L i c e n s e d B y V i r t u a l m o n e y, I n c.
We make money the old-fashioned way - - - We print it !
Then we secure it with assets on a present value basis.
Patent(s) Pending
Frequently Asked Questions
September 5, 2005
TREASURY INFLATION PROTECTION SECURITIES
ABOUT US:
1. Who controls the sponsor?
As of September 1st, 2005, Thomas W. Tripp, President & CEO, and Robert E. Nisen, Treasurer & CFO, of Real Monetary Reserve, Inc., each own approximately 44% of the company. Three other shareholders own approximately 4% each. For more information, see: About Us.
2. Who developed the patent-pending technology?
The inventor of the patent-pending technology was Thomas W. Tripp (Tripp), who subsequently assigned his interest in the pending patents and other intellectual property to Real Monetary Reserve, Inc., which funded the original research. Tripp is the founder, president, CEO and primary shareholder of each of the subsidiaries as well. His work with real financial instruments began, when he read an article entitled PLAM! in Forbes magazine, which was published in January, 1989. In essence, the research & development began at that time, although the initial funding was not received until 1991.
3. Is the sponsor, or any affiliate, a publicly registered company?
As of September 1st, 2005; none of the companies is public, nor do we have any intent to register any of our companies at this time.
4. Who are you guys?
Good question. See:
About Us.
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1. What are the affiliates? Why do they exist, and what do they do?
As we slowly began to implement the findings of our research and development, we discovered that we were not founding a new company, as much as, we were founding a new industry. In particular, we had trouble explaining to investors the required scope of our efforts; which meant, they frequently refused to take the next logical step in funding the development and use of the technology. So, as the application of the technology broke off into different directions, we were forced to initiate a web of companies, or affiliates; which could each seek their own funding, and thereby pursue a particular application of the technology. Briefly, we have established the following companies:
Real Monetary Systems, Inc. (RMSI) (formerly the Real Mortgage Corporation) owns the patent-pending technology and the original trademarks, such as the Real Mortgage®, Real Mortgage-Backed Securities®, Real Monetization®, Real Monetary Software®, Millennium Dollar® and TimeSafe®. RMSI also owns the domain names for Virtualmoney.com and RealMortgage.com. RMSI receives royalties, and occasionally restricted stock, from the licensing of the technology to the affiliates.
Real Mortgage Corporation (RMC) is a wholly-owned subsidiary of RMSI, which will be used to sponsor the offering of Real Mortgage® and Real Mortgage-Backed Securities® (RMBS) as funding becomes available. Ultimately, the stripped RMBS will be used (in addition to the securitized TIPS) to secure the issuance of the private currency; since they provide a real asset-backing in the form of a mortgage lien on real estate.
Real Monetary Software, Inc. (RMSOFT), which has the exclusive right from RMSI to develop the second and subsequent generations of the Real Monetary Software® on a stand-alone basis. (The first generation of the software, which is fully operational; resides on a Quattro spread sheet file.) The pending patent(s) carry out a number of processes referred to collectively as the Real Monetization® process. This process is carried out by the Real Monetary Software®.
Virtualmoney, Inc. (VMC), which has the exclusive right to use the patent-pending technology to offer the private currency, utilizing the Millennium Dollar® trademark. (VMC actually offered the MR$ electronically on the Internet from about May, 2001 to December 31, 2001; but fell victim to the Dot.com crash and the 9/11 terrorist attack. We expect to re-establish the offering of electronic MR$ in the coming year, as the paper MR$ becomes established.) VMC is currently the issuer of the Millennium Dollars®, which will be offered by the sponsor in a paper format.
Government Indexed-Bond Systems, Inc. (GIBS), which has the exclusive license to use the technology to create a liquid-payment market for the Treasury Inflation Protection Securities (TIPS). In essence, GIBS will be the gatekeeper for the liquid-payment market for the TIPS, thereby earning fees for its services. See: demurrage charge below.
Real Monetary Reserve, Inc. (RMRI) (d/b/a Millennium Dollar® Store of Value), which has obtained a non-exclusive license to sponsor the offering the MR$ paper currency in the ninth Federal Reserve District (and elsewhere, until such other licenses may be granted.) RMRI will also obtain licenses from GIBS to participate in the liquid-payment market; or otherwise, simply purchase the securitized TIPS from other GIBS licensees. RMRI owns the domain name for MillenniumDollar.com, which is used by this Web site.
All of the companies are Minnesota corporations and share the same management; but they have varied directorships and shareholders. They are also under common control, and will have commercial relationships as the real monetary system is developed. If conflicts of interest arise, we will try to deal with them equitably.
2. Who controls the affiliates?
Thomas W. Tripp, and his family, have the controlling stock in each of the affiliates. In total, the affiliates represent 186 shareholders, many of whom own stock in more than one company (directly or indirectly) primarily as a result of the terms of the technology licenses. Tripp is the President & CEO, while Robert E. Nisen is the Treasurer & CFO, of each of the affiliates.
