“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” --Buckminster Fuller
Most legislation is formed in advance by “think tanks” funded by special interests, but nobody funds experts to think about how to reform the money system itself. Now, however, we have the Internet, where we can banter ideas about in “virtual” think tanks without funding. Getting anyone to pay attention, of course, is another matter; but before we even get to that stage, we need to agree on a plan. I’ve gotten a great deal of feedback on this subject by email, so am opening it up to blog comments. What should our money system look like and how should it work? Give your feedback here. Comments on the book “Web of Debt” and articles are also welcome!
Note: This page has gotten a bit long and unwieldy. Please keep entries short and to the point! Better still, please continue the debates using our new forum.
A wise old Indian Chief sat in his
hut on the reservation, smoking a
Ceremonial Pipe and eying two U.
S. Government officials sent to
interview him.
“Chief Two Eagles,” stated one
official, “You have observed the
white man for 90 years. You’ve
seen his wars and his technological
advances. You’ve seen his
progress, and the damage he’s
done.”
The Chief nodded in agreement.
The Official continued,
“Considering all these events, in
your opinion, where did the white
man go wrong?”
The Chief stared at the
Government Officials for over a
minute and then calmly replied,
“When white man found this land,
Indians were running it.”
“No taxes.”
“No debt.”
“Plenty buffalo.”
“Plenty beaver.”
“Women did all the work.”
“Medicine man free.”
“Indian man spent all day hunting
and fishing.”
“All night having sex.”
Then the Chief leaned back and
smiled, “Only white man dumb
enough to think he could improve
system like that.”
‘plenty taxes’
‘plenty debt’
‘no buffalo’
‘no beaver’
‘plenty mans work’
‘no mans play’
‘man too tired for sex’
– maybe white woman improve system
I’ve read through a lot of the blog posts on this website, but have not yet tackled the forums.
Most of discussion/argument seems to be about two broad themes, first is whether or not interest or debt creation of money is the problem. And second is the issue of how monetary reform can actually be realized.
I have posted elsewhere that I believe popular insurrection is the only way to overthrow our present system of debt-slavery run by an entrenched, powerful oligarchy.
Another, more peaceful, scenario might be to leverage the power of a societal pillar of historical significance, the Church. I will briefly outline my idea for this approach, but I want to first add my two cents about the debate on interest.
I agree with the view that money should not be a commodity. As an engineer, not an economist, I see money as a completely abstract construct — much like the system of measurement, or units.
As such, there is no reason why there should ever be a “shortage” of money, other than to oppose inflation. But the present system is one where money is a commodity whose supply is controlled by a caste that wields money as an instrument of power with which to rule the people.
Hence we have the situation where this very necessary thing called “money,” which is nothing more than a unit of exchange, is tightly controlled — with the specific intent of keeping people insecure, and in the case of the majority of the world’s population, in poverty. It is like the sadistic master who throws his dogs a few meager bones, just so he can watch them fight over the scraps.
And now to the part about interest. This is a completely unnecessary part of money. In fact it is extremely counterproductive. I believe that any plan to reform the money system MUST include the principle of interest-free lending.
Michael Hudson is onto something very crucial in his investigation of money in antiquity. From Aristotle we have “Usury is Unnatural,” a masterpiece of logic that equates interest with the “birth of money, from money.”
Such “breeding” of money is counter to nature, he rightly points out. “Wherefore of all modes of getting wealth, this is the most unnatural.”
And we use logic furthermore to ask: Why do we need to “breed” money in the first place, if we can create it as needed for the productive and economic capacity of society?
And the answer is quite simple. Because those who astutely identify money as a crucial resource in society, understand that it is a choke point by means of which powerful pressure can be brought to bear and complete control exerted. In other words, money is a means to rule.
Now if your goal is to rule — for reasons of your own ambition — then you will naturally oppose the use of money for its neutral intended purpose, as a means of exchange in society.
So you must by definition now oppose the creation of money on a rational basis and that leaves only the “breeding” of money as a way to increase it. Serendipitously, this method also means it is those controlling the money who get even more of it by means of breeding — so their power continues to increase.
So the question becomes, “What is the purpose of interest?”
The answer is, that in a system where money is created in a neutral way to fulfill the societies needs for a medium of exchange, THERE IS NO NEED FOR INTEREST.
Professor Hudson explains nicely that the problem with compound interest is that it outstrips the productive growth of the real economy. He points to the ancient Mesopotamian cultures as understanding this in quite a sophisticated way.
The result is that the levying of interest eventually brings great harm. This is unavoidable. That is why other cultures predating Roman times — including the Jews — also forbade interest.
It has been mentioned here that low-interest rates could be levied by state-owned lending utilities that create money. This would simply be a tax, but again, this tax would soon outstrip the productive growth in the society and would become an excessive burden.
Why not just tax?
There is absolutely no reason why an interest-free lending utility owned by the people, and with sovereign authority to be the only body able to create money, could not work in today’s world.
When any individual or business borrows money and puts it to work in a productive way — building houses, making products, etc — the result is that more goods come onto the marketplace and the scarcity and price of those goods declines.
This means everybody’s money now has more purchasing power. This is the “interest” that is distributed among all of society. The fact that the borrower does not have to enrich a parasitic interest-taker means the price of his product can be lower. So everyone benefits, not just the one extracting the interest.
In the agrarian societies of antiquity with interest-free lending utilities, a farmer that is loaned a cow will repay it with a calf borne of that cow. A cow for a cow, but he has one to keep.
That is the difference. If he has to repay that one cow with two cows, then only the extracting party benefits. No one else.
I will address the Church idea in a separate post.
First a fact. The struggle to reform the monetary system is an impossibility.
Our whole system of Western civilization is built on the foundation of power through usury. This has been true since Roman times and has only become more solidly entrenched ever since.
I want to also point to a very astute and informative article on the “Impossibility of Growth.”
http://www.israelshamir.net/Contributors/Tom_White.htm
The idea of perpetual growth is an impossibility in nature. Yet it is embraced by the economic profession, by the ruling class and by just about anyone else of any consequence.
We have a situation of idiot-savants telling us everything is great — right up until we go over the cliff. That cliff is in sight for many of us and it will entail unbelievable upheaval, human suffering, starvation and massive violence.
That is where we are being led by those who have usurped the power of the people, which is ours by constitutional right. In another part of this blog it was suggested by one Dr. Bob that we should embrace a plan of citizen revolt whereby we place under citizen’s arrest elected politicians and try them for treason.
Dr. Bob was mercilessly attacked for suggesting this very good idea, even though we have a constitutional right to do exactly that. The idea that an overthrow of the ruling hierarchy can be achieved by the common people simply by asking politely for it, is ridiculous. It will not happen.
However, there is an avenue that might be able to gain some traction. I mentioned the institution of the Church. Of course the Church is not the major force it was in centuries past. The religion of capitalism is the worship of Mammon — the religion of money.
However, the Church could still be a place to start to build awareness and a movement. I’m also including here the temple, synagogue, mosque, etc. All of the major religions are against usury and greed, so it should be an environment that will be receptive to the message that mankind is enslaved by evil-doers who are driven by greed and lust for power.
Christianity, Judaism and Islam all forbid usury and the charging of interest. “A man cannot be the slave of two masters at once…You must serve God or money, you cannot serve both” — Matthew 6:24.
Regardless of you view of religion — believer, atheist, agnostic — there is much here that is the core of our message on money reform. What we are espousing is the same rules and laws of these ancient religions and the even more ancient societies that preceded them. In a historical sense, we have wandered from the true path.
In this sense, the local place of worship could be the ideal forum for discussing this important issue and also a good way to spread the word.
However, it is not a slam dunk. Anyone that goes to church knows that there is not much real thinking about real issues going on there. Mostly it is a social club and, even worse, you often hear the ministers embracing the rotten ideology of our current system — along with its militarism, imperialism and all the rest.
Most of the people in charge of “The Church” will not be receptive to our message. However, there are some quiet decent folk in the congregation who will be interested.
It is at least an avenue worth exploring. There were times in the past when major religious figures spoke very plainly about the evils of money:
“In the first place, it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few. . . . This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will.” — Pope Pius, 1931.
Even today some men of conscience are at the helm of the great churches and other religions. (The problem is that the local leaders are not cut from any similar cloth). But can it be such a stretch to imagine that the idea of defeating the money men once and for all could not be an idea to gain real force in organized religion? And from there, who knows?
I’m going to just add a couple of more thoughts here about the question of money creation as debt.
I’m not an economist — which I see as an advantage — but it seems to me that creating new money as new debt is not the problem, with one proviso. As long as the debt is interest-free.
There seems to be a school of thought here that says the only way to create money should be to inject it into the economy directly as grants, subsidies, relief and such. I agree there is a place for this, especially in circumstances of economic downturn where it is necessary to get people spending.
This is the situation presently of course and the government is injecting some money, although not enough. Problem is that this government money is actually borrowed from the money-creating private banks, so there will only be more chickens coming home to roost down the road.
However, in a reformed money system where the sovereign state is the only issuer of money, creating new money by way of new loans is perfectly fine — provided the loans are interest-free. I think this is the crucial point.
If interest is charged, we will start entering the whole debt cycle anew — regardless if the issuer of money is the state. The problem with interest is that it is perpetual. It is an artificial construct that is tied to the passage of time. As more time goes by, the debt increases by a fixed mathematical formula (the interest rate).
It is important to look at this in terms of the real economy. Does the real economy also increase in value with the passage of time? Absolutely not. The real economy CANNOT grow ad infinitum, like a mathematical formula. It has limits.
The Mesopotamian economists of 5,000 years ago were infinitely more astute than the idiot-savants we have today. They left very nice records showing exactly this — that the real production of the economy starts off growing in a fairly steep curve, but then begins to flatten out as natural limits are reached. Interest does not flatten out. It continues to climb at the same steep rate.
That is the disconnect and that is why the levying of interest is destructive to an economy. That is why the idiot-savants running today’s system insist on perpetual growth, which is an impossibility in the physical world. Perpetual growth has only been able to continue up to the present time because of the imperial/colonial system of global conquest and pillaging, which continually finds new victims to enslave on distant shores.
But what happens when there are no more victims available? Yes the world is going to run out of them eventually — it was not so long ago that China, India and Brazil were impoverished countries. Look at them now. They are challenging the dollar hegemony in a real way. Some argue persuasively that that turning point has already been reached.
http://original.antiwar.com/engelhardt/2009/10/26/the-great-superpower-meltdown/
Some could argue that the whole consumer credit bubble that just collapsed was created for only one reason — to provide the growth that this debt-interest monetary system requires, like a drug addict requires a fix. Do not forget we are talking about a Ponzi scheme here. That is what perpetual growth means.
If there are no new suckers coming in (growth) the system collapses. In recent years many of the developing countries have been able to throw off the debt-bondage yoke. One year ago, the IMF was just about done as an entity of any significance. Nobody was biting any more. The BRIC countries said “no thanks” long ago. The Asian Tigers, etc. Oh sure there are still a few Eastern European serf countries that borrow from the banks, some in Africa etc. But htis is not nearly enough to provide the necessary growth fix.
And it is not just the Western banks, but also the industrial corporations that are addicted to the growth fix. All of the loans to third-world countries come with strings attached. Those strings are that most of the money loaned goes right back to the giant multinational corporations who garner the contracts that the money is loaned for in the first place — whether it is infrastructure, industrialization, public works, whatever. The multinationals actually end up with the money that the banks create out of thin air.
Just like when you buy a new car. The bank creates the money out of thin air and GM gets the cash for the car. All you get is the debt burden. (And the car, as long as you make the payments.)
That is why the consumer debt bubble happened. It’s because it was the only way to bring into existence the growth that is necessary for the very survival of this system. They inflated the economy with lots of easy credit, so the hapless consumer would spend, spend, spend. Of course all of the new debt money now requires even MORE growth, just to pay the interest.
That is the problem.
The money men are now hard at work coming up with the next smoke and mirrors trick to create the new growth needed to keep this system breathing for another couple of years. Gee I wonder what it will be? Can you spell b-u-b-l-l-e?
So what happens when the inevitable happens, when there is no more growth left to be had for the Western economic system? When they have looked under every rock and tried every trick they can think of?
Complete and utter devastation is what happens.
The collapse of the banking system will mean the collapse of the corporate system which depends on a revolving door of credit. Unfortunately we have allowed our entire food supply system to be snatched out of the hands of local, family-based producers — and it is now entirely in the hands of the corporate sector. When the credit system inevitably collapses and the corporate system that depends on credit as its life-blood follows suit, what happens to our food supply?
Yes, there is an urgency to this whole question of money reform.
That is why we should be very clear about how the new system must look.
The bottom line is that monetary reform can only work if the new state-owned money-creation utility provides loans interest free. There can still be a place for private money lending, provided they actually lend real money — ie, 100 percent reserve. They can charge interest if they like and there may be some who will avail themselves of it. Good for them.
But they will be relegated to the sidelines.
My view would be, it’s okay if money is lent into the system so long as it is lent by a publicly-owned bank, EVEN IF the money is lent at interest. To come up with the interest, you just need to allow the state to issue some money that is NOT lent but is spent directly into the system. Thus: you create $105. You lend $100 at 5% interest and spend $5 on the government’s budget. $105 is now out there circulating in the system, which can all come back as principal and interest. You don’t have to print any more, creating a bubble or pyramid scheme; you can lend the same $100 and spend the same $5, ad infinitum. If they were 30 year loans, you would want to print $200, lend $100 and spend $100, since the interest compounded annually would equal the principal (roughly). Ellen
Ellen, your example exactly proves why the idea of interest is so dangerous.
If the proposed state-owned bank lent $100 at an interest rate of 5 percent and a term of 30 years, the debtor would have paid back $432 at the end of 30 years, not $200. (Assuming the principal is paid back in one lump sum at the end of the term and not paid down gradually).
The bank would have to print more than $300 and inject that into the economy.
Let’s say this same loan is repeated a million times in the entire economy. So we can just look at this one loan of $100 as exactly representative of the whole economy (divided by 1 million).
What this means is that after the 30 years the economy will have HAD TO have grown by more than 300 percent! That is the problem.
We are right back to the physically impossible perpetual growth paradigm that is the seed of destruction.
