Hello Mr. Eichengreen,



Below is a proof of an idea that will force a European banking, fiscal, and political union.



If anyone can find the flaw, I shall be more than happy to give him or her $50,000. I am just tired of doing this. Its not the end of the world, but a new beginning.



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The costs of borrowing for a nation to fund public expenditures, if it borrows solely from its resident citizens and in the nation's currency, is nil.



Why? Because if, in adding a financial debt to a community, one adds an equivalent financial asset, the aggregate finances of the community will not in any way be altered. This is simple reasoning confirmed by

simple arithmetic.



The community is the source of the government's funds. The government taxes the community to pay for public services provided by the government.



Cost of public services is $10 million.



Scenario 1: The government taxes $10 million.



Community finances: minus $10 million from community bank accounts for government expenditures.

No community government debt, no community government IOU.



Scenario 2: The government borrows $10 million from solely community lenders at a certain interest rate.



Community finances: minus $10 million from community bank accounts for government expenditures.

Community government debt: $10 million;

Community government bond: $10 million.



At x years in the future: the asset held by the community (lenders) will be $10 million + y interest. The deferred liability claimed against the community (taxpayers) will be $10 million + y interest.



The value of all community government debts when combined with all community government IOUs or bonds is zero for the community.



Theoretically, at some point in the future, the government would collect taxes from the community, i.e. the taxpayers, and simply hand them back to the community, i.e. its lenders, erasing the acquired community government debts and assets.



In conclusion, if a community borrows from its own citizens to fund worthy public expenditures rather than taxes those citizens, it will not alter the aggregate finances nor the wealth of the community. Adding a financial debt and an equivalent financial asset to a community will cause the elimination of both when summed.



Whatever financial benefit Taxation possesses is nullified by the fact that borrowing instead of Taxation places no greater financial burden on the community.



However, the costs of Taxation are immense. By ridding the nation of Taxation and instituting borrowing to fund public expenditures, the nation will shed all those costs of Taxation for the negligible fee of borrowing in the financial markets and the administration of public

debt.



Regards,

Gary Marshall