3. What is the status of the sponsor & affiliates?
At this time, Real Monetary Reserve, Inc. is our primary operating entity, as the sponsor of the
Millennium Dollar® paper currency program. Virtualmoney, Inc. will play a role in issuing the
Millennium Dollars®, but is otherwise dormant. As the Millennium Dollar® paper currency is
established, we hope to re-establish VMC’s ability to offer Millennium Dollars® electronically via
the Internet. Real Monetary Systems, Inc. is dormant, except for overseeing the patent filing
process with the U.S. Patent & Trademark Office. Government Indexed-Bond Services, Inc. will
oversee the licensing and operation of the liquid-payment market for the TIPS. Real Monetary
Software, Inc. is dormant, since we can use the first generation of the Real Monetary Software®
at this time. Finally, the Real Mortgage Corporation will be dormant, until such time as we can
begin to fund the offering and securitization of Real Mortgages®. Whether we will be able to
activate all of these companies, depends upon the success of our private currency program; since
each can be activated only when the appropriate funding becomes available. In some areas of
development, such as Real Mortgages®, the funding required is substantial.
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1. What assets will secure the Millennium Dollars®?
The assets, securing the issuance of the private currency, will be inflation-index securities and cash investments. Initially, the securities will be securitized TIPS, which are issued by the U.S. Treasury, but may include other inflation-indexed instruments later. The TIPS will be stripped into the real-interest-only (RIO) strip and the real-principle-only (RPO) strip. The RPO strip will then be stripped into the original nominal-principal-only (NPO) strip and the inflationary adjustment or accrued-interest-only (AIO) strip. Inasmuch as the NPO and AIO strips provide the perfect asset to secure an inflation-adjusted currency, the RIO strip can be sold to cover overhead and generate a reasonable profit. The AIO strip is then stripped off monthly and sold, converting the accrued interest payments stream into a cash payment stream. This enhances the value of the assets, thereby allowing us to meet the present value test. Finally, the assets will also include cash investments of 12 months or less.
2. What are the implications of selling the RIO strips?
The sale of the RIO strips, to fund the creation of the private currency, makes the overall process irreversible without incurring a loss. In other words, it will not be possible to convert the private currency back into the TIPS without incurring a loss equal to the value of the RIO strips, plus other liquidation costs. However, this should not be surprising, since this occurs in any process that creates a more refined product. As an example, the conversion of silicon chips back into sand would create an even larger loss, as would the conversion of steel back into iron ore; and so on. Conversely, the stripping of the RIO strip occurs along with the stripping of the AIO strip, which enhances the present value of the assets securing the issuance of the private currency; just as the silicon chips and steel become more valuable, so too does the private currency. Finally, the sponsor’s ability to sell the RIO strip will allow us to create the private currency as a product, which can be sold on a wholesale basis. This acts as a powerful incentive to establish the coming real monetary system, since it becomes self-funding; provided only, that the private currency is accepted in the marketplace. See: Gresham’s Law below.
3. What happens to the assets backing the issuance of the MR$ currency?
As the underlying TIPS reach maturity, the U.S. Treasury will pay an amount of USD equal to the indexed value of the MR$ currency that is being secured. Upon receiving these USD, the sponsor then pays them over to the issuer; whereupon the issuer must do one of four things: (a) The issuer must purchase new inflation-indexed securities to replace the assets that have been paid off; if such assets are not available, then (b) the issuer may purchase other inflation-adjusted securities with an equivalent credit rating; if this is not possible, (c) the issuer must offer to repurchase an equivalent amount of MR$ currency at the indexed value on a first come first served basis; and if the holders of the MR$ currency are unwilling to accept the indexed value, then (d) the issuer must invest the funds in the most suitable investment available in an attempt to secure the purchasing power of the MR$ currency. If (d) should occur, then it may be impossible for the issuer and sponsor to meet the promise-to-conserve; but, if the holders of the MR$ currency are unwilling to accept the USD, then this may be of little concern to them, since the MR$ currency must have a market value exceeding the indexed value. History tells us that this is entirely possible.
4. Who “owns” the present value assets?
While the sponsor will show the present value assets on its books, these assets are pledged to back the securities issued to Virtualmoney, Inc. for the private currency. These new securities then become a liability for the sponsor. In addition, VMC as the MR$ issuer has pledged to segregate the securities received from the sponsor, and to hold them exclusively for the purpose of securing the issuance of the private currency. As such, these securities become an asset for VMC and the private currency issued becomes a liability. While the sponsor may hypothecate (or borrow against) the present value assets for the purpose of converting MR$ into USD; the sponsor cannot use the present value assets for any other purpose, nor can VMC use the securities it receives for any other purpose. Finally, the holder of the MR$ does not own the present value assets, since he, or she, owns the private currency itself.
In effect, no one owns the present value assets in the sense that they can liquidate them for their
personal benefit, but the issuer and sponsor have become the defacto conservators to safe-guard
them; which is their commitment in issuing and distributing the private currency as a promise-to-conserve. (If, no one owning the assets, sounds unfeasible; the Federal Reserve takes the
position, that no one owns the Federal Reserve; and, if no one owns the Federal Reserve, then no
one owns its assets. That being the case, we can learn from our predecessors.)
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CONCEPT of WHOLE NUMBERS:
1. Why is the concept of whole numbers important?
By the end of the 1980s, we were still trying to grasp just what had occurred in the United States as a result of the great inflation. We had seen the thrift industry collapse with losses estimated as high as $150 billion; which at the time, was the largest financial scandal in the history of the United States. As we began to work with real financial instruments, such as the real mortgage; we were still trying to grasp what really happens with respect to inflation. Then one day, we came across the following quote in an introductory book on mathematics:
For each of us, mathematics begins with arithmetic . . . As we all know, arithmetic deals with the most basic of quantitative concepts, the whole numbers 1, 2, 3 . . . If any mathematical idea is universal, it is that of distinguishing degrees of multiplicity, which is to say “counting.”