Can the economy more than triple in the space of 30 years? Maybe it could for the first 30 years, but what happens after that? We are right back on the same slippery slope.
The problem is that we have chained the physical economy, which depends on the physical creation of goods, and which has real physical limits, to an artificially skyrocketing multiplier that has no bearing to reality whatsoever.
I think we should take our cues from the physical world. The idea of limits is central to the physical world. It is central to the mathematics of calculus, which is our main tool for understanding dynamic phenomena like motion (whether celestial bodies or any other kind). Without this tool we would not have modern science.
Interest is completely unnatural as Aristotle so wisely figured out. He understood that money creating money is like a circular argument that has no logic. It is stupid.
Perhaps the population in this said city-state will also grow by 300% during those thirty years, thus will the need for proportionate goods and services.
Also, the money does not have to be printed right away, just the appropriate amount during the period that the loan is outstanding.
In addition, money lent on a thirty-year note is typically repaid or refinanced prior to when it is due. So the actual amount of potential interest paid will not come to fruition.
Even in this system, there will be periods of inflation and deflation that are self-correctable by elected officials and responsible monetary policy. At the end of the day, the money is the property of the people, not the disinterested elite.
There is a place for Interest, Debt and Debt-free in medium of exchange creation and transactions. They all can serve the advancement of a society’s co-operative way of life in providing a public & efficient value system, one of whose characteristics is in providing choice.
The perpetual & regimented growth requirement only comes about when the systemic Credit function is served by Debt & Interest – whether public or private.
Ellen Brown’s state owned historical bank model would be a much used & beneficial choice in a new paradigm while at the same time not being the entire reform in of itself.
Nik, I have no idea what you just said.
If there is a place for interest what is it?
Gordan, my apologies about the delay in replying.
Interest has a place in covering legitimate administrative costs in a banking system. I t also has a place in recovering opportunity cost in lending out money for enterprises as well as the above admin. costs of a banking system. The key is for this cost to be subjected to non-monopoly supply & demand in this market – which cannot happen in the current structure.
Also interest has a place in the use of state owned banking as Ellen Brown tirelessly advocates for. This interest is spent into the system in the first place in order for it’s re-payment to not create a short fall & associated un-sustainable growth through the servicing of un-payable Debt. The Debt that is lent into the system through these public banks is repaid through the creation of goods & services that the public bank has enabled to be created. Once the principle is paid ( & therefore transferred in wealth back to the public bank – i.e. the money is not about being created for nothing in this process) these goods & services are now increasing the ratio of wealth to money in circulation and are therefore anti-inflationary. The paying of the principle is similar to a tax that has to be paid, but it is a direct tax and is not like the current system, which just goes to pay the financial masters the interest on the exponentially increasing debt that they create out of nothing in the exchange.
If the public bank is co-opted by un-productive projects ( via politics), the debt ratio, if not out of hand, would be settled from the Debt-free credit that is being injected into the economy separately to equalize the previously earnt ‘price-purchasing power gap’ dynamic characteristic of large scale & scientifically aided enterprises that exist in all modern economies, preferably via a dividend to citizens method. But it is likely that a naturally balanced means of exchange system would anchor what political processes there are to the tasks & challenges at hand as determined by a free & co-operative population.
All these aspects ( from un-monopolized Demand & Supply private risk enterprise in relation to the banking system utility, publicly owned banks spending into circulation their interest requirements & Debt-free Credit fulfilling the annually earnt inherent purchasing power gap ) have the attributes of being self-liquidating in direct relation to a physical economy; Thus achieving sustainability naturally without coercion.
Sorry for longer post, but does seem to require a couple of paragraphs to explain a logical alternative to the current monetary system, but four paragraphs isn’t too over the top I hope.
Nik, I do not agree that interest is a legitimate way of charging for the service of arranging a loan.
The legitimate way of paying for the service is a service fee. When you pay off your mortgage you have paid back three times the principal you borrowed. Does it seem proportional that the mere act of arranging a loan, which only involves at most several hours of human effort, should be compensated by twice the amount that is borrowed?
That is preposterous.
As to your other points, I still do not understand what you are trying to say.
Here is what I am saying. Let’s say we can institute a publicly-owned lending facility that will take over the creation of new money as debt, as well as injecting new money created as gifts.
That is a fine plane, no question. However, there are several problems with this plan.
The biggest problem is that interest-lending makes the economy into a pyramid scheme.
A pyramid scheme MUST have growth, year over year, or it will collapse. In fact it must have ACCELERATING growth year over year — where the growth in each subsequent year, outpaces the rate of growth in the previous year — or it will collapse.
Now Ponzi schemes can go on for quite some time. Look at Madoff. Our Western civilization, based on interest-lending has been going on close to 500 years. But now we are bumping up against the immutable reality of physical limits. The Ponzi scheme WILL collapse.
Let us review first what a Ponzi scheme is and then do a numerical example. A Ponzi scheme is like a bank that solicits depositors. Each of the depositors is promised a good rate of interest on his investment. As more depositors invest, the interest is taken out to pay last year’s investors.
Let’s look at it year by year. In the first year, the scheme takes in 1 million dollars. The promised interest rate is 10 percent. It means that at the end of the first year, Mr. Ponzi must pay $100,000 in interest to the investors. In the second year, the growth doubles; $2 million in new investment comes in. At the end of the second year Ponzi must pay out $300,000 ( $100,000 to the year 1 investors and $200,000 to the year 2 investors).
So far so good. Let’s say the amount of new investment keeps doubling each year until year 5. In year 3, new investment is $3 million, bringing the total investment to $6 million and the total interest payments to $600,000.
Let’s see what we have at the end of 5 years. The total money that has come in is $31 million. The total amount of interest payments is $5.7 million, leaving $25.3 million in the kitty. So far so good.
But in year 6, the number of new investors is less than double the previous year. It is hard to come up with more than $16 million in new investment money each year. There are limits to the number of people who are willing and able to invest. The growth rate has stopped accelerating.
Let’s say the growth in year 6 is the same as it was in year 5, which is $16 million in new investments. That is still substantial growth, only the rate has stopped accelerating. The rate of growth is positive but it has leveled off. So we add the $16 million in year 6 to our kitty total of $25.3 million.
So the total left in the kitty after year six is $36.6 million after paying the interest. (If you want to verify the math just build yourself a simple spreadsheet).
Total interest payments in year 6 are over $10 million. If our growth slows down even more we will soon be in trouble.
So let’s say we are very clever at finding new investors and we maintain the growth of $16 million in new investment each year for the next five years. At the end of year 10, we will have taken in a total of 111 million, paid out a total of $38.9 million in interest, and have $72.1 million left in the kitty.
That does not sound bad. We are actually doing pretty good after 10 years. Maybe the Ponzi scheme is not so bad after all.
But let’s keep going. Time does not stand still. Let us say we continue to take in $16 million of new money each year. Not bad. We are still growing each year. How could we possibly get in trouble?
But a funny thing happens in year 14. Our total interest payments for that year are $17.5 million. For the first time our interest payments have outpaced the amount of new money coming in each year ($16 million).
Hmm. Unless we increase the pace of new money coming in, we are starting to eat into our kitty at this point.
Let’s take stock at the end of year 20. We have taken in $271 million up to this point. We have paid out $237.9 million in interest up to this point. The kitty is down to just $33.1 million. The end is near.
At year 23 it is all over. We are on the minus side of the ledger by $9.8 million. The Ponzi scheme is kaput. And we have not even spent one cent of the money on high living. All of it has remained in the kitty.
What’s more, we have had continuing growth of $16 million each year. We did not have one single year of no growth.
But our Ponzi scheme collapsed anyway. Why? Because our growth simply stopped ACCELERATING.
Can our economy continue accelerating? You tell me.
An economy that is based on introducing new money with interest attached is nothing but a Ponzi scheme. Our Ponzi scheme was very conservative. We only paid 10 percent interest. We had growth right up until the very end. Good growth.
In the very last year of the scheme (year 23) growth was 5 percent. Problem was that interest rate was 10 percent.
Remember we started off with very steep growth, doubling every year (100 percent growth). Obviously this kind of growth rate is not sustainable.
After year 6, the doubling stopped. In that year growth was still 34 percent, which is very high growth. By year 23 growth had slowed to 5 percent which is still good growth. But it was not enough to stave off total collapse.
This is the problem with interest. I have to wonder if economists know any math at all?
Btw, if there is a way to post this spreadsheet somewhere I would happy to do that. See the numbers for yourself and then I challenge anyone to tell me that an economy based on interest is not a Ponzi scheme.
Obviously I can’t spell “bubble.”
Actually, the economy would have to grow by 432 percent. However I consider the original growth of $100 as organic and sustainable — because this was the amount borrowed and put to productive use. So that is why I am saying 300 percent (rounded off).
And yes, Paul, if the population does grow by 300 percent there is no problem. (Assuming the interest money is actually injected back into the economy in a productive way and not wasted on high living or hoarding of crucial resources by a new governing elite; another very big IF).
But what if the population declines? Or stays steady?
Why do we need to chain the economy to an artificial decree that it MUST grow by some amount? Because that is what interest really is, an artificial decree that the economy must grow by a SPECIFIC rate (the rate of interest).
More fundamentally, why do we need to be wedded to the idea of interest?
I think it is because it is difficult to let go of a concept that is so firmly entrenched in our collective psyche. Nothing more. It’s time to let go.
Interest-taking is very dangerous to the collective good. The ancient societies recognized this and that is why interest was not allowed to exist. We must do the same. I believe this is fundamental to a new money system that will actually work.
I really should add that the world’s population growing by 300 percent over 30 years would be a disaster. There would not be enough food and massive starvation would be everywhere.
It takes us right back to the fact that the idea of perpetual growth is very dangerous.
Ever see those night satellite maps of the world, showing the population centers? Look at all the dark area! The world’s got plenty of room.
Done the right way, more people means more productivity, more ingenuity, more goods and services, and ultimately, more purpose to being here.
Thankfully, our parents and ancestors felt the same way, and as a result, you and I are here.
When we think “overpopulation” we visualize crowded third-world urban areas where money supply is one of the chief issues. In Web of Debt, Ellen describes a banking system in Bangladesh that is very promising.
Once the world’s people have control of the money and food supplies (which go hand in hand), they will be able to self-sustain whatever the population ends up being.
Paul,
Just because there is lots of room on our planet does not mean there is lots of capacity for producing food.
Stop and consider that there is a finite amount of arable land. Can we cut down all the rainforests in order to create more land for food production? That’s what they are doing in Brazil — and finding that the soil is not able to support crop growth for more than a few years. Then it just becomes grazing land.
Also, the production of food requires massive amounts of energy, which means hydrocarbon fuels. There are lots of problems with this, mainly that there is a finite amount of oil, and also the global warming that results from the carbon emissions from the burning of oil energy. Combined with the deforestation (trees breathe in carbon dioxide and exhale oxygen), the CO2 problem is only made worse.
A similar situation exists for wetlands. You can’t just drain the wetlands and come in with factory farms to grow food. Wetlands are crucial to the ecosystem and when they are destroyed, the result is a disruption in climate patterns, erosion and ultimately destruction of arable land. So the net result is that it makes matters worse, not better.
Then we have mountains, deserts etc. Mountainous areas cannot be used for croplands for obvious reasons. Some desert areas have been converted to arable land on a small scale basis through irrigation. But diverting water flows has consequences elsewhere. The Soviet Union experimented with large-scale diversion of water flows to create new arable land and this ended up in disaster. Look up the Aral Sea, which has completely dried up. One of the largest inland seas in the world is now gone in a space of a few decades of human intervention.
The idea that the earth can continue to support increased human population and activity is completely nonsensical. We have already damaged Mother Earth in profound ways, perhaps irreparably.
We must get away from industrial farming which is causing massive soil erosion and depletion of nutrients. This results in food that is completely devoid of the antioxidants and other cancer fighting nutrients that we had in previous generations. That is why cancer, which used to be a very rare disease only 50 years ago, is now hitting one out of every two people.
The massive soil erosion is also ending up in lakes and oceans and is causing devastation from the microbial level all the way up the food chain. Massive algae blooms and other such aberrations are the result. The death of oceans follows the death of the land.
The simple fact is that our environment simply cannot continue to even support the population we have now — unless we drastically change our ways of cultivating and producing food, and using energy.
I am certainly in agreement with Gordon on this one! There is an optimal land to man ratio, and I suspect we have already exceeded it. That is why so many are barely subsisting or starving in order to provide comfortable or luxurious livings for a small minority. Is that any way to run a planet?
Cheers, Jere
Lots of mistakes have been made in the 20th century, no doubt, both monetary and environmental. I would recommend you pick up a copy of Pope Benedict XI’s latest encyclical, Charity in Truth. Catholic or not, it’s worth a read, because he says it better than I can, and he is no stranger to the environmental issues that we face today. Richard Cook (who’s not Catholic) has an excellent review of it on the Global Research website.
see link:
http://www.globalresearch.ca/index.php?context=va&aid=14912
Paul, globalresearch.ca is an excellent website. I think we are on the same page.
Getting back to the debate about interest, it occurred to me that a reform that prohibited interest would probably be easier to achieve and would be less disruptive of the present financial architecture.
I have not really thought this idea through very deeply, so there are probably some holes in it. But here is what it boils down to. Let’s say the forces of progress and human emancipation can triumph over the forces of enslavement at some point in the future. This could be precipitated by a calamitous crash of our present system, which is inevitable.
Such a window of opportunity actually opened up in 2008, but the actions of the Obama administration in rescuing the oligarchs while pushing down the people, shows just how entrenched this oligarchy is. They are so arrogant that they are right back to giving themselves billions in bonuses — this after being gifted literally trillions of dollars in welfare. All of it paid for by you and me.
But there will be a next time — and a next financial meltdown. It is inevitable, simply because of the unsustainability of perpetual growth. When that time comes, it will be much worse than this time around and who knows, the people might actually rise up and throw off their tormentors.
But what then? The question becomes how to implement money reform in a way that will work.
One of the questions about putting in a state-owned lending utility is where would the human and organizational resources come from? Lending money to millions of people means doing a lot of paperwork, computerwork, face-to-face, etc. That’s what the banks are already set up to do.
