[PDF]MONEY SUPPLY

TOP tax system




TOP tax system



All Economic ills - one pill
TOP Tax system



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Money Supply




By — VARMA

Excerpt: - TOP Tax system suggests that total money supply (real money and debt
money/loan money) to be necessary for circulation in banks should be at the minimum level
of 100% and at maximum level 110% of the value of GDP of the country. Out of this total
money supply in the economic system, 99.7% of the money will be in dematerialised (non
physical) form in the accounts of citizens, Governments and companies. Only small portion
of money, equalling just 0.3% of the total money in the economic system, will be in physical
form i.e. currency notes or coins. All high valued paper currency notes will be demonetised.
A brief description of Money Supply in present economic system and the TOP
Tax system

Money Supply in present economic system : - Money is classified as different
categories like M, Ml, and M2 and so on. The money in the banking system can be expanded
over the initial reserve due to expansionary monetary policy. The velocity of cyclic rotation
of money in the economic system is erratic and not stable because of the extra added weight
the loaned money carries in the form of interest burden. Here money is having both
exchange value and storage value. The money's volume is increasing by virtue of its
stationary position in the form of demand deposits, savings deposits, bonds etc. The
carcinogenic growth of loaned money causes inflation. Here the high growth rate and
inflation are inseparable Siamese twins. There is sizable physical money which helps tax
evasion in generating black money. For example in India, there is an estimated physical
currency of 10,72,020 crores with the public out of total money supply of 77,25,560
excluding fake currency in the economic system (As at 2012 - June 29 ). This physical
currency is about 13.8% of the total money supply in the economic system. The unaccounted
GDP, carried through unreported/hidden/shadow accounts with active support from
physical currency, is assumed to be almost equal to the officially recorded GDP. The
unaccounted cycles of 10 % physical currency are almost equal to the cycles of the remaining
90 % of the total money supply in the economic system. The non physical money, which has
to honour the taxes, tax laws, accounting, auditing and tax returns, is having less velocity.
The physical money, with its natural free flowing tendency, is choosing the smooth domain
where it can escape from taxes, tax laws, accounting, auditing and tax returns to get greater



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velocity in its cycles. That means the total money in the economic system has two extremely
different velocities - one for the physical money and the other for the non physical money.
The exact volume of real money and loaned money cannot be known at any specific time
instantly. The real money and loaned money are mingled together beyond recognition. So
the exact values of the total money supply, the velocity and cycles of the money and GDP
may not be available. The money supply and GDP values, that are being furnished, are
believed to be off the mark. The exact results of measures, taken by the Governments and
Central banks from time to time to check inflation or to infuse fiscal stimulus packages to
control recession, can be observed only after long time. The medicines and therapy, that are
used to nurse the health of an economy, are basically trial and error methods. There are so
many regulators like, CRR, PLR, SLR, repo, reverse repo that work on money supply in the
economic system to check inflation, economic recession and deflation. The actions of these
regulators on money supply usually give results that are quite opposite to each other. They
always endorse one proverb - Too many cooks spoil the broth. The multiplier effect
(expansionary monetary policy) on the money in banking finance system is decreasing the
real face value of the physical currency. Although an individual's earnings are increasing
every year, the purchase value of the currency is decreasing