The intrinsic inevitability of the whole numbers, their undeniable naturalness, lies at the heart of Leopold Kronecker’s well-known observation: “God made the integers; all else is the work of man.” If we imagine mathematics as a grand orchestra, the system of whole numbers could be likened to a bass drum: simple, direct, repetitive, providing the underlying rhythm for all the other instruments. There surely are more sophisticated concepts - the oboes and French horns and cellos of mathematics - . . . But whole numbers are always at the foundation.
William Dunham, The Mathematical Universe, New York: John Wiley & Sons, 1994, p. 1.
Upon reading Dunham’s description of the concept of whole numbers, everything suddenly fell into place. Inflation and deflation were not the cause of our monetary stress, but rather the effects of our monetary unit violating the concept of whole numbers. When we use a nominal monetary system, the nominal monetary unit represents less (inflation) or more (deflation) purchasing power over time; as a result, our accounting, financial and economic systems do not have a simple, direct repetitive means of counting. This occurs because we are violating the concept of whole numbers. Honoring the concept of whole numbers is important, because it is the key to bringing inflation and deflation under control permanently by providing the constant, repetitive beat which will guide us over time. In our opinion, this can only be achieved by introducing private currencies, such as the Millennium Dollar®; which are indexed to the government-issued currency ad backed with assets on a present value basis.
2. Why can’t government-issued currencies be designed to honor the concept of whole
numbers?
First, it is important to recognize that the private currencies must be indexed to the nominal government-issued currency, since it will provide us with a means of measuring inflation and deflation. Otherwise, how would we index the private currency.
Second, it is important that the nominal and real currencies be controlled by separate sectors, if we are to have any hope of keeping both sides honest. As an example, if participants in the marketplace perceive that the government-tabulated inflation index is under-reporting inflation, they can react by increasing real rates in the marketplace and/or by undervaluing the private currency (i.e. by discounting the indexed value of the private currency for the sale of goods and services.)
Third, only the private sector creates new technology. For a long time, the governments tended to monopolize the creation of money, along with the central banks; as a result, there has been very little true innovation in the monetary instrument over time. In fact, as we went off the gold standard in 1971, things got worse, not better. If the private sector is to create and experiment with new monetary technologies, then they must be allowed to do so without the government and central banks monopolizing the issuance of money.
Finally, as history has show time and again, it is not enough to simply proclaim that a currency will have a constant purchasing power over time. If such real currencies are to succeed, then their issuance must be secured by assets on a present value basis. Quite simply, this represents an enormous volume of assets over time; which the government simply does not control, except under totalitarian regimes. In open market economies, only the marketplace controls sufficient assets to back the issuance of currencies that are inflation-adjusted; and, where totalitarian regimes are concerned, the situation is worse; since you lose the free market that makes real estate assets self-adjusting for inflation. When one entity in society controls the real estate, then real estate has no monetary value, only a political value. (Scratch my back, and you get a townhouse; but this does not encourage economic productivity, and may actually produce the opposite by allocating resources inefficiently.) Without real estate assets available to mortgage in a free and open marketplace, the offering of a currency secured by present value assets is impossible. In this regard, the success of private currencies, secured by present value assets; will be an affirmation of free and open market economies. TOP
CONCEPTUAL BRIDGE:
1. What is the conceptual bridge?
At an early stage of our research and development, we were fortunate to meet an asset-backed securitization analyst from Houston, Texas. This analyst had been a Ph.D. candidate in economics at Harvard University, but had finished ABD (all but degree). The reason, he had finished without a degree, was that he had proposed to resolve inflation for his dissertation; but could never quite work it out. Nonetheless, at that point, he had spent more time thinking about inflation, than we had. His advice was simple: As soon as you begin to denominate a financial instrument, such as a mortgage, in real terms; then you are inherently beginning to create a real monetary system. Your problem is, that the rest of the world operates upon a nominal monetary system. If you want people to understand the benefits of using a real mortgage, then you must create a conceptual bridge; so that the people can understand the benefits of using real mortgages in the nominal terms with which they are accustomed to dealing.
At the time, neither the analyst, nor we, quite understood how to create the conceptual bridge. Nonetheless, we believe that our patent-pending software has created a conceptual bridge, which will become more obvious as the patent is granted and published. Nonetheless, we can tell you that the conceptual bridge leads to the use of a currency denominated in a real monetary unit; which is why, we are offering the Millennium Dollar®. We can also tell you; that one of the biggest problems, everyone has in understanding real financial instruments, is that they only go half way across the bridge and then revert back to nominal dollars.