It would be daunting to try to put in place this infrastructure overnight. We are talking thousands of physical locations, thousands of trained people, etc.
Now if a law is passed giving the state absolute control over the creation of money, it does not matter if the actual task is delegated to the infrastructure that is already in place. In other words the existing banks.
But the only way this could work is if interest-taking is prohibited. Otherwise the banks would be right back where they are.
The scenario is this. The banks are allowed to lend to either individual or corporate entities, just as they do now. The only difference is that interest is not allowed. The repayment is principal only.
This would be a great help to individuals who need to finance major purchases like homes. And it would also be great for industry that produces goods. They now do not have to build in additional cost for servicing the interest, and passing that burden on to the consumer who ultimately buys the product.
The only party that loses is the financial sector. Which is as it should be. The financial sector right now makes up something like 43 percent of GDP. This is insane. They create money and lend it out to “players” in a “casino” in such unregulated trade as derivatives.
Meanwhile the consumer pays a built-in charge for everything he buys, because the producer of that good has to pay interest to the financial parasites. This is nothing more than a tax that is collected by the financial sector. This tax is completely extractive and is hugely harmful, not just because it transfers wealth from the consumer and productive elements of the economy (industry), but because it chains the economy into an artificial and unsustainable need for perpetual growth, just like a pyramid scheme.
Now this is just the tax burden that comes built into everything we buy. We can look at this as a value added tax for servicing the manufacturers interest payments to the banks.
There is also a direct tax that the consumer has to pay to the banks, because he is paying them interest on the money he borrowed. This is like an income tax. So the consumer is paying TWO taxes to the parasite sector of the economy. One that is built into everything he buys. And another that comes with the money that he is loaned so he can buy those things in the first place. They get us coming and going.
Could there be anything more wrong with this picture?
Now just think of the positive benefits that would flow to the marketplace if the producer of goods did not have to pay interest. He could provide those goods to the consumer at a lower price. The consumer now goes to borrow money to buy that house or car. He does not have to pay a tax to enrich the parasites and keep himself in perpetual serfdom. Result: He has more money to spend, and he uses it to buy the other things he wants or needs and which he otherwise could not afford to buy.
The result is that the manufacturers can increase production AND EMPLOYMENT. They need to make more because the consumer is richer and is demanding more stuff.
The only one left holding the bag is the bank. They get no interest. They do however charge a modest “service” charge for doing the actual work involved. That is as it should be. We cannot expect to get something of value for no outlay.
And here is the beauty of this whole thing. The SIMPLICITY. All it requires is a law making interest illegal. NOTHING MORE.
Yes, there would be an additional law that says only the government is actually creating the money. The banks are only allowed to do so by grace of the sovereign. The government could create money at any time by injecting it into the economy by means of a direct transfer to consumers (tax returns, rebates, credits), or corporations.
In the case of inflationary pressures, the government could also set limits on bank lending, which would have the effect of slowing down the creation of new money (and debt).
So here we have a system that can be enacted by nothing more than the legal force of the government. It does not require the government to get into the banking business. Why should it? There is already a banking business in place. The wheel has already been invented.
And most important of all, the issuance of new money as debt would not be tied to a requirement for the economy to grow artificially. The economy would request new money as it needed it. Just as a hungry man sits down at the table and eats as much as he needs.
The Damocles Sword of Perpetual Growth would be removed from atop our heads. This is the real problem with interest, and that is why interest must be abolished.
You are right Gordon, there is absolutely no need to waste more resources duplicating the banking infrastructure. Removing interest from the current system would be a far more effective solution. Why people can’t see that interest is antisocial, counterproductive and totally unnecessary is beyond me. We should at least start calling interest what it really is – welfare, then maybe people will start to understand.
If you want to see how “productive” financial capital is on its own, take a look at the empty buildings and idle machinery in Michael Moore’s latest flick. Without PEOPLE to run them, they don’t produce a damn thing.
Well, Don, I always value your comments, but I guess we have finally found something we disagree on. Please see my responses to Gordon on this subject on the Open Letter to AMI thread. The solution is not to abolish interest, per se, but to redirect it, reduce it as it pertains to money, regulate it as it pertains to lending existing wealth (real capital), and to insure that the wealth generated from labor and natural resources is better distributed between all citizens and those that are in the businesses of converting those resources into real wealth.
But you are certainly correct about duplicating banking infrastructure. Why duplicate what already exists, or reinvent the wheel? Those parts of banking that involve creating (origination) money should be nationalized, or brought under government (taxpayer) control. People need to realize that in a democracy, the government is US.
Other banking functions that do not involve money-creation should be left to private enterprises to run, with the exception that no corporation or entitiy should be allowed to become “too big to fail”. That is what anti-trust and anti-cartel laws were about 100 years ago, when T. Roosevelt fought against those interests. But we need to re-define and re-think the proper lines between private and public enterprises.
I do not agree with you that “interest is anit-social, counterproductive, and unnecessary”. I agree that SOME of it is, the excessive part, and the part that is changed on private “money-creation” or debt-created money that did not pre-exist.
I see no problem with charging a fair rate of interest, or increase, on the advance of real capital wealth. Neither did Jesus, if you know and understand scripture. It is important to make real distinctions between justified interest (or return on loaned capital wealth) and unjustified interest (on “conjured” money) really is.
Otherwise you are “throwing out the baby with the bathwater” or pitching the wheat out with the chaff.
Oversimplifying such a complex problem and money and interest does not help solve it. Quite the opposite.
Cheers,
I’m going to post below a table that shows how a Ponzi economy works.
I hope it comes out okay, in terms of spacing of the table. It shows a Ponzi scheme over a span of 25 years. The first column shows the year.
Each year new money comes in, shown in the second column.
The third column shows total money that has come in to that point.
The fourth column shows the growth of the total money.
The fifth column shows interest paid each year at the interest rate of 10 percent.
The kitty is the amount of money left after interest is paid.
The last column shows total money + interest. Ignore this for now.
A brief look at this table shows that new money coming in starts off growing very quickly in the first five years. let’s say each “1″ represents a million dollars. It could just as easily be a billion, or whatever.
So the first year a million comes in. We see that the amount of new money doubles every year for the first five years. After that it levels off and stays constant at $16 million a year.
The growth column shows that we start with spectacular growth of 200 percent, but by year 25 growth has slowed to 4.8 percent. This is still positive growth. We never actually record zero growth or negative growth.
We see that the kitty reaches a peak in year 13 at just over 70 million dollars. From there it is all downhill because at this point we are paying more for interest than there is new money coming in.
By year 22, we are in negative territory. All the money is gone. By year 25 we are more than $50 million in the hole.
Year New Money Total Growth Interest Kitty Total Money
Money % Paid + Interest
1 1 1 0.1 0.9 1.1
2 2 3 200 0.3 2.6 3.4
3 4 7 133 0.7 5.9 8.1
4 8 15 114 1.5 12.4 17.6
5 16 31 107 3.1 25.3 36.7
6 16 47 52 4.7 36.6 57.4
7 16 63 34 6.3 46.3 79.7
8 16 79 25 7.9 54.4 103.6
9 16 95 20 9.5 60.9 129.1
10 16 111 17 11.1 65.8 156.2
11 16 127 14 12.7 69.1 184.9
12 16 143 13 14.3 70.8 215.2
13 16 159 11 15.9 70.9 247.1
14 16 175 10 17.5 69.4 280.6
15 16 191 9.1 19.1 66.3 315.7
16 16 207 8.4 20.7 61.6 352.4
17 16 223 7.7 22.3 55.3 390.7
18 16 239 7.2 23.9 47.4 430.6
19 16 255 6.7 25.5 37.9 472.1
20 16 271 6.3 27.1 26.8 515.2
21 16 287 5.9 28.7 14.1 559.9
22 16 303 5.6 30.3 -2 606.2
23 16 319 5.3 31.9 -16.1 654.1
24 16 335 5.0 33.5 -33.6 703.6
25 16 351 4.8 35.1 -52.7 754.7
351 403.7 754.7
Total Total Interest Total Money
Loans Due Supply Needed
This is graphical proof of why a Ponzi scheme must collapse, unless its growth rate continues to ACCELERATE.
Now let us consider our hypothetical government-owned bank which creates money by lending it at interest. Let’s say the interest rate is 10 percent.
We can use this exact same table. The only thing is that now the “New Money” column represents new money that is created by lending it out. We can call this column “Loans.”
Instead of taking money in, we are lending money out — a bank does both. We will see that it does not matter in which direction the money flows, the result is the same. Let’s pretend each digit is worth a billion now.
We see that we have created 351 billion in new money over 25 years by lending it out. The interest on that money totals 403 billion.
Question: Where does that 403 billion come from? It has to exist because we are expecting our debtors to pay it to us, right.
But we have not created it. We loaned out exactly as much as the economy needed and asked for, every year. All the money that we created is in that column called “new money.”
Now we see that in order for all those debtors to pay us back, we need to create another $403 billion. That’s more than we loaned out to begin with.
What do we do now?
Well we can print that $403 billion and inject it into the economy by way of gifts.
But guess what? That money is not tied to anything tangible in the economy. There are no new goods or services. All the goods and services are accounted for by the money we loaned out to begin with. That’s why we loaned it out, because people needed money to increase economic output.
This money that we are injecting now to allow the interest to be paid, does not represent any economic output. Hence we have doubled the money supply, but the total value of real goods and services remains the same.
Result: We have cut the value of our money in half. That is called inflation.
And now for the worst part. What happens when the economy stops growing as it inevitably must?
Where will the interest money come from then? Interest keeps going, as long as time is ticking away. It does not care whether the real economy is increasing its output or not.
Eventually what happens is what we have now. An economic collapse.
There is so much interest piled up that the people running the bank decide to lower interest rates or charge no interest whatsoever. But it is too late. The clock is ticking and the interest that is piled up is only growing.
Conclusion: as long as new money is created with interest tacked on, the economy is shackled to an unsustainable Ponzi scheme.
What I’m suggesting is a work in progress. I should have previously said, that we should understand the difference between “store of wealth” value and “exchange” value. Sometimes the desirability of trade outweighs the supposed value of the underlying commodity, and at other times it would be the reverse. Government could adjust the ratios between the three suggested currencies, gold, silver and government issued money for taxing purposes, only after the period in which the market has given its input as to what that ratio should be. The sole concern of the government is setting growth projections, and undertaking those necessary projects which the market is unwilling or unable to undertake itself. These projections for the underlying economy, would also factor in the contribution that government makes to the economy in such things as, for example, infrastructure. Inflation and deflation could be brought into check by allowing the people to retain the currency of their choice. Inflation and deflation and their projections is market information, and it can be determined more or less accurately. So if gold, and silver is a fixed quantity, then government paper money can be inflated or deflated according to the economies need, while these tendencies could be held in check, if government projections are inaccurate, by the peoples choice of money. The difference between the governments growth projection, and the reality of economic growth is a measure of the inflation or deflation in the economy.
For some reason the second part of my post was posted, but not the first. Here is the first part of my Post:
There seems to be a growing divide, although there being a temporary alliance between two factions Their alliance is in opposing the Fed. One thinks the State should spend into the economy debt-free money, and the other promotes a market based solution, as in a gold standard. Both sides of the argument have valid points.
I believe a compromise between these factions is possible, but I believe that we should repeal legal tender laws. Why not let the people themselves decide what they will accept in trade.
The government could spend money into the economy on important projects it sees as necessary. Thus its value would be based on the economic value of its projects. Inflation would be suppressed through a free-market in gold. If the paper money begins to lose value through inflation then people would naturally gravitate towards silver and gold to maintain purchasing power. If silver and gold becomes too restrictive for purposes of trade, then people will prefer the paper currency. Gold, silver and the government’s paper money would be acceptable in taxes according to a fixed ratio between them set by the government, and the people would be allowed to pay in the medium of their choice. Understanding Gresham’s Law, the bad money would leave the system in taxes, while the good money would be kept in trade simply because there is no mandated fixed ratio when using the money for purposes of exchange. The fixed ratio in the payment of taxes could be adjusted year to year. The government would spend into circulation, whatever the people would accept in payment; the only restriction being what the government has on hand in the preferred medium.
The entire point is freedom, recognizing that government may be necessary for some purposes, and simultaneously maintaining the freedom of choice, that is necessary for voluntary exchange. In brief the whole thrust of my argument is understanding the distinction between exchange value and intrinsic value. Sometimes the need to exchange is more important that the underlying commodity. Other times the stability of a commodity that is gaining in value relative to other mediums is more important than the opportunity for exchange. Thus we reconcile the freedom which gold represents, with the responsibility the government owes to its citizens. This whole system would be in dynamic equilibrium where the government merely sets the exchange ratio for paying taxes, this to aid a developing economy and this could be done more or less scientifically.
Dave
Dave, You haven’t defined “intrinsic value” when it comes to commodities. Nor have you explained how “gold represents freedom”. I also do not follow that retuning to a gold standard would be a “market-based solution”.
There is no “free market” in gold. It is all controlled by the biggest holders of that commodity, the international central bankers, and their primary dealers. But please explain to us how you propose that a gold standard “free-market” currency would work? Where would the government get the gold? What would be used to buy it with?
Don’t you understand that if you do away with “legal tender” you no longer have official “money”? Furthermore, whatever you DO have will not have the confidence needed to be useful as a means of exchange.
Money is “money” BECAUSE it is “legal”. It is money by law. It is money because the government decrees that is is money, and must be accepted in payment, not only for taxes and fees, but all debts.
If two parties to an exchange of goods or services which to designate something other than “money” of the realm as payment then they are free to enter into such a contract. Nothing is stopping them, now or ever, unless the substance is contraband, or illegal, such as heroin or methamphetamine.
You argument is one we have considered deeply, long and every way imaginable, and we have dismissed it as unworkable. These ideas are just not good for society and other living things. They are variants of the ideas that have been killing us, and will continue to do so, until we change the system.
Cheers, Jere
I may be able to help here, Jere, as I suspect you may not have considered some of these ‘angles’.
Firstly, the “value” of anything (even gold) is not in the thing itself; it is in “your mind”. Think about that carefully. If you don’t believe me, think again. Once you’re comfortable with that fundamental point, we need to establish an underlying concept of ‘price’ which does not rely on the mechanism called ‘money’ (which will carry the units for prices).