Money Supply in TOP Tax system

The functioning of banking system in TOP Tax system is totally different from present bank
system. There will be only two types of money, namely real money and loaned money, in the
TOP Tax system. The real money and loan money will be total money supply in the banking
system. The value of the real money will be equal to 52.63% (minimum level) of total money
supply in the economic system if reserve ratio is 10%. The remaining 47.37% of the money
supply can be generated through loans. The real money would be at minimum level of 52.63
% and can increase beyond that. The total loaned money given by banks would be at the
maximum level of 47.37% of total money supply (90% of real money) and can decrease below
that. An increase in the real money beyond 52.63% means a decrease in the loaned money
from 47.37%. The physical currency constitutes just 0.3% of the total money in the economic
system. The remaining 99.7 % of total money supply will be in non-physical form in the
banking system. There will be no interest rates on demand deposits, time deposits, bonds
etc. The prime lending rates on loans given by banks will be just 2 to 4 % only. The loans will
be given upon mortgage of movable and immovable properties and shares or on personal
incomes. There will be no loans on deposited checks and demand drafts or other instruments
of money. Here the money will have only exchange value and it will not have storage value.
Money will be purely utilised as medium in exchange of goods, commodities, shares, physical
and intellectual works. There will be absolutely no incomes on stocks of money. An individual
will have to spend exactly what he earned, saved, inherited, donated or gifted. The cycles
and velocity of the total money in the system will be even and constant.
TOP Tax system's Main Savings Account MSA will have five folders for money, shares/stocks,
bonds, derivatives, movable property, immovable property and family. The Sub Savings
Account will have only one folder for money. The Corporate Account Number will have seven
folders for money, movable property, immovable property, securities, raw materials and other
inputs, man power, manufactured products. The first folder of all these three accounts will be
used for storage and usage of money for personal or business or industrial purpose. For
detailed usage of these accounts please see page number 15 to 22.



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In TOP Tax system there will be zero interest rates on time deposits, demand deposits,
Government bonds etc. The prime lending rates will be just 2% per annum on loans up to 10
lakhs and 4% per annum on loans above 10 lakhs.

Top Tax system suggests the Cash reserve Ratio CRR permanently at 10%.
An individual's first folder of Main Savings account contains his/her entire money got from
earnings, savings, donations, inheritance and loans taken if any. This money is called liquid
money. That means liquid money is both real money and loan money. The first folder also
contains a subfolder called debt folder. This debt folder contains all aggregate loans taken by
an individual from banks upon mortgage of his/her movable and immovable assets as recorded
in the second, the third and the fourth folders of his/her Main Savings Account. The loan
money is called Debt money. Similarly the borrowings of money (loans) for industries run by
corporate companies or public companies will be recorded and maintained in the sub folder
called Debt money folder of Corporate Account Numbers (CANs) of those companies. The total
loans/advances given by all Banks (recorded as Debt money in Dept money folders of MSAs
and CANs) should not be more than 47.37% (if CRR = 10%) of the total money supply/liquid
money (money which includes both real money and loan money) in all MSAs, SSAs, CANs and
Banks' own capital money. The total money (liquid money) recorded in MSAs, SSAs and CANs
belonging to people, banks, companies, institutions, organisations and Government is the total
money supply in the economic System. The debt money/loan money recorded in the debt
folders of MSAs, SSAs and CANs is loan money in the banking system. The total liquid money
minus the debt money is equal to total real money. The exact figures of total money supply,
real money, loan money and variations in demand for loan money in the economic system can
be obtained at any specific time.

The money folder of Bank's Account will have its capital money and profits. It is called
capital money/fixed money. It is called as fixed money because it cannot be given as loan as
real money. The bank's capital money will be used to pay salaries and towards other operating
costs of that bank. All the loans given by it will be recorded in another sub folder called loan
money folder. Its numerical figures should be in red colour. Every time the bank gives loans,
the Bank's capital money/fixed money should not be changed. But the given loan money will
be added to the Bank's loan money account in loan money folder. Correspondingly the loan
amount will be added to the liquid money account of MSA or SSA or CAN, who has taken that
loan, and at the same time the loan amount will be recorded in the Debt money folder of the
same MSA or SSA or CAN. When a loan is repaid, the principle amount of that loan will go in to
the loan money account of that Bank account and loan amount in red colour decreases by the
repaid loan amount. But the interest amount of that loan should be credited to the Bank's
capital money/fixed money. Similarly whenever a loan is repaid through any MSA or CAN the
paid amount will be decreased from both the liquid money account and debt money account
of the same MSA or CAN. Please note that when Bank(X) gives loans, its capital money/fixed
money would not change but increases when interest on loans paid to it, and decreases when
Bank(X)'s salaries and other operating costs are paid. Bank's salaries and other
running/operating costs should be paid from the capital money/fixed money of the Bank's
Account. So the capital money/fixed money minus the initial capital are Banks profits. If the
capital money/fixed money in the bank's money folder are less than the Bank's initial capital
investment that means the bank incurred losses.