The development of a real monetary system is a paradigm shift; and, to reap the fullest benefits, you must be prepared to cross the bridge to the other side, where the real currency resides. You should also understand, that some people will never be able to make the required paradigm shift; since everything that they know, trust and believe in is denominated in nominal dollars. For a good discussion of paradigm shifts, we highly recommend you go directly to the source: Thomas S Kuhn, The Structure of Scientific Revolutions, Chicago: The University of Chicago Press, (1962) 1996. The purpose of the conceptual bridge is to shift your monetary paradigm. TOP
1. How can we know that a MR$ note is not counterfeit?
First, the Millennium Dollars® are so new, that there are no counterfeits, so far as we know. Second, it is unlikely that counterfeiters would attempt to counterfeit the Millennium Dollars® before they gain wider acceptance. However, as with any currency, some counterfeiting is to be expected. As such, we have worked with the oldest currency printing company in the United States to crate notes, which should be difficult to counterfeit. herewith, are some of the ways that you can spot counterfeit MR$ notes:
a. If the MR$ note is held up to a good light source; then you should see a globe watermark on the
note. The watermark will not be in the same place every time, and you may actually see one at
either end of the notes. The globe watermark is about two inches in diameter; big enough so that
you will seldom see the whole watermark. If there is no globe watermark, then you have a
counterfeit.
b. Just below the serial number, the denomination of the note (one, two, etc.) will be printed in faint
red ink. If you hold the note on the red ink between your thumb and forefinger for a few
seconds, the ink should disappear; leaving a white imprint of the denomination. The ambient room
temperature may make the red lighter; and sometimes, the red will not turn white for people with
cold hands. You may have to find a hot-blooded person to make the ink disappear. However, if
the ink does not disappear, then you have a counterfeit.
c. If you successfully identify a MR$ note, using the procedures above; then you will also notice that
the bill has distinctive colors and layers of printed matter. As an example, the background color
of the notes will shift from a greenish-blue to yellow and to greenish-blue as you scan across the
bill from side to side. You will also notice the “MR$” symbol in the background. If the colors are
different, or one of more of the layers of printing are missing; then you have a counterfeit note.
Finally, we will be distributing Specimen Notes to help merchants identify real MR$ notes from counterfeit notes. The Specimen Notes are real in all regards; except that, the word SPECIMEN is printed in red ink over the serial number, and there will be two holes punched in the top of the note. Be careful you do not accept a Specimen Note as the real MR$ note. (Specimen Notes are not backed by present value assets and are not convertible into USD.) Nonetheless, keeping a few Specimen Notes on hand is a good way to spot counterfeits, especially with respect to changes in the colors and the layers of printing.
2. Will you accept counterfeit MR$ notes for conversion into USD?
Obviously, we cannot accept counterfeit notes for conversion into USD, since their would violate our promise-to-conserve. Nor do we know of any currency issuer who will accept counterfeit notes for their currency. However, we will offer a reward for any information leading to the capture and conviction of counterfeiters. The reward will be commensurate with the scale of the counterfeiter’s operations. TOP
CURRENCY EXCHANGE RATE:
1. Who determines the currency exchange rate?
The currency exchange rate for converting Millennium Dollars® into U.S. dollars (USD) will float over time. Inasmuch as anyone can offer to convert MR$ into USD, the market will ultimately determine the currency exchange rate for the Millennium Dollars®. However, the sponsor intends to auction MR$ notes on the Internet. If all goes well, then the sponsor will initially use the weighted average sales price of the MR$ notes at auction to determine the initial currency exchange rate.
2. How is the currency exchange rate different than the indexed value?
The currency exchange rate is the USD value that the market will pay for the Millennium Dollars®. The indexed value of the private currency is the USD value that merchants will be asked to recognize for Millennium Dollars® upon the sale of goods and services. One might consider the currency exchange rate to be the wholesale value, while the indexed value is the retail value of the MR$.
3. What determines the currency exchange rate?
Anyone can make a market for the Millennium Dollars®. Hence, the prevailing currency exchange rate is actually determined by the best available quotation in the marketplace at any point in time. However, to get things going, the sponsor will initially use the weighted average of sales price of Millennium Dollars® at auction on the Internet.
As the currency exchange rate narrows, the sponsor will announce what it is willing to pay for the MR$ on its Web site at: Selling MR$ . Historically, when markets begin for new financial instruments, the spread begins wide but narrows as the volume increases. Those who purchase MR$ early-on should do well; since they should be able to purchase MR$ at a larger discount at the auctions; and then sell them at a smaller discount at a later date, if not spend them in the marketplace at the indexed value. In the interim, they earn an inflationary adjustment on the indexed value of the MR$. TOP
1. What is deflation?
Deflation is the opposite of inflation. During inflation, the general price level of goods and services rises; but during deflation, the general price level declines. As such, the nominal currency loses purchasing power during inflationary periods, but gains purchasing power during deflationary periods. See: inflation below.
2. Why is deflation so bad?
When we experience a small degree of inflation; borrowers benefit by paying back loans in cheaper dollars, while lenders are punished by receiving the repayment of their original capital in cheaper dollars. These roles are reversed with deflation. A little bit of deflation is bad for the borrower, who must pay back the loans in more expensive dollars, while deflation is good for the lender who now receives repayment of his capital in more expensive dollars. Nonetheless, if we have too much inflation, we destroy our lending institutions; or conversely, if we have too much deflation, we destroy our borrowers. However, if either group is destroyed then both parties are affected, since they lose a trading partner. Finally, economists generally fear deflation more than inflation, since deflation can lead to a liquidity trap.