To establish a stable unit for ‘prices’ (which is what we desperately need for our money) you need to understand that a ‘price’ only exists when an exchange of goods and/or services actually takes place – and that ‘price’ is the ratio of the ‘values’ given and received, which should always be exactly 1 : 1. If the ratio is not 1:1, then the exchange won’t happen. Or if the exchange should be forced to occur when the ratio is not 1:1, then you see the true nature of coercion (or fraud). No money is involved here, yet.
That being understood, it is possible to see how some statistic based on the prevailing gold-for-silver “exchange ratio” (1 oz of gold for 64 ozs of silver = 64:1 “value ratio”, as I type this) can form a basis for establishing a stable unit for ‘price’. It was, in fact, the basis for the dollar coin design which prevailed in the US of for decades before the Legal Tender Cases were decided (1869-1871 or thereabouts).
You can study how the physical exchange ratio between gold and silver has varied through history: 12:1 for 1,300 years in Roman times; 15:1 in England for 59 years; from 15:1 to 16:1 in the US before the Legal Tender Cases; , between 70:1 and 90:1 during the 90’s, and now down to 64:1. These are all weight-for-weight ratios, not money-price ratios (although they could be) and they remained relatively stable over very, very long periods.
But the useful fact to note is that changes in the ‘values’ of those metals (which commonly follow each other up and down) will not greatly disturb that exchange ratio in the short term and a suitable statistic based on that ratio (like a 30 day or 100 day moving-average) will be inherently more stable than either of the metal values or the basic exchange ratio.
So, if today we again made a 1oz silver coin the legal definition of “one dollar”, following the 1860’s US model, a 1oz gold coin would today have an exchange value of $64.00, and all money-prices in the US would immediately be reduced by a factor of 17 (1oz of silver sells for about $17.00 at present). I’m not recommending the US do this, just stating what the old standard coin used to be and how our present values measure up against it, as a reference point.
Using this metal ratio to establish a more stable ‘exchange value unit’ is not unlike using a Laser Interferometer to establish the unit of length, or a Caesium Atomic Clock to establish the unit of time. While few people would know what either of those instruments looks like, we all obtain the immeasurable benefits of their ’stabilizing influence’ on our units of length and time and it will be much the same with correctly sized and imprinted gold and silver coins. They are not intended to be our common, everyday pocket money or the means of exchange for business, just the “reference point” to which all other forms of money must be compared, like comparing your wrist watch with the time pips broadcast over our radio networks, or the NIST standard against which commercial manufacturers of tape measures would check their master tape-printing machines.
Electronic credit mechanisms and paper notes will serve just as well as our everyday ‘tape measures’ and ‘egg timers’ do for ordinary trade purposes, so long as they are compelled by law to “agree with” the reference standard coins, so that one paper dollar will get you exactly the same ‘value’ of goods or services as our new 1 oz silver coin will, for example.
Can you imagine how far-reaching the effects of a more stable reference standard for the ‘price’ measurement system would be? Think about it for a moment, in relation to tape measures and clocks. Does the length of an hour vary depending on how many digital wrist watches are ‘in circulation’ or how often people are reading them? Is there any sense in borrowing a 10 ft tape measure from a length-bank to measure a piece of lumber in a lumber-yard, then giving it back to the ‘bank’ (together with an extra 12” ruler!!) when you have finished that transaction?
The true ‘value’ of having a legally defined unit of exchange value (fixed and realized in the form of a 1oz silver coin, for example) cannot really be measured in dollar terms, any more than the ‘value’ of a Caesium Atomic Clock can properly be assessed in minutes or seconds, and cannot be measured in terms of the cost of building it. It’s true ‘value’ (as a reference standard) for determining the precise extent of 1 second, is immeasurable: like the value of ‘justice’, which should never be ‘for sale’; or the ‘price of liberty’, which is ‘eternal vigilance’. The real question is, “Why have we tolerated ‘flexible’ dollars for so long?”
Jere:
It is not true that money is money only by law, however the government can make it illegal as Roosevelt did in 1933 when the possession of Gold was made a Federal crime. The government also makes it a crime to compete with the FRN, as for example, what it is doing to the Liberty Dollar (look up in Wikipedia). Also if the value of FRNs goes down in relation to the value of gold, you have to pay Capital Gains taxes on the Gold. I’m not suggesting that a free-market solution would only rely on Gold. Silver and the government’s issuance of paper money spent into the economy would also serve that purpose.
I, in my later post suggested the term “store of wealth” value, instead of “intrinsic” value. This becomes important when the “exchange” value of money serves a lesser purpose than its purpose as a “store of value”.This is important to freedom, because it represents an independence from irresponsible or repressive government, and is a check on inflationary proclivities.
If the government or the people have no gold or silver, although this is a remote possibility, then they will have to rely on the issuance of the government’s paper money. This would be an important check on the monopoly and manipulation of the gold and silver market by a few.
What I mean by a free-market in gold, is, whether it is acquired or relinquished, it is done through mutual and voluntary exchange.
When I refer to money, in what I am proposing, I mean the three forms it commonly takes; gold, silver and government paper money. If the economy grows in relation to this monetary base, the value of money, in general increases, and the more likely the government money, and even silver will be taking an increasing role, as the extent of the economy broadens. If the economy shrinks in relation to the monetary base, then there will be more money in circulation than their are goods and services to purchase. This inflation will be offset by people exchanging their paper government money for silver and gold, and this is because of the importance of this money’s “store of wealth”, over its “exchange” value. Gold and Silver are actual wealth, as is generally accepted the world over, while government paper money, is a local solution and a “representation” of value or wealth. Its primary purpose is in “exchange” which would not be possible to do with what it represents.
David, The above makes no sense at all. Please read Ellen’s book.
Ellen explains in some chapters in Web of Debt various proposals and attempts that have been made to use a “basket of commodities” to establish a stable currency – “Building a bridge to a New Bretton-Woods”. This makes more sense to me, because oil, wheat, and other commodities are what we actually live on, while gold and silver are luxury commodities with minimal practical use.
I urge everyone who blogs here to refer to and cite her book more often. I read and re-read it continuously. It has so much upbeat, can-do spirit that we all can use a little of now an then.
I also think we can get lost in the details. Our ship is sinking, and we need to act now, figuring out the cause in due time. The Audit the Fed bills are a good start. State banks are sorely needed.
Yes, Paul. Audit the Fed, transparency, state banks, making the “Federal Reserve” truly federal, ending “fractional reserve lending” by private banks (which is really private money creation with interest attached), these are all decent starters.
I think Michael Moore’s “15 things” is priceless:
http://tinyurl.com/yfk28wa
As for valuing new money, a basket of commodities is certainly a better starting place than “A” commodity, like gold or silver. However the only way I know to accurately measure value is in relation to an hour (or fraction thereof) of work (labor). Once established, a stable currency should be the standard measure of value, IMO.
A “stable currency” would also serve as a store of value, unless some penalty was attached to taking it out of circulation as savings (or hoarding).
Personally, I think the best form of savings is local capital investment, i.e., productive plant (place) & equipment (tools, machinery, etc.)
Cheers, Jere
We also MUST find ways to get massive corporate campaign contributions out of our political system. Middle class citizens cannot hope to compete with the kind of money the bankers and Wall Street financiers can pour into elections and primaries. It is through money that the electoral process is controlled, and the will of the people violated.
Cheers, Jere
Amen to that, because value comes from the actions of the human person, not just something dug up from the ground and smelted/refined.
My question: How does one measure an hour of work across different diciplines and different skill levels (the fruit-picker compared to the physician?) (Or does Howard George address this?)
I like your concept of savings as a paradigm shift from personal investments in a portfolio to investment in the community. In order for this to work, we have to re-gain a sense of an interdependent community, as was the case during the Colony of Pennsylvania and the like. Some communities in Europe were stable for hundreds of years.
I never thought of savings as a detriment. Doesn’t that create a reserve for loans? Or are you suggesting a “real bills” scenario, or the community capital in factories and agriculture alone create a fractional-reserve basis?
Reading through the posts – I must again pose the question:
What is the fixation with interest?
It is easy to introduce money into circulation – everyone does this when they extend time to pay. The ‘money problem’ is not the creation of money – but the removal of money from the system
The debt based monetary system solves this by creating money as debt – the money is extinguished when it is repaid. The problem with the debt based monetary system is not the debt itself – but t he compound interest attached to this debt.
Interest is the time value of money. If I loan you $100 (assuming it’s a real dollar and not something I just created on-the-fly out of nothing as a monetization of your promise to repay the dollar), I will charge you 5% each year you hold on to both the $100 plus the accrued interest. Either way, it is worth my while. If you pay it back to me today, I can lend it to someone else. If you pay me back next year, I have to wait to re-lend it out, but I earn $5 on it. In order to make sure the extra $5 is in the system, I’ll have you do some task worth $5 of labor (bake me some brownies) , and write a receipt that can be fully monetized, like the Ithaca “hour”.
Compound interest is simply interest on your interest. It’s a two-edged sword. It’s a great incentive to save as well, because if I deposit one dollar at a bank at 5%, I end up with 5% at the end of the first year, but at the end of the second year, I end up with 5% of $1.05, not just 5% of $1.00.
Then, assuming that the bank put an additional $5 into the system this year (they got the windows washed), the capital reserves also grow at the bank, because they can lend 900% of my $1.05, compared to 900% of my$1.00 a year ago.
For banks, they create the principal as a book-entry (based solely on the promise to repay, which they behold as an asset of equal value), and not the interest, so that in order for interest to be paid back, more money must be created, also in the form of loans that charge interest, and so fourth. However, 10% of this money needs to be in reserves of real value, in order to continue to create the loans that perpetuate themselves to keep the money supply in existence.
This is fine if the 10% reserve comes from newly created state notes, recirculated currency, and/or “capital” with real value, such as buildings, property, or commodities.
The problem with today’s banks is that this 10% reserve is bogus capital in highly suspect vehicles such as derivatives and “toxic” assets, which cannot be accurately measured. Therefore, when it’s time to pass the audit, books have to be balanced, lending ceases, so as loans are paid back (or defaulted on), the money supply shrinks. Collateral property (real estate) also shrinks in value, because it just sits on the market when fewer “qualified” buyers are available.
What Ellen is suggesting in Web of Debt and her articles is that “state” banks can be created with capital from state buildings, property, and other capital, and continue to use the fractional-reserve system. But here, the interest earned is re-spent into the system for the common good in the state or community, thus relieving the tax burden, while funding public projects, hospitals, schools and services. Some newly-created money (fiat, debt-free) is spent directly on projects, mainly to keep money in the system to cover the interest.
As a former loan officer, what bothers me the most is not interest rates but accrual periods. I actually respect the pay-day loan more than the thirty-year mortgage. One may cost me hundreds, while the other will cost me hundreds of thousands. People out there, look at your mortgage stub. How much of your payment today is interest alone? The newer the loan, the less principal you are paying down on your house. And if you refinance, the process resets all over again. The whole system was designed to keep you from ever paying off your house. Of course, we love the fact that the interest is tax-deductible, but big whoop! You’re still paying interest that is like paying rent, just 60 cents instead of a dollar. Uncle Sam wants you to “own” a home, so you’ll keep the money supply propped up by staying in debt! Believe me, they’ve got this whole thing figured out!
My proposal is that loan terms be limited to seven years. Most people don’t live in one particular house for more than seven years.
Correction on second paragraph:
Compound interest is simply interest on your interest. It’s a two-edged sword. It’s a great incentive to save as well, because if I deposit $100 at a bank at 5%, I end up with 5% at the end of the first year, but at the end of the second year, I end up with 5% of $105, not just 5% of $100. Then, assuming that the bank put an additional $5 into the system this year (they got the windows washed) to cover the interest accrued(so that it doesn’t have to be taken out as another loan), the capital reserves also grow at the bank, because they can lend 900% of my $105, compared to 900% of my $100 a year ago.
The primary function of money is ‘time to pay’ – this allows real investment. As a by-product we also get ‘time to buy’ (saving.)
I have never seen any necessity for anyone to bribe me to save – if I would prefer to spend my money later – then I am prepared to pay for that privilege.
Compound interest has a far more sinister function.
I would like to try, one more time, to elicit a broad range of feedback from the many intelligent thinkers on this web site. The more, the merrier.
Here’s a profoundly different approach to solving all of our economic and monetary problems. It eliminates the need for private investment capital entirely and replaces it with a system of self-extinguishing credit, or public investment capital.
For a moment, put aside everything that you have learned about the dynamics of our existing economy, and try to think freely about an idea that is entirely new. You may have to re-read the material presented several times before it all fits together in your mind.
I urge you to hesitate before jumping to any conclusions based on previous assumptions or ideologies. There are no historical precedents to draw upon. Before you form an opinion, try to imagine the tremendously positive social implications that true economic freedom would bring to the human race.
Please visit this link: http://www.monetaryreform.com/MR/betterWay.htm
Thank you
…and three weeks later, not a single reply. Unbelievable.
Utopian:
Your user name is appropriate.
The link you provided was interesting. It was futuristic. It reminded me of the social structure on “Star Trek the Next Generation”.
I am inclined to agree with the love approach replacing profit and greed. But reality rules and the demon of greed is loose and in full control now. We must fight one battle at a time and the key word here is fight as in a series of bloody battles. Greed will not surrender without a fight.
The issue we are discussing here is partly in agreement with some of the changes mentioned on your greed free web site. Your nationalized bank approach is the same thing we are talking about here. But your website goes way way beyond that one issue. I believe “there truly is a better way” and your world citizen template for life is interesting. But the number one thing being asked of the site visitors, who isn’t familiar with your utopia, is to accept this way and to let go of his or her life long dream of becoming wealthy. I don’t think the average American would be willing to do that. I do however think the average world citizen would. The reasons are obvious. We the people of the USA are taking most of the worlds natural resources for our own while the world population pays our way and suffers for it, partly by our subversive actions and military imperialism. It is a matter of time before we fall and your plan “There is a Better Way” website may well be the template of our society in the future.
But for now nationalizing the banks too big to fail could be a step in the right direction. Establishing state banks as Ellen Brown suggests. We need to get a movement rolling on that single issue.