The TOP Tax system suggests CRR (Cash Reserve Ratio) to be around 10%. The total
loans/advances given by a Bank(X), recorded in the loan money folder of Bank's Account ,

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should not be more than 47.37% (if CRR = 10%) of the total money stored in all MSAs, SSAs,
CANs operated by all its branches, and Bank(X)'s own capital investment/liquid money and
profits (if any). The total money/liquid money in all MSAs, SSAs and CANs invariably includes
the real money and loaned money generated by the Banks. But the Bank's capital
money/fixed money is purely real money. This total money will keep changing continuously.
So the average total money of all accounts for one year of all branches of that particular
Bank(X) should be taken in to account while giving loans. This ever changing average total will
be automatically available every day by computer software system itself. At the same time the
total loaned money/advances of all the branches of Bank(X) should not exceed nine times the
value of that particular Bank(X)'s Capital money/fixed money. At no time the Bank(X)'s loan
money/advances in the loan money folder should exceed nine times the bank(X)'s capital
money/fixed money, and more than 47.37% of the total money (Or 90% of real money) in all
MSAs, SSAs and CANs (operated by it) and its own capital money/fixed money. The total
loans/advances (recorded in red colour in loan money folders) given by all banks throughout
the country should be equal to all Debt money/loan money taken by individuals and
companies recorded in Debt money folders of MSAs and CANs. The possible cash reserve
ratios and corresponding loan ratios to total money are as follows. If CRR = 5%, then loan ratio
= 48.71%. If CRR = 6%, then loan ratio = 48.45%. If CRR = 7%, then loan ratio = 48.19%. If CRR =
8%, then the loan ratio = 47.92%. If CRR = 9%, then loan ratio = 47.64%. The maximum
loan/credit that can be lent as loan by banks on the real money 100 will be 90 and the total
money in circulation will be 190. It will be called as liquid money. In other words when CRR =
10%, then the total credit that can be generated, lent and added to the real money will be up
to 90% of real money. It is the self money supply of banking system suggested by the TOP Tax
system.

The total capital money/fixed money of all banks in the country should be at least one
ninth of the total loan money recorded in the debt money folders of all MSAs, SSAs, CANs, and
one ninth of the total loan money recorded in red colour in loan money folders of all Banks. As
the bank's profits increases, the capital increases. The bank's profits will be known every day,
every hour and every minute even to a layman. The maximum profit a Bank(X) with all its
branches can achieve in a financial year = (the average annual simple interest 3 % x 9 times of
its capital money) + registration charges - Operating cost. That means, profit = (27% of its
capital money) + registration charges - operating cost. The minimum profit a Bank(X) with all
its branches can achieve in a financial year = (simple interest 3 % X .9 times of its own capital
money when no real money is available in all MSAs, SSAs and CANs operated by it) +
registration charges - Bank's operating cost. So the profits depend upon the total money
available in all MSAs, SSAs, CANs, the bank operates, and Bank's own capital money. This is the
self regulating system of money supply in the economy. The Bank's cash reserves, to be lent as
loans, decreases if real money in all MSAs, SSAs and CANs operated by it decreases. There will
be slight variation in total money supply in the banking system at the end of every day. When
loans are repaid to the banks the total money supply decreases and money supply increases
when loans are given by banks. That means when loans are repaid the money will get out of
the money supply and loans are given the money rejoins the money supply. Total Money
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