3. What is a liquidity trap?
Deflation is the inverse of inflation, which should not be confused with disinflation. When deflation occurs, the government-issued nominal currency becomes more valuable as the purchasing power of the nominal currency increases with deflation. As this occurs, participants in the marketplace begin to realize that they can purchase more for their money, if they put off discretionary purchases to some future date. Each month that such purchases are forestalled, encourages a downward spiral in prices as merchants become increasingly motivated to sell their goods and services. This is the liquidity trap, which is very difficult for governments and central banks to resolve. It is generally agreed that Japan has been in a liquidity trap for the better part of the past decade. The increasing participation of China in global trade with its cheap work force is quickly becoming a major deflationary force. TOP
DEMURRAGE CHARGE:
1. Is the demurrage charge a tax?
While some may consider the demurrage charge a tax; please note, that we are not the government, we are not proposing a charge that will be continuous over time, nor are the proceeds of the charge going into a general fund to cover other expenditures. The concept of the demurrage charge; which Bernard Lietaer explains in his book entitled The Future of Money; is that money really belongs to society, and we are simply using it temporarily. While many people may have an argument with this concept; nonetheless, we suspect that few will disagree that it is important for money to be recycled to stimulate employment along with commercial and tax revenues (without tax rate increases).
In addition, it is important to note that the Millennium Dollar® is offered as a promise-to-conserve. Meeting this promise-to-conserve is not possible, simply by setting aside the real-principal-only (RPO) strips of inflation-indexed financial instruments. These RPO strips must have the inflationary adjustment stripped and sold in order to meet the present value test. This means that the offering of a private currency as a promise-to-conserve is not a finished product upon its original sale; but rather, the liquid-payment market for the assets securing the issuance of the Millennium Dollar® must be maintained over time. This requires an expenditure that must be met from current revenues; specifically, from the monetary conversion fees earned by the sponsor. If we were to charge for the cost of operating the liquid-payment market up front (i.e. for decades of use in advance), then it is unlikely that we could fund the offering of the private currency.
Given all of the foregoing, we believe that the demurrage charge is actually a use charge; or, if you will, a penalty for the over usage of an asset. In fact, Webster’s New Universal Unabridged Dictionary (1987) gives the following definition:
demurrage n. Com. 1. the detention in port of a vessel by the shipowner, as in loading or unloading, beyond the time allowed or agreed upon. 2. the similar undue detention of a railroad car, truck, etc. 3. a charge for such undue detention.
In other words, there are others who need to use a particular asset; so, there is a use fee, if the asset is over-used by the current user. If you want to call this a tax, then please do so; nonetheless, it serves a beneficial purpose for society at large.
2. How would the demurrage charge be enacted?
While we reserve the right to alter how the demurrage charge would be enacted over time, our current thinking is that the demurrage charge would be announced for the upcoming month. If the volume of the private currency spent in the marketplace did not meet the targeted level, then the demurrage charge would be levied in the subsequent month. If the targeted level of use is met, then the demurrage charge would be waived. This would encourage people to spend the private currency before the charge was enacted. According to Lietaer, the demurrage charge has been used successfully with private currencies in the 1930s in the United States.
The charge would be levied by reallocating part, or all, of the inflationary adjustment for the specified month into a fund that would be used exclusively for funding the liquid-payment market. In the event that the liquid-payment market does not require such funding, but it is still important to stimulate the use of the private currency for commerce; then, the proceeds of the demurrage charge would be given to charity. If the demurrage charge were enacted in this manner, then it would have the effect of changing the Reference CPI-U for the base-line-date. While this is not something that we relish doing; nonetheless, other major indexes, such as the Dow Jones Industrial Average, are periodically reconfigured. TOP
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1. What is disinflation?
Disinflation is a declining rate of inflation. Nonetheless, the value of the nominal currency is still inflating and not deflating. Disinflation is particularly painful, since it often follows severe action by the central bank in driving up interest rates to control inflation. In other words, the central bank is increasing interest rates, while the inflation rate is beginning to fall; thereby increasing the real rate. While the central bank’s actions in controlling inflation proceed, the real capital of the banks must be replenished to cover their inflationary losses; at the expense of everyone else in society.
As such, disinflation can be generally characterized by high real rates of interest, as financial institutions are slow to lower interest rates for their customers. Financial institutions generally use disinflationary periods to recoup their inflationary losses from earlier years, thereby building institutional financial strength; largely at the expense of other players in the marketplace. The use of a private currency, which is self-adjusting for inflation and secured by inflationary adjusted assets will: (1) diminish the early losses by financial institutions to begin with, but (2) will also make it difficult for such institutions to maintain high real rates of interest during disinflationary time periods. While this may sound harsh to the financial institutions, it will generate a faster economic recovery following recessions and depressions. Keep in mind, that now is the time that financial institutions can make a conscious decision to protect themselves from future inflationary woes. TOP
DUAL CURRENCIES:
1. What is a dual currency?
A dual currency situation occurs anytime two currencies trade in the marketplace at the same
time. The issuance of the MR$ notes will create a dual currency situation, since they will trade
along side the USD. Gresham’s Law says that where a dual currency situation exists, the bad
currency will drive the good currency out of circulation. This suggests substantial demand for the
good currency, that is hoarded because it holds its value better. See: Gresham’s Law below.
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Whenever change occurs, there tend to be topics that most of us would rather not discuss. The possibility of fraud is one of those topics. Until the very end of preparing these FAQs, we were uncomfortable contemplating this topic. However, sometimes we must discuss things which make us uncomfortable; if we are to get by them so that we may focus upon the future.
