresponding coercive power) to itself.
That essential feedback-loop or feedback-device has been a significant driving force of western civilisation, so-called, for just over a century.
Under the equity system, it will still be able to limit price inflation by increasing Mandatory Savings Rates, but the amounts withdrawn from the economy remain the property of the MSA-owners, and do not increase the government’s budget or revenue.
It is really just the answer to the question: What is the amount of the government’s budget?
- The amount that its employer – the People – gives it to spend, or
- However much it can squeeze from the People.
A is the answer under the equity system, while B is the answer to the coercion-based system and the answer always favoured by government at the expense of the People.
The short-story version:
The Highwayman
The king meets a farmer on the road with the intention of robbing him to cover / contribute to the king’s expenses. The king says to the farmer: “Sorry to have to rob you like this, old boy, but I absolutely have to have 30% of all that you produce in order to keep my kingdom solvent”.
The intended victim replies: “Let us do what the law calls a demurrer on that question. I will purely assume that your need constitutes my obligation, in order to demonstrate that there is still no need for you to rob me, and that it is in fact to your very significant disadvantage to do so.
I will agree to advance credit to your treasury, to the audited and secured financial value of 30% of everything that I produce, and backed by all of my assets. There is no interest and it is non-callable, meaning that you never have to pay it back or otherwise discharge it.
All I need from you is the bare (equity) record / acknowledgment of the fact that I have advanced the amount to you. That way you get your kingdom’s operating expenses covered, and I get to keep what I’ve earned to be able to invest and produce ever more, so as to ever decrease the relative burden of having to carry your kingdom.
After just one generation there will be thousands (and eventually millions) of small relatively wealthy little production-based private kingdoms (households) each extending you secured credit based on their own productive capacity and output such that the legitimate needs of your kingdom will all but disappear in proportion to the widely-distributed wealth and power funding those needs.”
His Royal Highness looks down from his high horse, pauses and ponders a few moments, and then replies: “Look. Piss off with that! Just give me your money, peasant!”
______
Notes
It is important that the shares purchased for the program be purchased directly from the listed company (at the then current market price) so that the capital / capacity is directed to the producer and not to the holders of existing shares (and to prevent windfall profits to existing holders or speculators).
That understood, it is then obvious that each province would be able to maintain at least one stock exchange that will encompass local investment and the rebuilding of small business after the pandemic event.
There are a number of problems with broadly-defined government as well.
Government’s relative power will be curtailed through the elimination of the coercive pseudo-taxation, but it will also gain the ability to effectively spend or direct the capacity twice – once by deciding which stocks qualify for the program, and then again in fact as part of the budget. It will require high and objective standards, and careful monitoring.
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One of the most foundational of principles of statutory interpretation is that the words must be given the meaning that they had had at the time the law was written. At the time (1867) of the nominal BNA Act “Money” meant gold and silver coins / bullion.