As for interest: I don’t think interest rates are as big a problem as Fractional Reserve lending. That practice has been abused by private citizens. It is unbelievable that we actually gave them that right in 1913 when we establish the Feds I read somewhere that JP Morgan was using a factor of 90 and I believe the limit is 11 which was recently upgraded from 9. That would be illegal. But what was it Nathan Rothschild said about NOT caring about the laws of his nation?
Your site suggestion was very interestink!
tp
Thanks for your thoughtful and constructive comments Terry. This one touched me the most:
“But the number one thing being asked of the site visitor, who isn’t familiar with your utopia, is to accept this way and to let go of his or her life long dream of becoming wealthy. I don’t think the average American would be willing to do that.”
It breaks my heart to believe that you might be right. The key word here of course is “dream” of becoming wealthy. People have been brainwashed into believing that profits benefit them as individuals, but when you examine the numbers, in fact, the opposite is true. For the vast majority of Americans, compounding profits raise what they must pay in prices far more than it augments their individual incomes. Profits are their worst nightmare, but the American dream continues.
“But for now nationalizing the banks too big to fail could be a step in the right direction. Establishing state banks as Ellen Brown suggests. We need to get a movement rolling on that single issue.”
I agree this would help solve the problem of escalating government debt and taxation, but it does nothing to stop the cancer of speculative and non-productive financial costs that are destroying the lives and liberties of average working Americans.
Limiting the fight for true economic democracy and freedom to a single complex issue that most Americans don’t understand or care about seems to me to be a recipe for failure. You are right, we are in for a hell of a fight, no matter what we attempt to do. But if we can awaken the hopes of America with a clear, positive vision of a better society that cares deeply about their best interests, perhaps then the majority of Americans would join us in the fight.
Utopian, Are you really that surprised a a lack of replies? It’s great reading, but it’s just too much to begin commenting on. Why not take one specific idea or concept from that “brave new world” and ask of opinions about it? I think Terry made so relevant comments.
It is also problematic how you might go about traversing hundreds or thousands of years of cultural evolution in a “single bound”.
It is easy (at least for me, Gene Rodenberry, etc.) to envision near-perfect futuristic societies where there is no crime, and wars are a distant memory, education is unlimited, and free to everyone who wants it, and people might only have to work an hour or two a day for their basic needs or subsistence. People would be genetically improved and genetic diseases would no longer be a concern. The love and service motivations would replace the greed and profit motivations among most people in these societies. General IQ would range above 120 or 130. Longevity would be around 200 years and those 150 would still be running marathons. The people would actually be in control of their governments on all levels, and corruption would be rare or non-existent. Wealth without work would be frowned upon, and the largest personal fortunes would be only a few dozen times those of the smallest. There would be no homeless or “poor” in the way we now conceive of these terms, except by voluntary choice for some service or religious orders, for example. I could go on and on, but the visions are the easy part. Getting there is the difficulty.
Getting there is a matter of social and cultural evolution, and this includes economic evolution. It is not possible, as many mistakenly think, by “revolution”.
IMO, what we need most to do is isolate the primary causes of the current monopolies of wealth and power that are preventing such cultural evolution from proceeding.
I have made my own historic, economic, and social investigations, and arrived at the two main causes for the continued entrenchment of wealth and power distribution, and the ever-growing gap between the rich and poor.
They are private land and money monopolies. Land monopolies include resource monopolies. These private monopolies exert an influence over governments that make real democracy impossible, except for the illusion of casting an occasional ballot between non-choices: Tweedle-dee or Tweedle-dum. The financial power structure controls all the essential choices, and the news and information media as well.
Truth never gets a chance to get its boot on before lies blanket the globe in service of greed and money-lust.
In my experience positive change comes from fixing imbalances of power, often by isolating one glaring problem at a time.
The bottom line here is that I just don’t see any easy or quick way to transit from our current reality to what you are proposing, even if it were all sound, doable, and desirable – and I’m not convinced that’s the case.
“Why not take one specific idea or concept from that “brave new world” and ask of opinions about it?”
Because all 3 of the steps must be understood and applied together as one. Readers wouldn’t be able to understand the context that the individual pieces were taken from.
“It is also problematic how you might go about traversing hundreds or thousands of years of cultural evolution in a “single bound”.
Again, by awakening the hopes of America with a clear, positive vision of a better society that cares deeply about their best interests and well-being.
Don’t you know why this “government” will never print money to solve this problem? Every president who has done this has been assassinated by somebody or other!
For those actually seeking a true solution, please recognize the flaws in socialism and in fiat monetary systems.
Here are some basics. A worker deserves what he or she produces. If you work hard to turn a barren field into a harvest of food, you have earned the value of that food. This reward motivates production. It also makes sense. When you create something, it’s yours. You’ve earned its value in exchange, and that value is yours.
If your neighbor steals your crop, you sense something isn’t right. You worked hard while your neighbor sat around waiting for the food. Likewise, if the government takes your crop and gives it to your neighbor, that’s also stealing. But you have every right to support your neighbor out of your own generosity. Your neighbor has the right to work as well, producing more crops (or tools, or you name it). But your neighbor won’t be motivated to work if laziness results in free food.
Money facilitates exchange, so whatever you produce with your unique skills and abilities, you can trade for what you want. The relative value each party places on these goods and services determines the exchange value of each item.
Money serves as a go-between, but it must have characteristics appropriate to its purpose. Since money represents limited, tangible goods and services, money also has to be limited. Otherwise, if people can create money out of thin air, they steal from the value of money already in existence. It’s counterfeiting, plain and simple. When the money itself is a tangible good, it does have this appropriate characteristic of being limited, and therefore having certain value.
The socialist view that everyone has an equal right to everything is flawed. People deserve what they earn. This motivates people to produce goods and services. Maybe a case can be made with respect to natural resources, which are not produced by people. But redistributing everything leaves people with no motivation to work. Easy credit does the same thing.
Henry George believed that everyone has a right to natural resources. But he also believed everyone has a right to the fruit of their labor. These are mutually exclusive because people don’t produce natural resources. I think this is the furthest extent to which equal distribution of value can be justified. But this value would need to make it to the people, not be kept by the government. I believe distributing this value among individuals (instead of making bigger government) would make Henry George’s theory more just, but the practical issue of keeping government honest and accountable keeps even this solution imperfect.
A danger of socialism (and of Henry George’s proposal) is tyranny. In capitalism, great little small businesses can flourish, and if a big business becomes too monopolistic, government can step in. But in socialism, government is big business, so there’s no stopping its monopoly power.
Socialism also includes the injustice of robbing the hard workers to pay everyone else. (This Henry George corrects.)
As for the monetary system, as long as central banks can collect interest on money they’ve made out of thin air (fractional reserve banking), they are stealing from the public. Also, inflation itself steals from the public, devaluing people’s individual amounts of money, and giving that stolen value to whoever gets the new money. With gold and silver, the only way to add money to the system is to work, mining more of it. This labor would keep the money valuable, and the makers of money deserving of its value.
Personally, I think competition between precious metals and a justly regulated fiat system (in theory — absent fraud and corruption) might work. I believe the precious metals would win the competition over time, and would stabilize the value of the fiat currency by competing for use.
Better regulations for a (fundamentally flawed) fiat system could include a tax on fractional reserve interest at 100%, or (better yet) the abolishing of fractional reserve banking altogether. But the whole banking pyramid scheme has to go. Central banking has to go. Also if there’s a national fiat currency, the government shouldn’t have to borrow it at interest, paying bankers billions of taxpayer dollars for entering numbers in a register. But the theft that fiat currency allows should not be in the hands of the government either. Precious metals need to be allowed at least to compete in the marketplace, to help keep a fiat system honest. And I do believe gold and (especially) silver would win out in the end, proving themselves by market choice.
As far as interest is concerned, the problem is the creation of money out of thin air, not the interest. The interest is the part of fractional reserve banking that allows the bankers to get something for nothing (really stealing from everyone else). But the root problem is not the interest but the creation of money out of nothing. The interest is merely the slight-of-hand that puts the money in their pocket. But interest itself is not the problem. With real money, interest is merely the market price for the use of money over time. It competes with investments of money in people’s business endeavors. It motivates lenders to part with their money temporarily. But with fiat currency, interest is arbitrarily low, because the money itself is ultimately worthless.
So please study Austrian economics. Our problems already have answers if people would just know about them. (I also recommend Henry George, but I think stopping the fraud of central banking is much more important for fixing the economy.)
In the short term, stopping the fraud of fractional reserve banking is perhaps the most urgent need. In the long term, however, other issues must be addressed:
Money issued with interest is fundamentally flawed (no matter who the issuer.) There are many advantages of issuing money with demurrage, to quote from wikipedia:
“demurrage is a cost associated with owning or holding currency .. sometimes referred to as a carrying cost of money. The term was used by Silvio Gesell. It is regarded .. as having a number of advantages over interest: while interest on deposits lead to discount the future and to place immediate gains ahead of long-term concerns, demurrage does the opposite, creating an incentive to invest in assets which lead to longer-term sustainable growth. Furthermore, demurrage acts like inflation, stimulating the circulation of the currency, encouraging economic activity, and increasing employment.”
Transaction based taxation systems are bad economics – they should be scrapped, and replaced with ‘land value tax’ (LVT.) This measure is required with demurraged money to prevent flight of capital into land (again see wikipedia.)
Taxes raised from LVT should be distributed in the form of a a basic income (markets will then be driven bottom up rather than top down.) The basic income will replace all other forms of state run social welfare.
In summary:
Demurrage upon money of perhaps 6-12%, and a LVT of 2% on land distributed as basic income.
Capital will be forced into long term productive pursuits, where it best benefits society.
IMO, this (Metabele’s) is an excellent post, with much essential information that, unfortunately, is not likely to be understood by the average reader. The key is Henry George’s Land Value Tax (LVT). That’s the most important part.
The LVT could solve most of our financial problems within a few short years… or at least make an enormous start on wealth redistribution in the most painless way possible. That would make a beginning on the lowering of the largest personal fortunes, and a general raising of wages and small business income.
However, I disagree somewhat with your generalization about interest: “Money issued with interest is fundamentally flawed (no matter who the issuer.)”
To date I have seen no persuasive evidence that publicly issued and controlled money would not be vastly more beneficial to the common good and welfare of society than privately issued money, regardless of the interest attached.
With publicly-issued money interest could range from 0 to ??? percent, based on 1) whether it was spent or lent into circulation; 2) spent on infrastructure (public wealth-producing or enhancing assets); 3) distributed to state or local governments for infrastructure on those levels; 4) the risk involved in loaning money into circulation (ex: to private banking or commercial enterprises) or 5) credit worthiness of the borrower and chances of default. There are other issues that could and would affect interest rates as well.
Demurrage is one way of guarding against the hoarding or currency, which takes it out of general circulation. Hoarding of currency is inflationary. Demurrage would work to insure that stored wealth was in some other form than currency (circulating money).
But in my opinion, the simplest, quickest, and most direct way of correcting the current private money monopoly is to make the so-called “national banks” really national. It is doing no more than what their name implies in the first place.
“National” should actually mean that it belongs to the “nation” – not a tiny minority of private money-monopolists.
“Federal” should actually mean that it is part of the “Federal” government.
All I ( and Web of Debt) am proposing is to return to “truth in wording”, and re-make these institutions into that which they already claim to be. End the deceptions. End the private monopoly over money – which in turn controls everything else, including our so-called “democratic” government.
I just wish people could grasp the importance of these issues, and the enormous cost to them of doing nothing.
“For those actually seeking a true solution, please recognize the flaws in socialism and in fiat monetary systems.”
IMO, the author of these words has a flawed understanding of both of the basic terms he is using. “Fiat” and “socialism” are both being used incorrectly in the above post.
Nathan claims that: “The socialist view that everyone has an equal right to everything is flawed.” Well of course that view is flawed. It is more than flawed, it is outrageous, and totally unworkable. However, it is not the “socialist view”. It is just as flawed to say that about socialism as it would be to say that the “capitalist view” is that everything should belong to private persons. It’s just not true. The most basic “socialist view” is that the government should own and control ALL of the “means of production”. Variant versions separate the basic components of production into “land and resources” and “labor”. Henry George held that there is a differnce between “land” which no man can create, and labor… and every man should own his own labor. However, there are nearly as many definitions of “socialism” as there people using (usually abusing) the term. What we think is that one needs to go beyond stereotyped “labels” and get into the realm of real ideas and sensible definitions. In other words we need to return from the realm of Orwellian “doublethink”.
The same is true of the world “fiat” which is explained more fully below, or in Ellen Brown’s book, Web of Debt, upon which this blog is based. The word is simply being used incorrectly. The essence of the book is to correct the mistaken ideas about money, currency and wealth that allow these massive money frauds to continue. It particularly exposes the errors perpetuated by the “Austrian School”, Von Mises, Rothbard, Griffin, et al.
Time limits do not allow a complete correction of all of the errors in this post at this time. Perhaps later….
I think the difference between interest and demurrage is minor compared to the difference between the “lending” of fiat currency (creating it on the spot) and the lending of real money. I think the biggest issue is whether the “lender” of money actually gives up what is being lent or not.
If the lender has actually earned and must part with the money that is being lent, then the lender has the right to charge interest or demurrage, or any other fees, as supply and demand allows. (With real money in a free market, these rates set themselves.)
But if the “lender” is creating the money out of nothing, then there is no justice in collecting anything for it in return, whether interest, demurrage, or any other fees.
I think the biggest problem though is fiat currency itself. The owners of central banks around the world have the monopoly power to steal from everyone through the use of these currencies. The wealth of nations is being pilfered, and fiat currency makes that possible. (The collection of interest or demurrage or anything else for the creation of money also makes this possible.)
I do like thinking things through theoretically though. If the theft didn’t happen, what principles could stabilize fiat currency to make it behave like real money? (But in the real world, fiat currency is too tempting for the monopoly powers that create it, and the unlimited wealth they gain from the system ultimately leads to tyranny.)
When fiat currency is created, there is a transfer of wealth from existing currency to the new currency. So a just system should issue money to everyone, not stealing from the many to pay the few. But what system could pay everyone the appropriate amount to maintain both stability and justice?
“Land value tax” sounds pretty much like Henry George. I do believe it has many benefits over other forms of taxes.