1. What is fraud?
Herewith is the definition of fraud from Black’s Law Dictionary with Pronunciations, Sixth Edition, St. Paul, West Publishing Co., 1990, page 660-661:
Fraud. An intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right. A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury. Anything calculated to deceive, whether by a single act or combination, or by suppression of the truth, or suggestion of what is false, whether it be by direct falsehood or innuendo, by speech or silence, word of mouth, look or gesture. Delahanty v. Fist Pennsylvania Bank, N.A., 318 Pa.Super 90, 464 A.2d 1243, 1251. A generic term embracing all multifarious means which human ingenuity can devise, and which are resorted to by one individual to get advantage over another by false suggestions or by suppression of the truth, and includes all surprise, trick, cunning, dissembling, and any unfair way by which another is cheated. Johnson v. McDonald, 170 Okl. 117, 39 p.2d 150. “Bad faith” and “fraud” are synonymous and also synonyms of dishonesty, infidelity, faithlessness, perfidy, unfairness, etc.
Elements of a cause of action for “fraud” include false representation of a present or past fact made by defendant, action in reliance thereupon by the plaintiff, and damage resulting to plaintiff from such misrepresentation. Citizens Standard Life Ins. Co. v. Gilley, Tex.Civ.App., 521 S.W.2d 354, 356.
As distinguished from negligence, it is always positive, intentional. It comprises all acts, omissions, and concealments involving a breach of a legal or equitable duty and resulting in damage to another. And includes anything calculated to deceive, whether it be a single act or combination of circumstances, whether the suppression of truth or the suggestion of what is false, whether it be by direct falsehood or by innuendo, by speech or by silence, by word of mouth, or by look or by gesture. Fraud, as applied to contracts, is the cause of an error bearing upon a material part of the contract, created or continued by artifice, with design to obtain some unjust advantage to the other party, or to cause an inconvenience or loss to the other.
Finally, it is our understanding that proving criminal fraud requires proving intent, while civil fraud does not require any intent to defraud. If our understanding is correct, then a person could be guilty in a civil court of defrauding another person without having intended to do so. As an example, the fraud may have occurred as the result of an unforeseen sequence of events.
2. Are nominal financial instruments inherently fraudulent?
While we are not attorneys, or legal experts; it would appear that the answer to this question depends upon your definition of money.
As an example, let us assume that you deposit $100 in a bank, or money market, account on January 1st, which you do not withdraw until December 31st. Upon withdrawing your money, you receive $102. At the same time, the inflation rate for the past year was 3.0%. Have you been defrauded?
If your definition of money is U.S. dollars (USD), then you have not been defrauded; since you have received the return of your original 100 USD plus an additional 2 USD in interest. However, if you believe that money is supposed to represent purchasing power; then you have been defrauded. How can I make such a statement? Let’s do the math.:
Assuming:
R$: a real monetary unit representing a constant
level of purchasing power, as measured by the
inflation index
1.00 USD = 1.00 R$ on January 1st
Inflation Rate = 3.0% from January 1st to December 31st
IAF: an inflationary adjustment factor representing one
plus the inflation rate (or percentage change in the
purchasing power of the USD), since January 1st.
Hence:
IAF = 1.03
R$ x IAF = USD
Or, conversely:
USD = R$
IAF
Therefore, on December 31st:
1.00 USD = .9709 R$
1.03
In Summation:
1.00 USD = 1.00 R$ on January 1st
1.00 USD = .9709 R$ on December 31st
So:
102 USD x .9709 = 99.03 R$
And, assuming money is purchasing power, which can only be measured consistently
in real dollars:
Origional Deposit on January 1st: 100.00 R$
Funds Returned on December 31st: 99.03 R$
Net Return (or Loss): (.97) R$
Not only did you not make a two-dollar return on your investment, but you actually lost ninety-seven cents in purchasing power. So, who has your ninety-seven cents? Obviously, the entity you deposited, or invested, your funds with has kept the .97 R$.
Now, to add insult to injury; this is such a profitable game, that the government has decided to join the party. For the loss then grows, when the government taxes you on your nominal two-dollar return.
This is the ultimate shell game; whereby the shells are the nominal dollars and the pea being shuffled between the shells is the real dollar representing your purchasing power. At the start of the game, and at the end of the game; the shells all look the same. So, you are happy to receive any one of the shells, as the return of your original contribution; meanwhile, the pea is slowly and methodically being relieved of its purchasing power with each passing moment. But of course, what happens to the pea is hidden from sight by the shells. We are led to believe, of course, that this is not intentional; because nobody really understands the mysterious ways in which inflation works. Yet, it is amazing, that despite their inability to understand inflation; they are able to profit so handsomely from it . . . year after year.
So, what are your total losses? Let’s assume your marginal tax rate is 35%, then:
Nominal Return: 2.00 USD
Marginal Tax Rate: x 35%
Income Tax Due: .70 USD
R$ per USD: x .9709
R$ Tax Loss: .6796 R$
Original Net Loss: .97 R$
Plus Tax Loss: .68 R$
Total R$ Loss: 1.65 R$
IAF: x 1.03
Total N$ Loss: 1.70 USD
Not only did you not earn two dollars in purchasing power, but you actually lost one dollar and seventy cents in nominal purchasing power. Whether intentionally, or unintentionally, the bank or money market fund has apparently defrauded you; assuming only, that money is viewed as purchasing power, and not as USD.
