Truths alone will triumph and prevail

August 29, 2010

Sankarshan Acharya
Pro-Prosperity.Com and Citizens for Development

August 29, 2010

To:       Honorable President Barack Obama

Cc:       Honorable House Speaker Nancy Pelosi

Honorable Senators Harry Reid and Richard J. Durbin

Honorable Chairman, House Oversight and Government Affairs Committee

Honorable Chairman, Financial Crisis Enquiry Commission

Sub: Truth alone will triumph and prevail

Dear President Obama,

Policymakers are feeling helpless[1]  after the Federal Reserve infused $2.5 trillion of new money to banks in 2008, the Congress gave away $700 billion in TARP funds to banks and the Administration spent $850 billion to stimulate the economy, and after the Fed decree made the bank deposits available to banks at nearly zero rate of interest.

The Fed can still pump more new money to the economy by buying up U.S. Treasuries and bank assets backed by auto and credit card loans. Printing money has become a double edged sword the faltering economy cannot be primed and the dollar may potentially crash to precipitate inflation.

Why did the Keynesian doctrine of new money injection to lift a recessing or depressing economy falter? [2]   It is because money, under the current system, flows disproportionately to a small fraction of people who control the system but not produce globally competitive goods, services and ideas. In this system, the Keynesian dogma loses its potency.

It is true that many of these controllers lost some of their unseemly aggrandizement due to the Great Recession. But they successfully lobbied for creation of new money to make up their losses, without enhancing production. They also succeeded in ensuring that the current unconstitutional system of money and finance is preserved despite the Financial Regulatory Bill signed into law in July 2010.[3]

The Great Depression had painfully led to a partial reform of the unconstitutional system through the passage of the Glass-Steagall Act, though it also introduced moral hazard due to the Federal deposit insurance. After the Glass Steagall Act was repealed in 1999, the unconstitutional moral hazard plagued system turned virulently monstrous with no effective checks on robbing the hard earned savings of persevering and productive households. This led to a partial depression, euphemistically branded as the Great Recession of 2008.

The Financial Regulation Bill of 2010 still preserves the virulently monstrous unconstitutional system, as if to guarantee a recurrence of the Great Depression.

The U.S. economy would have been stable, sans depressions, if the unconstitutional system of money and finance were replaced with a constitutional system, discovered by selfless research of yours truly. Denial of the truth about the necessity of the constitutional system has only increased the economic pain for the vast majority of households and made the national economy unstable.

Can a nation perpetuate a system of financial shenanigans that allow a few to usurp, unseemly and unconstitutionally, the hard-earned fruits of labor of the vast majority of persevering and productive households? No.

The robustness of the process of my discovery/research leaves no doubt that the truth will ultimately triumph and prevail, though through considerable pain to the economy and society.

What is the process of my discovery of the truth about the system of money and finance? It is multi pronged:

  1. A mathematical-theoretical model seeking general equilibrium among (i) a not-for-profit government that minimizes its cost of service, (ii) firms that seek to maximize profits with debt, equity and potential bankruptcy, and (iii) a constitutionally mandated free trading economy in which, for example, toxic bank assets will be traded freely, not exchanged by government fiat for exorbitant amounts of public funds. A unique quilibrium of this model is Safe Banking without Federal deposit insurance. [4]
  2. When the profession rejected the model because it was too complicated, I wrote a verbal model (devoid of math) to prove that Safe Banking sans Federal deposit insurance is optimal for a not-for-profit government seeking to minimize the cost to taxpayers. [5]
  3. I have also proved that Safe Banking without Federal deposit insurance (not the current system of money and finance) is constitutional, without any complicated mathematical model.[6]

A truncated fuzzy model that depends on sunspot or invisible hand to “prove” the necessity of Federal deposit insurance cannot succeed in suppressing the profound truth discovered through the robust procedure employed in my research.

The premise of my general equilibrium model is constitutionally mandated free trading which essentially precludes government protection of too big to fail institutions. That the premise was violated during the Great Recession is obvious: the government did not permit free trading of the toxic bank assets and rather bought them by paying fiat-driven fictitious book values to save banks selectively.

The Financial Regulation bill passed in July 2010 promises to dismantle too big banks that were not allowed to fail earlier. This promise is consistent with the premise of my general equilibrium model of free trading of assets of even the too big to fail firms.

The government cannot possibly keep its promise when the largest banks are lined for rescue during a future crisis. An economic crisis, still looming in the horizon, is turning graver under the veneer of growth because the Financial Regulation bill preserves the unconstitutional system of money and finance which was responsible for the Great Recession and the Great Depression.

The Financial Regulation bill of 2010 adopts another result of my research, namely, to require the bank holding companies to hold the minimum regulatory capital on a consolidated basis. But how will the zombie banks generate the extra needed capital?

Well, if the government can preserve the unconstitutional system for a long enough time going forward, banks may accumulate capitals through unconstitutional usurpation as they have done thus far. This will not pan out, however, when the vast majority of households (especially the rich including many university endowment funds) have been rudely woken up by the current unconstitutional system. The Federal Reserve and the Financial Clearing House recently lost their appeal in the Court to suppress the right to information on the names of banks that received $2.5 trillion of largesse granted by the Fed in 2008.

The truth about the constitutional system of money and finance is very profound, robust and irrepressible. The truth will ultimately triumph and prevail. The custodians of the current system will ultimately have to concede defeat to pave the way for the proposed constitutional system of money and finance. Adopting the proposed system now will cause substantial pain to the beneficiaries of the current system. But the pain will be far greater and unacceptable if the Great Depression recurs.

With profound regards,

Sankarshan Acharya

[1] See Goodman, Peter S., (August 28, 2010), “Policy Options Dwindle as Economic Fears Grow,” New York Times

available at

[2] See Acharya, S. (2008), “Fallacy of Keynesian Economic Philosophy” available at http://proprosperity.


[3] See Acharya, S. (2010), “Constitutional System of Money and Finance,” available at http://proprosperity.


[4] See Acharya, S. (2010), “An Economic Theory of Constitutional Governance,” available at http://proprosperity.


[5] See Acharya, S. (2003), “Safe Banking” available at and

Acharya, S. (2007), “Safe Banking to Avoid Moral Hazard,” available at

[6] See Acharya, S. (2010), “Constitutional System of Money and Finance,” available at http://proprosperity.