George believed that land value is a measure of economic productivity. If the number of goods and services stay about the same from year to year, land value should stay the same as well. If goods and services increase, land value should also increase. For money supply to increase along with goods and services, it could increase along with land value. With the “land value tax,” this value would be partially collected in taxes. So changes in tax revenues from land value could indicate appropriate changes in money supply.
The most just system would leave everyone’s purchasing power unchanged. So currency could be issued as a percentage of the amounts people already have. That way people can still buy the goods and services they could buy before, plus having the ability to buy the new goods and services as well. The easy way to accomplish the same thing would be to leave the money supply constant, leaving purchasing power the same, but allowing the value of the currency to change. (If everyone’s money doubles simultaneously, prices double in response, and everyone still has the same purchasing power as before. Why not leave the money supply alone? It’s much easier.)
But gold and silver are a better form of money, because they are much harder to counterfeit. They can be mined, making the growth of the currency dependent on production (so it can only grow with production). The free market can determine their value relative to other goods and services. And their intrinsic value makes “fiat” regulations unnecessary. Supply and demand become free to work, and the people become free from the monopoly powers that currently steal the value of everyone’s money.
The essential flaw in the above post by Nathan is a failure to understand most of the basic terms he is using, most essentially the word “FIAT”. The word means “by edict of law”. It has nothing at all to do with “creating it on the spot”.
The author of this post also confuses the definitions of “money”, “currency” and “wealth”. Without a basis of accurate and precise definitions no rational discussion is possible.
Also, the idea of gold, silver, or other commodities as money is what got us here (in this economic disaster) in the first place, and is the central mistaken idea Ellen Brown’s book, Web of Debt is written to correct. The author is obviously influenced by the errors taught by the “Austrian School” of Economics.
We agree that the people’s wealth IS being pilfered and plundered by private money exploitation, but it has nothing at all to do with “fiat” money. It has EVERYTHING to do with PRIVATE “fiat” money. “Fiat” implies sovereignty, and privately issued “fiat” money is a contradiction in terms, an oxymoron.
It is the PRIVATE creation of paper or electronic money or currency that is the problem. That is not the same as “fiat”. “Fiat” simply makes currency “legal” and acceptable in payment of government fees and taxes.
How can the full faith and credit of the people of the USA be used to “back” privately created credit-based money? That is the fraud, plain and simple! It is fraud that has been “legalized” by the banksters over time, and most particularly with the “federal reserve act” of 1913 – history’s biggest all time swindle.
Would YOU allow YOUR pledge of credit to back MY IOU (loan)? Of course not. But that is the game the private banksters are playing. THEY (private bankers) create the money in circulation (currency) out of IOUs (loans or promissory notes) and WE (the taxpaying public) guarantee or “back” those “federal reserve notes” with OUR “full faith and credit”.
The “scam” has nothing at all to do with “fiat” and everything to do with the legalized fraud known as “private central banking”. It is the largest criminal enterprise in all of human history – bar none.
We recommend reading Web of Debt as an essential first step in correcting numerous myths and misconceptions about money, or currency. It is these misconceptions (basically propaganda) that allow the crimes to continue.
Adoption of a Land Value Tax (LVT) is critical.
The modern world was born out of social revolutions that broke the back of a tyranny of ‘land lords’. Unfortunately, the new system was soon hijacked by the ‘money masters.’
With the collapse of the monetary system, the ‘money masters’ are shifting their power base into land.
Without LVT, we will soon return to a tyranny of ‘land lords’
Yes, Matabele. I entirely agree. In fact, I don’t think we’ve ever left the tyranny of the “land lords”. That tyranny has just been placed on the back burner because of two factors: 1) the easy accessibility of land and resources in the “new world” made the importance of landed nobility (landlords) less noticeable than in Europe or other more densely populated areas; and 2) the ascendancy of the “new private monetary aristocracy” in the form of central banksters, first from the Bank of England and then from the private US central bankers (disguised as “national” or “federal” bankers).
I have taken the position that of the two primary issues of money and land reforms, that the voting public citizens can probably more easily understand and grasp the nature of the money fraud that the land and resource swindles. So I have been concentrating more on money reforms for now. But I agree that if land and resource reform does not quickly follow money reforms, or happen concurrently to them, then we will simply be shifting the forms of tyranny, rather than the substance.
The Land Value Tax is indeed critical. I just wish people could understand what a boon this would be to our civilization and our world. Taken in tandem with eliminating the private use tax (interest) on debt-based money, it could transform our planet into a relative “paradise” overnight.
Ed Griffin on the Daily Bell..
“The record is clear on it. That is what [gold & silver]history has chosen over and over again. Why do we have to go looking around for something else? I don’t understand that.”
Daily Bell: We had a polite but public argument with the savvy Ellen Brown. Can you give us a further response to Ellen Brown’s (Brownian) perspective on nationalizing banks since they, rather than the Federal Reserve, are responsible in her view for banking abuses?
Griffin: Well I am not aware of that debate, but I am certainly able to address the issue of nationalizing banks. There is no reason in my mind for the banking system, or for that matter, the automobile industry, the motion picture industry, housing or any other part of American life to be run by the government. I don’t see any reason for the hospitals or medical clinics to be run by the government either.
Daily Bell: Good point.
Griffin: The idea that whenever there is a problem the solution is for the government to go in and take control is one of the most absurd and childish concepts I have ever heard of. The idea that the government can do anything better than the free market is just based on complete absence of understanding how the free market works. The only thing I think the government can do better than anybody else is to fight a war. The only thing a government can do better is to kill and destroy, and that is what it is good at. If war is used to kill and destroy in defense of a nation, in defense but not as an aggressive act, and it is used to defend the lives, liberty and property of its citizens then war performs a proper function, in my view.
Daily Bell: So you see a need for some kind of limited government, practically speaking.
Griffin: It is tragic that we have to defend ourselves. But history shows if you cannot defend yourself then you become a slave to someone who moves in and takes over. So we need to have the killing machine, but that’s about all.
Daily Bell: But not the banking system?
Griffin: The idea that government should be running the banks is absurd. The American government has been in the banking business since 1913 when the Fed was founded. The solution is not to get more into the banking business but to get the government out of it completely. So I would say no, let’s get the government out of the banks completely and then make the banks follow the rules and regulations that any other business must follow. Give them no favoritism, no subsidy, no bailouts. Make them honor their contracts and if they fail then they fail. Let new banks come into existence.
Daily Bell: How long has gold and silver been used as money? We think silver anyway is a substance that has been used in commerce for up to 10,000 years of human history, not 2,000 as certain monetary authorities suggest.
Griffin: I would have to get my notes out on exact dates but it doesn’t really make any difference if it’s been 2,000 years or 10,000 years. The real issue is not how long but how well it has performed in that function. When you look at the historical record, there is nothing that has done as well as gold or silver as a medium of exchange because it has all of the essential qualities required of money. It is not perishable, it’s divisible, it has great value and it can be precisely measured. People have used just about everything for a medium of exchange but nothing has worked as well as gold and silver for thousands of years. The record is clear on it. That is what history has chosen over and over again. Why do we have to go looking around for something else? I don’t understand that.
More..
http://www.thedailybell.com/618/Ed-Griffin-Economic-Crisis-Monetary-Elite.html
Daily Bell: How long has gold and silver been used as money? We think silver anyway is a substance that has been used in commerce for up to 10,000 years of human history, not 2,000 as certain monetary authorities suggest.
Griffin: I would have to get my notes out on exact dates but it doesn’t really make any difference if it’s been 2,000 years or 10,000 years.
______________
I would say gold and silver were probably used (along with other commodities) for about as long as the horse was used for transportation, or monarchy was used a a form of government. We would never have the automobile or representative government if this kind of thinking prevailed in those areas.
Griffin also is totally wrong about “the American government being in the banking business since 1913″. The US Government has always been in the money creation business, by Constitutional authority, until in 1913 that authority was usurped by the most powerful central bankers on the planet. The US Federal Reserve Banks are PRIVATE banking institutions, and the “Fed” is an independent non-governmental hybrid authority unto its own. It is responsible to congress in theory, but in practice it is wholly a power unto its own and has never been independently audited, and lacks any transparency as to its actions. It is a totally secretive, opaque, and therefore unaccountable, non-governmental agency hiding behind the name “federal”, and all that falsely implies.
The fact is that gold and silver are commodities. All commodities are forms of wealth. Wealth is not money. Money is a substitute, or accounting entry, used to facilitate the transfer of wealth. The proxy (substitute) is not the thing itself.
The entire ruse of paper money began with the goldsmiths receipts for deposited gold being traded instead of the gold itself, and the fraud of “fractional reserve” banking began with the goldsmiths issuance of many times more “receipts” than the actual gold deposited with them.
Now the Austrians and Libertarians would have us begin the entire charade again by returning to a fraudulent “gold standard”. It is the ultimate “Ponzi scheme”, and was so from day one of antiquity, when the scheme was hatched.
I’ve started reading your Web of Debt, while also studying the YouTube documentary, Money as Debt. A question though just occurred to me. If the government borrow’s money from the banks, what exactly did the bank bailout mean? If the govt. is in debt to the banks, shouldn’t the loan it gave the banks be a payment of debt?
Sorry for my ignorance. I’m just trying to wrap me head around this topic for the first time.
Welcome to the wonderful world of the wizard of an oz of gold. I don’t see ignorance in your question at all. Your suggested answer is far too logical or sensible for the current money powers to ever entertain.
Bravo for attempting to get your head around the greatest Ponzi scheme in the history of our world. The entire worldwide monetary system (with the possible exception of China’s and a few lesser exceptions) is exactly that: a Ponzi (pyramid) scheme from top to bottom. Too big to fail and too big to prosecute, unlike Bernie Madoff.
Unfortunately it is not too big to collapse like the house of cards it is, and that is precisely what is happening now. Only it is doing it in slow motion, with increasing time on the life support machinery. The money-masters know that the public’s attention span is about a week at the max, and their memories begin fading after a few months with total amnesia setting in after a few years. So they’ve learned they can get away with anything if justice is delayed beyond a certain point, and they are masters at delay, as well as illusion.
But the short answer is that the bank bailout was just one huge extortion and payoff ransom. These guys think it is fun to gamble with trillions in derivatives “funny-money” they invent and then stick the taxpayers with the bills when things get out of hand.
The short answer is that “the bailouts” were just an extreme example of what has been going on for nearly a century: the banking syndicates extorting money from the taxpayers. The question I have is “how long are we going to tolerate it?”. After all, frogs tolerate slowly rising water temperature, and will eventually allow it to cook them.
Frog soup, anyone?
Bakari-
A similar question occurred to me after reading your question:
Didn’t the government have to borrow money from the banks (indirectly from the Federal Reserve) to bail out the banks? If so, what are the implications of this?
Welcome Dave, The answer to your question is yes, the “government” (actually the citizen taxpayers) had to “borrow” money from the FRS in the same way it gets all of its money.
As for the “implications”, that is what Ellen’s book, this blog, and the entire money reform movement is all about. The insanity of the current system of money creation should be obvious to anyone who closely examines the issues.
Why should the gov’t (taxpayers) have to borrow from private sources the money it has the power to create, interest-free? It’s absurdity is so striking that it repels the mind.
Why should our government have given away (in 1913) the sovereign right and power to create and control currency to that very private agency (The FRS) that it then must borrow its needed funds for its budget? This is nuts.
It’s like someone telling you that you are to irresponsible to handle your own money, so they will do it for you, at a considerable cost to you. Such a deal! So you give all your money to them and arrange endless “borrowing rights” on that money (previously your money, now theirs). You are now forever in debt to that person or agency, and all your income goes to pay the interest on the money you have borrowed, and will have to keep borrowing.
The analogy is simplified, but fairly representative of what is actually happening. These are the implications.
I urge you to read Ellen’s book, Web of Debt. It’s as readable as a good novel, and far more informative about our real world situation.
Banks do not create credit – when a client walks in the door, the client carries credit with him. The bank exchanges a pledge against assets for cash, thus increasing the clients liquidity (creditworthiness is established by the clients assets.) This system is sound, provided that the value of the pledged assets always exceeds the cash created against those assets.
A financial crisis occurs when it becomes apparent that banks are insolvent as the value of their portfolio (sum of pledged assets) is worth less than the cash issued by the banks against their portfolio (following a fall in the market value of the assets.)
When the government borrows cash, the pledge is a bond – a promise to return currency at a future date. These bonds are always valued at full face value, based upon the ability of the government to directly tax away currency from its citizenry.
If the government were to repay its debt, the number of bonds would decrease, and the banks would become even less solvent (the quality of their portfolio would deteriorate further.)
What is TARP? Now, the banks are the client – they approach the government for a loan, the purpose of which is to increase liquidity without further damaging their portfolio (the pledged assets are generally some of the lower quality from their portfolio.)
And the questions are:
If the banks are insolvent before they walk in the door, why should they be given credit?
How is this supposed to solve the crisis?
“Banks do not create credit – when a client walks in the door, the client carries credit with him. The bank exchanges a pledge against assets for cash, thus increasing the clients liquidity (creditworthiness is established by the clients assets.) This system is sound, provided that the value of the pledged assets always exceeds the cash created against those assets.”
Sorry, but I disagree that the system is sound, any more than the notion that the “pledged assets” will always exceed the money created by those loans is sound.
The bank exchanges a pledge against assets for cash? I assume you mean the client’s pledge against his assets, but where does the bank get the “cash” it exchanges with the client for his pledge of assets? And is it really “cash”? Or just a check or a draft, generally to be redeposited in that or some other bank. Ultimately the “cash” is just a bookkeeping entry, or some computer keystrokes, and this is in reality what most money is nowadays.
In other words, the bank never had any real or physical money on hand to loan. They used the client’s promissory note, or iou, as their asset, and then “created” the “cash” (bookkeeping entry) to exchange for the client’s pledge of assets. In bankspeak, (a language foreign to most people) the process is sometimes called “monetization” of an asset, and in the banking world, other people’s debts are considered assets, whether sound or not.
So there is the “hat trick”. The bank creates money out of the client’s pledged asset and monetizes that pledge and loans it back to the client.
Sound? Perhaps to the banker. I don’t think it is sound at all from the citizen’s or taxpayer’s viewpoint. If it is sound why is there a “crisis”, and why do they arise periodically?