Whether this will stand up in court is a moot point. Especially since, with the introduction of the Millennium Dollar®, everyone now has a choice to view money as USD, or as purchasing power. Prior to this; neither we, nor the financial institutions, really had much of a choice; since there was no currency available in real terms. Now, however, as people begin in large numbers to shift to financial products and services defined in real dollars, then the financial institutions will have to follow the demands of their customers, or go out of business. At the very least, they should offer a choice, while disclosing the implications of each choice. (Keep in mind, that when deflation occurs, then you may be defrauding the bank; since it will be repaying you in more valuable dollars. However, since there is a banking cartel in the United States, which largely controls the supply of money as well as interest rates; deflation is unlikely; and has not been measured in any substantial degree since 1930, 1931 & 1932.)
If this sounds harsh, the Austrian-born, Nobel Prize-winning economist, Joseph Schumpater, defined capitalization as follows: Capitalism is a creative-destructive process, whereby new industries are continually replacing old industries. Schumpater said that “. . .the function of entrepreneurs is to revolutionize the pattern of production. . . . by exploiting an invention, or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing industry and so on.” Implicit in Schumpater’s statement is that the marketplace will adopt the new product or technology, simply because it performs better or otherwise fulfills a need that has not been satisfied.
As participants in the marketplace, the choice of using nominal or real dollars is really ours to make. The choice does not belong to some banking or securities cartel; and we need not wait for a decision at the courthouse or a law passed by congress. For, if we allow ourselves to be fleeced, then why should anyone else care? Once again, if this sounds harsh; nonetheless, it aptly sums up the current state of affairs. Until we start to demand real monetary products and services, which preserve the purchasing power of our capital; then we are not going to get them. And, in the mean time, we are the unwitting accomplices to our own defrauding.
3. Do you advocate litigation against the money cartels?
Imagine for a moment, that you are suing the great money cartels of our time; as impossible as that may seem. It has taken seven years of depositions and pre-trial hearings to get to this point; and you have promised your attorneys 35% of any judgment, which they will receive before you get anything. As the plaintiff, who initiated the action; you are just wrapping up your testimony, when the judge asks you: “If you understood that you were being defrauded, then why did you continue to place your funds in nominal dollar accounts and investments with the defendants? And, having done so, who is to blame for your subsequent losses?”
There comes a time, when we have to take responsibility for our own misfortunes; and this is one of those times. In at least one respect, we are the money cartels; because they are funded with our money. Their power is derived by holding our money, our pension funds, our corporate assets and so on. After we exclude ourselves, as human beings; there is not a single legal entity in the United States, that beneficially owns its own assets. When such legal entities directly hold any assets, they do so for the benefit of the human beings they represent. This is why we do not advocate taking any legal action, which can be very expensive, long and tedious; and, ultimately, fruitless. It is easier, and cheaper, to simply change our mode of operation. Even if we won a huge class action suit against the money cartels; they would simply collapse (like the thrift industry) as we tried to collect our judgment; and then, we, as taxpayers, would have to pick up the tab. As an example, it has been estimated that we will continue to pay for the collapse of the thrift industry until about 2027.
It is better to overlook the past, turn the other cheek and deal with the future. As participants in the marketplace, we can force the money cartels to change by voting with our dollars. There is no positive force created by mankind, greater than the power of a free and open marketplace. Even the once, overwhelmingly-powerful central banks have bowed to this truth.
As members of the cartel begin to change, we can elect to do business with them; provided only, that they demonstrate their sincerity with their actions. As William Mitchell, the first and only U.S. Attorney General to ever go to prison, once said to a reporter about the administration of President Richard M. Nixon: “Don’t watch what we say. Watch what we do!” Where are the real monetary products and services they are promising? Are they really based upon a real monetary unit, that we can verify; or has the monetary fraud simply escalated to another level? We will never know, unless we adopt a real monetary unit that does not violate the concept of whole numbers; otherwise, how can we account for the purchasing power of our money? This is all about verifying the monetary unit, which we have neglected to do. It is time to end the monetary shell game.
Quite simply, we have to stop blaming others for our own financial stress, and begin to take responsibility for our own future. We can begin to do this, by accounting for every penny of our purchasing power over time. Private currencies offered as promises-to-conserve, which are indexed to the government-issued currency and secured by assets on a present value basis; will allow us to mathematically verify the purchasing power of our money over time. TOP
FREE BANKING:
1. What is free banking?
Free banking refers to the period, just before the establishment of the Federal Reserve in 1913, when over 5,000 banks across the United States issued their own currencies in the form of bank notes. The resurgence of private currencies is similar to free banking; except that, they are no longer issued by banks, but by other entities in the private sector. This does not mean that banks do not create money. Under the current system, banks use a fractional-reserve system to multiply their deposits over time. As an example, if $1,000 is deposited with the bank, and it sets aside a 10% reserve; then it can lend out $900. Upon receiving the $900 note from its borrower, it sets aside $90; and then lends out another $810; and so on. In this manner, a single bank can create $10,000 in assets (or $9,000 in new money) from the original deposit of $1,000 (i.e. $1,000 divided by 10% equals $10,000.)
As an interesting side note: the company that printed the Millennium Dollar® notes is over 200 years old, and was also the printer for many of the banks during the free banking era. TOP
1. Where can I find definitions for your key terms?
A good deal of our research and development led into new areas; which required us to develop a terminology, where none currently existed. Without such a terminology, it would be virtually impossible to explain either our research or the applications that are based upon this research. As an example; the terms, real-interest-only (RIO), real-principal-only (RPO), nominal-principal-only (NPO) and accrued-interest-only (AIO), are terms we developed. We doubt that you will find them in any dictionary; or, on any government, or financial, Web site. Nonetheless, without these terms, we could not begin to explain our stripping of the TIPS.
For definitions of the key terms, please see:
Glossary.
TOP
INDEXED VALUE:
1. What is the indexed value?
The indexed value is the number of U.S. dollars (USD) required to maintain a constant level of purchasing power for the MR$. As inflation erodes the purchasing power of the USD, it will take an ever-greater number of USDs to equal the MR$. As an example, the MR$ was defined as equaling one USD on January 1st, 2000; but by August, 2005, the indexed value of the MR$ was $1.155767. If deflation occurs, then the USD value of the MR$ will go down, since USD become more valuable during deflationary time periods. But regardless of whether inflation or deflation ensues, the Millennium Dollar® will maintain a constant level of purchasing power as measured by the CPI-U.
2. Why is the indexed value important?
The indexed value is important, because it tells us what the USD value of the private currency
must be in order for the marketplace to have a real, constant or whole unit of purchasing power.
By establishing a currency with a whole unit of purchasing power, we can begin to control the
destructive effects of inflation and deflation by honoring the concept of whole numbers.
TOP
1. What is inflation?
According to The MIT Dictionary of Modern Economics, Fourth Edition, published by Cambridge, The MIT Press, 1992:
inflation. A sustained rise in the general price level. The proportionate rate of increase in the general price level per unit of time.
While we agree with this definition of inflation on a macroeconomic level; nonetheless, we believe this microeconomic definition of inflation (and deflation) is more useful:
Inflation (or deflation) occurs when the monetary unit ($1.00) on our currency violates the concept of whole numbers, thereby representing less (or more) purchasing power over time.
The macroeconomic definition of inflation from the dictionary is useful for economists, who participate in the management of whole economies; but it tells participants in the marketplace little or nothing with respect to how they can deal with inflation. Our microeconomic definition (below) tells us very pointedly, that we can hope to control inflation (and deflation), if we can control the monetary unit on our currency, so that it does not violate the concept of whole numbers. We believe that this can be achieved with private currencies, such as the Millennium Dollar®; provided that, they are indexed to the government-issued currency and are then secured by assets on a present value basis.
Some economists will have a problem with this approach. They will effectively say, that you can’t run a whole economy that way. If this is their argument, then they are missing the point. It is not the role of such private currencies, or their issuers and sponsors; to control inflation and deflation, throughout an entire economy. Their goal is simply to control inflation for their users. In effect, those who use a private currency, like the MR$, are like a school of fish; which proceed on their merry way, making the suitable adjustments; while the surface of the ocean is heating up hurricane-force winds that are roiling the waves. The Millennium Dollar® does not have to control the inflation, or deflation, of an entire economy to succeed; it only has to protect its users. And, if it the MR$ does a poor job; then competitive private currencies, doing a better job, will take its place.
2. Why can we only substantially eliminate inflation?
When we index the private currency to the government-issued currency, we must use the consumer price index tabulated by the government as a measure of current inflation or deflation. This is done by measuring the monthly change in the price of a basket of goods and services, typically running into tens of thousands of items. However, we all tend to purchase a different basket of goods and services; hence, there is no absolute rate of inflation or deflation. That being the case, we can only hope to substantially control inflation and deflation.
3. If we cannot precisely control inflation, then why should we even try?
By the turn of the new millennium, a 60-year old American had experienced 1,000 percent inflation in his or her life time. If you are younger and believe you have missed this bullet, then you have not been listening to the current discussion on Social Security benefits. For it is the younger generation that will ultimately have to support the older generation through its retirement years. If this sounds outrageous, and you want to see Social Security discarded; then who will take care of you in your retirement years?
Most people tend to think of inflation as being cumulative, since the inflation rate is normally quoted annually; but in reality it is compounding. To achieve 1,000 percent inflation over 60 years only requires an average rate of 4.08% inflation. As recently as the period ending September, 2005, the prevailing (or 12-month) inflation rate was 3.15%. Clearly, if we hope to generate wealth that will carry us through our retirement, then we must make every effort we can to control the impact of inflation, and even deflation, upon our lives.
4. What is an intermediate-term period?
Any period of time, during which a change in the purchasing power of the nominal monetary unit can be measured. In particular, the CPI-U is measured in tenths. Hence, we could define the intermediate-term period to be the time that it takes for the CPI-U to tick up one-tenth. This, of course, depends upon the current rate of inflation; as well as the current value of the CPI-U.
5. What is the intermediate time period, if inflation is at 3.0%?
Using the Reference CPI-U for May, 2005 of 194.4 and the inflation rate of 3.00%; the intermediate-term period is only 6.26 days. In other words: in May, 2005, a three percent rate of inflation would on average drive up the inflation index by one-tenth for every 6.26 days. This means that your cash should be converted into a safe mode in about seven days or less, assuming a three percent rate of inflation; otherwise you are losing a measurable percentage of your purchasing power to inflation.
Herewith is the intermediate-term period for other rates of inflation:
Inflation: Days: Inflation: Hours: Inflation: Minutes:
1% 18.78 10% 45.06 60% 450.62 2% 9.39 15% 30.04 70% 386.24 3% 6.26 20% 22.53 80% 337.96
4% 4.69 25% 18.02 90% 300.41
5% 3.76 30% 15.02 100% 270.37
6% 3.13 35% 12.87