A “Ponzi scheme” is sound too, as long as growth income at the bottom exceeds dividends or payouts at the top. The “soundness” is based upon an expectation or projection of continued exponential growth in a limited and finite system. Since we know this is impossible, the “float” or “scheme” will eventually collapse, leaving most broke, but the few “top dogs” incredibly rich.
Since the banking “Ponzi scheme” is dependent on an ever-increasing supply or money (loans) in a finite (limited) world, the need to create new money (loans) leads to increasing risks (sub-primes and worse – derivatives on them). At this point various bubbles are created to cover and delay the coming crash. Stock bubbles, real estate bubbles, tulip bubbles – all are ways to inflate the money supply by extending risky credit and loans to the gullible public.
The wealthy use these bubbles as a warning sign that crash, (credit and money collapse) is near, and find ways to make money off that. Short selling or squeezing, commodity speculations (up or down), and knowing what the Fed is planning to do are only some of the many ways insiders profit from a crooked system.
As for TARP. That is the final insult. To force the criminal’s victim’s to pay a second (or third and fourth) time to “bail out” the criminals who have robbed them blind is the ultimate injustice. It’s like being forced to “bail out” of jail those who robbed you and your family of most of your wealth.
The fact that the “government” (taxpayer) must borrow from crooks the money that is their sovereign right to create is bad enough, but then when the crooks the government must borrow from turn around and extort that government to keep “too big to fail” banks from declaring bankruptcy, it is just too much. All such banks should be taken over (declared insolvent) by the FDIC and run as government corporations. Then the government could “borrow” it’s money from its own banking corporation, interest free. It could even use that new interest-free money to buy back the T-Notes and pay off the vast accumulations of interest on them.
Maybe then people would start to get the idea that money creation is supposed to be a sovereign government function, and has no place in legitimate private enterprise.
Hope springs eternal….
The system is sound, provided that the assets pledged always exceed the cash created by the bank.
With cash loaned out at compound interest, however, an exponentially increasing amount of property must be pledged and, at some point, this condition will be broken.
In the long run; compound interest, besides being unfair, is fundamentally flawed.
“In the long run; compound interest, besides being unfair, is fundamentally flawed.”
___________
Which is why I maintain “the system” is unsound. The pledged assets will never exceed the money created by the bank unless asset price inflation keeps pace with, or exceeds, the amount of new money created (loaned). This built-in race between bank asset value inflation and money (loan) creation creates an impossible contract based upon impossible unlimited exponential growth. As such, it is just another pyramid scheme, albeit on a far grander scale than most can imagine.
fractional derivatives example:
Let’s say we open a new bank with:
depositor #1 deposits $1,000.
Now our bank is open for business.
In comes our first customer.
Its the bank president, he wants to borrow everything he can. So the teller tells him he has 900 dollars available to lend. Mr. president accepts the loan and is given a $900 check. With derivative, which is the security or promissory note of $900, the net value of the loan can be added to the original 1000 deposit and $1,900 is the net worth of the assets.
In comes customer #2. He asks the teller for everything he can now borrow. the teller does a quick calculation and determines that 90% of the original $1,000 deposit and the promise of 900 owed is 1710. Customer #2 accepts a check for 1710, and makes a promise to pay it back.
In comes customer #3. He asks the teller for everything he can borrow. the teller makes a calculation and determines that the nank now has 3610 in deposits and promises of which he can now lend 3249 dollars by the rules he has to follow. Customer 3 accepts the check for 3249 and agrees to pay it back.
This is legal Fractional derivative banking where as the Feds cash the loaned checks while the Bank uses the loan as a security deposit.
Now what if a group of banks got together in a circle and continuously borrowed the limit in turn in a never ending loop? They could quickly turn that $1,000 into billions and even trillions with nothing to show for it except the securities promissory notes and $1000. It is a legal ponzi scheme that is used in our system today.
Now Fractional Reserve lending rules are that a bank can multiply the amount of their loans 11 times their total net worth. The more loans they make the more assets they show.
So, essentially the banks too big to fail loaned the government the money that the government bailed them out with and their value grow by leaps and bound for it.
To add insult to injury we, the tax payer is not only going to be responsible for paying that money back but we have to pay these banksters interest. It is the biggest bank robbery ever and done with the full understanding of our President and wonderful leaders in the Senate and the House.
I’m flabbergasted.
That is the reason I’m all for Ellen Browns system
I’m not an expert but I think this example is correct.
As to the ’solution’:
The amount of money deposited with a bank is less than 5% of the money loaned out by the bank.
It does not make sense to try and save the whole bank, when the deposits could be covered in full for less than 5% In any case, this would only be necessary for some banks.
The TARP is a scam.
Is this true? How much is deposited in the Bank of America? How much is the Bank of America worth? My guess is that BofA is worth less than the money that was deposited in it and that was why the government did not seize it and sell its assets and return the deposits to the depositors. I would guess the banks that received TARP funds altogether were worth trillions of dollars less than the amount of money deposited in them. Obviously the FDIC didn’t have enough to make up the difference. Am I way off here?
Of course TARP was a scam. It was extortion on a national scale, even international. I’d say your “guesses” are pretty accurate, except for the FDIC part. The amount of money the FDIC can have is nearly limitless, just like the amount of money the Fed can have printed. The gov’t didn’t seize (nationalize) any of the “Too Big to Fail” banks because the money powers didn’t want that to happen. They make much more money getting bailouts from the government (taxpayers) and keeping the Ponzi schemes alive a while longer. FDIC receivership would have made too much sense as far as the economic health of the nation was/is concerned.
Not off at all, Dave. Very much on, I think.
I noticed the quote at the top:
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” –Buckminster Fuller
The fact is we are seeing a fundamental shift to a new model. Just maybe not yet in the US. Although it did originate in the US. But it is happenning in Asia. Geopolitically it is the end of the Atlantic centered world and the rise of a new Eurasian centered one. The US as a pacific power can be part of this. Either way it is happening no matter what the atlantic elites may wish to decree otherwise. I wrote a paper a in sept 2008 about this. Most of it is just as relavent today
http://www.classicsoftware.com/signalspace/newcycle.htm
Just a correction for Ellen Brown’s otherwise excellent article of December 7. She said: “The Vikings of Iceland repeatedly repulsed British Invaders”. It was the other way around. The Vikings of Scandinavia repeatedly invaded Britain over 200 or so years and were mostly successful. On May 10, 1940 the British landed Royal Marines in Iceland because they believed the Germans were planning an invasion of the island but there was no resistance or fighting against the British from the Icelanders.
Thanks Ben. I checked a few sources and it appears you’re right! (This wouldn’t be my ex-father-in-law Ben Brown would it?)
Wow, this is such a useful and bountiful discussion, esp. as I’m reading through Brown’s Web of Debt book. I’m on chapter 12 (had to put it down for a week or so) and it’s so eye opening. I’ve read some Marx and other left political economists in my college years, but I’ve near read the kind of clear analysis and detail presented in Brown’s book. Of course Marx couldn’t have written a similar book, but having read him helps me to understand the monetization even better.
The issue of the cycle of debt should be a national discussion and debate in this country. People need to wake up. And wake up soon.
P.S. before I close, I want to share a web annotation tool that I’m using for reading sites like this, it’s http://www.diigo.com. It’s a free and great source for bookmarking and annotating web pages. You can also share your bookmarks with others. If anyone signs up on Diigo, look me up by name and let me know. I would love to share my bookmarks on this subject.
I believe Marx was useful reading, but off on some essential things. Henry George, writing slightly later, about 1879 really nailed it though, IMO. He drew the best of capitalism and socialism together in a logical mix that, to me, makes sense on a cosmic level. And his writing is so clear, lucid, and reasonable, unlike most other economics texts.
George arrives at a place where a natural division is drawn between those kinds of properties that should be subject to private ownership, and those that are properly social, and rightfully the resources of the sovereign community. He differentiates the kinds of land and resource titles in ways that are nothing less than brilliant. He basically shows us how to end the monopolization of money, land, and the wealth that flows from these monopoly controls. His tool for the most painless and gradual redistribution of natural resources is the Land Value Tax, which would shift much of the tax burden from the poor and middle classes to those landlords that so unfairly profit from unjust land rents.
Once people begin to see the injustice in private money monopolies, it’s a bit easier to make the connection to land and resource monopolies that should really be community assets.
Of course, once people grow into the realization that the natural resources of a community, state or nation are actually the shared commonwealth that properly belongs to the people, they can put a stop to all the economic exploitation and outright thievery of their wealth.
It would then become clear, for instance, that Iraq’s oil belongs to the people of Iraq. It doesn’t belong to a few tyrants that then cut lucrative deals with US & British big oil interests so that a few billionaires (or trillionaires) can be made wealthier at the expense of the commonwealth of people in those nations. It’s not really any different with Saudi Arabia, except they are robbing their people’s wealth voluntarily, without the coercion of military intervention.
What is true with oil is also true with all of the world’s natural wealth, from uranium to copper and tin, from rubber to hardwoods. Third world countries have to be kept poor and dependent in order for the industrialized nations to continue exploiting their resources, from oil to gold to diamonds, ad infinitum.
We really need to rethink what “wealth” really is, and separate natural, or God-given wealth, from man-made goods and services. Man has a natural right to those things he produces with his own labor, but he also should have a right to share in the God-given fruits of the earth’s natural bounty: land and it’s resources – water, air, minerals, seas, and sources of energy.
Fixing our unjust money monopoly is a beginning, but it will take more fixing to make much real difference in the huge and growing gaps in wealth distribution.
Or would it have been proper and just to allow the fist human to lay claim to all the earth and what lies in or over it, simply because that person was here first? Or perhaps there were other here and he was simply better or stronger than they?
Might has decided what was right for far too long in human history. Isn’t it time for more democratic means to decide what is “right”, fair, and just?
Jere Hough & Paul Hubbard, among others, – I agree that basically the interest on loans made by the state owned bank should be used to eliminate taxes and rework our government to tackle the issues of the future like global warming and other mutually shared government infrastructure. Interest in private
We are a capitalist system. I think we need to tweak that system a little. Patriots need not fear, some social programs will not convert our American dreams into a communist state. Some social thinking is necessary. The cowering to the insurance companies and Wall Street Bankers is shameful as it has robbed us of our humanity in our well fare system. I believe in freedom. Ideally The Daily Bell has a wonderful dream of no government with no taxes accompanied by all the rewards of their labor converting all those resources into their own personal prosperity. But I also believe in social responsibilities – like a system with none profit health care for all, consumer protection and environmental awareness. Contrary to what those lucky folks who are patrons of The Dailey Bell rhetoric most people aren’t blessed with a handicap when playing the game of life. Basic honesty should be law in politics instead of the lying rhetoric and swift boat tactics allowed not only to smear opponents but to smear ideology. A better world is possible only if we can come together on a few basic truths and I think that Ellen Brown points out some of the errors of our present economic system in her writings. Actually those are not errors and they are very deliberate. Like the Fractional Reserve Lending gig – it is an age old calculated ponzy scheme accepted by our government because politicians are paid off through lobby by ruthless Bankster who are ripping us off only because the general population don’t understand it or feel helpless to intervene. A State owned bank, as Ellen Brown suggests, would be the way to go in my opinion using the assets of that State as the foundation in collateral to fund not only the government infrastructure but lend money cheaply to the people and business. Banks could do the same as long as they don’t use the ponzy scheme called Fractional Reserve Lending to create money. Only the government has the right to coin money! But how do you get there from here quickly? Time is of the essence as the Globe is loosing the green and white replaced with brown and blue.
Talking about the globe brings us to metabele who keeps pointing out that a land value tax is needed. I think this tax would be magnificent if it were applied internationally. It is also a good idea locally as she points out the land lord barons are returning. Either way or both ways will be another major political battle.
There are other battles that would affect our economy. Inheritance is a big problem. This is a rather large load of assets doing basically nothing for anybody but creating spoiled rotten aristocrats who live their worthless lives taking credit for creative workers. To be fair that’s not in every case. However, I believe, for the time being, that we still have room for inheritance but it should be taxed heavily. But, I think inheritance should exist only if all people of all races and genders get the same basic tools to compete in our society or any society for that matter. I believe that education should be guaranteed for all who are willing to apply themselves all the way through college or trade school. I believe, as stated above, all people should have health care from cradle to grave. And I don’t believe that any person should have the impression that he is automatically the king of the hill just because he has a fat bank account which has been passed down generation after generation. Fat bank account don’t equate to high aptitude – example – George Bush. A business, as long as it is not part of a group of businesses trying to monopolize, should be allowed to be passed to the next generation as long as their primary goal is to benefit the community and they play by the same exact rules as other businesses. Competition should be fair. Life should be fair. But, the larger the inheritance the more the tax should be. If society was fair there would be no need for inheritance.
Politics should be a grass roots kind of campaign not corporate funded or wealth funded. No campaign contributions what so ever from special interests should be allowed. The politicians keep saying they are going to change that but the lie. There lies should be punishable. So, campaign reform is a must.
Monopoly in any form shouldn’t be allowed. An inventor should be awarded a percentage of the item he invented like a sales tax for a limited amount of years, his life time, but no entity should be able to monopolize on an idea. No offense is meant to Ellen, a lawyer, or any other but that the laws should reflect basic justice instead of striking gold through buying intellectual property. The ideas should always belong to the creative mind not by some long contract written by your boss claiming your creativity. The same goes for copy writes, for songs, books, videos & etc… Money and greed should be less important than social thinking and stimulation of ideas rather than outlawing them.
Capitalism: Greed is not good but it is a necessary part of the formula of production in a society. Incentives should not be eliminated but regulated so that there is a fair system for all. But no advantage should be given to any competing participant.
Socialism: Is the best system. We should make sure all our basic needs are met in life. I know it is not likely that every individual on earth could have the basics in life. Until they do we should make that a priority. Everyone should be secure in health. We should have a roof over our heads and a nice warm bed to sleep in at night and enough to eat. We should have the right to an education resulting in a good solid job to contribute to society. It seems impossible but I think it is possible. If every one was working together we could do it.
Reality: Socialism and Capitalism need to be melted together. I think that is happening now. I think this greed game is coming to a head. The end results might be pretty messy ending in revolution that could wipe out mankind. I think, the last of the fascist and imperialist pages in human history, as Regan roughly said about communism, is being written as we speak. There are movements going on all over the world and here at home that, in my opinion, will not stop. People are on the move. The centrifugal forces are at work.
Sorry for the diatribe. I know that I’m a little off subject. I’m just a little upset after another defeat in the passing of the insurance bill that guarantees the insurance companies 40 million new customers who can’t afford their useless coverage.
Bottom line: I think Ellen Browns idea of State Owned Banks, Auditing the Feds, Natioinalizing the Feds and outlawing Fractional Reserve Lending for private Banks is the first and best next step in our System. All other interjections above is my ranting about what I think should be considered after Ellen is successful in her campaign, which is going to be a real battle.
Thanks for listening
tp
PS: Please excuse the length and writing mess. My excuse is that I’m late in this debate. Also, I need to read Ellen’s book. However, I have read most of her posts on Global Research and listened while she was interviewed. I’m looking forward to seeing a political action committee representing her.
“Third world countries have to be kept poor and dependent in order for the industrialized nations to continue exploiting their resources, from oil to gold to diamonds, ad infinitum.”
It seems to me that Third World countries are in a better position to create goods and services without money exchange. If these countries are poor and their currency lacks real value in the world economy, then it seems like they should be able to produce goods and services based upon what they need and do for one another. Could it be possible for Third World countries to function and develop without the dependence upon so-called developed countries and money lenders.?
Not only possible, but far more likely. But there would have to be honest government in these countries that would not sell out their own people for a fast buck in their own private offshore vaults.
There are numerous examples of third world countries that flourish once freed from their colonial financial ties. A good presentation of this effect (backed with the relevant data) was given by Hans Rosling recently at the TED India conference. Another example that comes to mind is Rhodesia (now Zimbabwe) under UDI sanctions.
Internal money versus external money. When attempting to conceptualize money, a distinction must be made between money that can be used within a given economy in exchange of resources, goods and services produced locally, and money (actually wealth) that must be exchanged for the same on wider or even worldwide markets.
These two forms of money need not necessarily be the same, and probably should not ideally be so. A local currency need not have exchange value in the world markets, if there are provisions made to exchange suitable wealth for other currencies when purchases must be made outside the local economy. There are any number of ways to do this when regional or international markets are fair, and not manipulated by monopoly interests, cartels, syndicates or combines. Sadly, this is far too often the case now.
It is too often the case now that the money powers gang up on any economy that attempts to be independent of monopoly control, and “open” of “free-trade” agreements. These agreements are little more than “licenses” to sabotage a local economy, or apply economic blackmail to exploit it’s resources or labor.
What is needed is some rethinking on the “balances of power”, economically speaking. We need some “Declarations of Economic Independence” that establish the sovereignty of the people of a given local economy to access free markets. The people especially need to be able to create and control their own money, as money is the basis of economic sovereignty. Again, I am primarily speaking here of “internal money” for internal exchanges of wealth.
External purchases or exchanges would require real wealth exchanges, or a fair money exchange system.
The same effect occurs within a state – a local economy can create its own money (complementary or community currency), which offers protection from regional monopolies by providing a layer of insulation protecting local capital.
Again – these local currencies are sabotaged by the money powers whenever they become effective. This was known by the framers of the American Constitution – and specific protection for individual states was included in its wording – this protection has also been transgressed.
Constitutional reforms which focus upon devolution of power (especially the money power), appear to be the way forward. This can be seen to have had beneficial effects in South Africa, which has such measures in its constitution.
Anyone catch the recent NPR Talk of the Nation discussion on How Government Dept Differs From Private Debt?
http://www.npr.org/templates/player/mediaPlayer.html?action=1&t=1&islist=false&id=121766572&m=121766570
“” You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” –Buckminster Fuller “”
Right !
You cannot reform a system that has become corrupted, destructive and obsolete to the point that Capitalism has become.
For what it is worth, please visit http://www.salterre.org
Regards and good luck.
What should our money system look like and how should it work?
The relation governing a medium of exchange is:
DEFAULT = INTEREST + INFLATION
The media of exchange (let’s call them BUCKS) conveys promises to complete trades. These promises open with loans, are fulfilled with payments on the loans, and are closed with the final payment or DEFAULT.
All defaulted promises need to be balanced with INTEREST collections on loans (preferably of like risk). To the extent this is not done, INFLATION results. To the extent it is over done, DEFLATION results.
A medium of exchange managed with integrity according to this relation must only monitor DEFAULTS. It has no concern with prices and no need to monitor INFLATION.
Prices are determined by the traders and INFLATION will be zero.
The relation guarantees media supply equals demand at all times.
The media requires no base (e.g. oz of gold) because open reporting of the relation assures integrity.
Promises in progress (existing loans) are not affected by supply of media (e.g. not a function of the varying scarcity of gold).
With no DEFAULTS there is no INTEREST and thus no “time value of money”.
INTEREST is not knob turned according to measures of prices, employment and INFLATION. It is a knob turned according to the very objective measure of DEFAULTs.
A bit off subject, but I wondered if anyone else noticed the article in Time Magazine’s Person of the Year issue(Dec.28th, page 72); “How the Fed Works”. Under “How the Banking System Creates Wealth” Time states that (step 1.) after a saver deposits $100 in a bank that (step 2.)” the banks holds $10 in reserve and lends the other $90 to a borrower…”. Someone correct me if I’m wrong, but I thought that ALL loans were “created” and all deposits are kept as reserves and basically never leave the bank. They acknowledge (in step 4.) that $100 eventually expands into $1000, but if they are merely lending 90% of each successive deposit ,then where is the $900 being created?! I may be missing something here, but it seems that Time’s writers are either ignorant of how fractional-reserve lending works or they are playing the bankers game of purposely misleading people with incomplete or bogus explanations of the process. Please comment as I would like to write Time Magazine on this and want to make sure I know what I’m talking about!
I am a little confused too. I would like to know how much these failing banks had in reserve when they failed and how much they owed. I was always under the impression that banks were institutions that everybody owed money to, but it seems that it turned out that they were institutions that wound up owing more money than they had on deposit. I read somewhere that there were about six trillion dollars deposited in American banks. Considering the vast size of the Bank of America, I would assume that they might have been responsible for about one trillion of these dollars deposited. But I found on another site that BofA is only worth a quarter of a trillion dollars! If these numbers are in the ballpark then when the bank crashed, they owed their depositors three times what the whole bank was worth. Meanwhile the FDIC is running out of money covering the deposits of lesser banks that failed. So if the government had seized the BofA and sold its assets for 1/4 tril, the FDIC would have had to borrow 3/4 tril from the Fed to cover the deposits. That is about the size of the first bailout package under Bush, right? But if the Fed is owned by other banks, wouldn’t it have had to borrow money from other banks, and weren’t they in trouble too? If we assume that Citibank, the other bank that was too big to fail, was in the same boat, it would have cost about as much as the second bailout package under Obama to liquidate it. Many people were upset about the bailouts and thought the government should have seized the banks and broken them up into smaller banks that were not too big to fail and outlawed the risky practices that got them into trouble in the first place, but it looks like this may have cost just as much as the bailouts without dealing with the other institutions that were in trouble. Are there any articles or posts on this blog that could clarify these surmises? To end on a non sequitur, now that the federal government is part owner of the bailed out banks, how does this differ from public banking?
One more click I found this, thank you, god knows where I will be after this. Please check this out:
The following are views on problems for Australia and the global community in the new year, 2010, submitted by Dr James Cumes who is a former Australian Ambassador and the author of “America’s Suicidal Statecraft”:
For the Prime Minister, Kevin Rudd
Thank you for your Christmas message. It is valuable for Australians to be able to communicate with their Prime Minister in this way – and the good wishes you have sent us, and me personally, are greatly appreciated.
In my message of 5 December 2006, I congratulated you on your election then as Leader of the Australian Labor Party.
In that message, I foresaw the difficulties which lay ahead for whatever government we might have in Australia. I wrote:
“I worked for many [Australian] Governments, always hoping that one would emerge that could compare in quality with that of the Curtin Government of 1941 to 1945 and, perhaps even more, the Chifley Government from 1945 to 1949.
“It never happened. Despite its many virtues, the Whitlam Government broke down largely – and fundamentally – because of its incapacity to handle the difficult navigation required at the turning point from economic stability and growth into stagflation in the late 1960s and the 1970s. It became a ‘Scullin Government’, foundering on an economic situation that it did not understand and could not control. In the 1980s and 1990s, the Hawke and Keating Governments let themselves become what I have called ’slapstick politicians in the Reagan/Thatcher mould.’ They sold out to American-model ‘reform’, to Thatcher-style privatisation and to a gaggle of mostly ‘free-market’ catchcries that, however well-meaning, betrayed the cause of Australian democracy for which Curtin and Chifley had laboured so splendidly.
“Those later governments, both Labor and non-Labor, from 1969 onwards, missed the opportunity presented to them to have Australia evolve into an ‘Asian Tiger’. Instead they embraced the suicidal policies of the United States, gutting our industry and making us a dependency of a dynamic Asia. That Asia enjoyed a miracle of unprecedented growth that we, the United States and others adopting the American model had fecklessly offered them.
“Of course, we rejoice that hundreds of millions and indeed potentially billions of our Asian friends, especially including in more recent years, China and India, have been blessed with this economic miracle. We would want the full potential of their economic growth – and broader social well-being – to be realised. But how sad – how tragic – it is that we have not pursued the policies that would have allowed us to be one of them – to have enjoyed their miracle along with and alongside them.
“Now we have the prospect of a Rudd Government.
“Will it be a Curtin/Chifley Government or will it resemble the others?
“I have high hopes that it will have the vision, as well as the sensible, practical approaches of those who governed us between 1941 and 1949. As well as devising economic and social policies for the post-war years, Curtin and Chifley – and Foreign Minister Evatt – led us through the most terrifying period of our history after Pearl Harbour. They contributed significantly to winning the war and then to arrangements which would give us real hope of winning the peace.
“Sixty years later, we are again at a turning point, not only in economic but also in political and strategic terms. The next few years are likely to be critical in determining what character the transformation of the power balance will take. If our national interests are to be safeguarded and if we are to work effectively for peaceful change yielding us stable political and strategic outcomes globally, we will have to do much more serious thinking about our policies than Australian governments have done in the past four decades.”
The Global Financial Crisis
I arranged for a copy of my latest book “America’s Suicidal Statecraft: The Self-destruction of a Superpower”, published in November 2006, to be sent to you. You responded in your message of 31 January 2007, saying “I look forward to reading your book.”
Later that year, in November 2007, you led your party to victory in the general election, to become the first ALP Prime Minister in the new century.
By that time, Bear Stearns had collapsed and the tragic scenario which I had forecast in “America’s Suicidal Statecraft” had started to unfold with deadly inevitability. A year later, in September 2008, Lehman Brothers collapsed and panic – or something close to it – took hold in governments and communities around the world.
Your Government was confronted with a situation which I had clearly foreseen.
In terms of the formidable challenge you faced, your Government was like the Government of James Scullin in 1929: the unprecedented economic and financial crisis which had confronted Scullin in 1929 had deep, global dimensions of a kind comparable with those which now confronted you in September 2008.
The year since Lehman Brothers has been tumultuous – but one in which disaster seems at least superficially to have been contained. In what has been near panic, governments have thrown masses of money at our problems – in stimulus after stimulus – in the hope that catastrophe can and will be averted.
These efforts have been led – just as the pathway to crisis was led – by the United States and, to a significant extent, by the United Kingdom as an active accomplice. To a large extent and in varying degrees, the major economies of the European Union followed the American lead.
Your Government reacted with stimuli for our own economy, in an emergency situation in which major interventions were simply unavoidable.
However well or ill chosen, the stimuli by a variety of governments around the world were of such magnitudes that they inevitably had an impact both on the economy to which each applied and on the global economy as a whole.
This seems to have been true to such an extent that many analysts, in government and outside, began talking of “green shoots” and “recovery” in much the same way as equivalent analysts had seen the situation to be recovering or to have recovered even within six months of the crash of the New York Stock Exchange in 1929-30. At that time, even President Hoover told the world that the crisis was over and that cause for pessimism was past.
Government leaders have been more cautious this time, although in little more than degree. Analysts inside and outside government have been quick to put the best shine on any positive number in the housing market, the labour market or any other statistic anywhere else that might raise hopes of a slowing in the pace to national and global catastrophe.
Stock-market Movements
Optimism has applied most consistently perhaps to movements in stocks, especially the Dow, the S & P and the NASDAQ in the United States. Between March and December 2009 there has been a rise from a low of around 6,000 in the Dow to more than 10,000 at the year’s end. Our own stock-market indexes have shown signs of robust good health.
We do not know to what extent American stock-markets have been manipulated by, for example, the Plunge Protection Team or other devices; but, taken by itself, the stock-market rally since March has helped to provide something of a breather to enable governments and others to work out how they might turn destiny in their favour in 2010 and beyond.
We still need to recall that, in 1929, the crash of the New York Stock Exchange was followed quite quickly by a substantial recovery in the stock-market. Then, despite a series of rallies, the index trended downwards and did not reach its bottom until 1931-2, two to three years after the crash. The Great Depression did not deliver its worst miseries until around 1932, in Australia as in the United States and other countries.
So we need to be cautious about optimistic assessments of “recovery” and identification of “green shoots.” They sound much too much like the chant of “Prosperity is just around the corner” which we heard endlessly throughout the 1930s.
Caution is particularly needed since we have not yet tackled, far less resolved issues that are fundamental to dealing with the ills of our national economies and the global economy as a whole.
The massive and totally unprecedented stimuli have been devoted mainly to bailing out the banks and to putting extra short-term spending money into the pockets of consumers.
Especially in the light of the sheer size of the stimuli, the extent of any “recovery,” however defined, has to be regarded as modest.
Nevertheless, the banks have begun to come back with much of their old effrontery as well as much of their old inclination to resort to – indeed, to be addicted to – the gaming table.
The often dubious bounty lavished on the consumer and the consumer’s reaction to it are reminiscent of the story of Emperor Bokassa of the Central African Empire in the 1970s, when he threw handfuls of banknotes in the air as he strolled in the streets among his citizens. The ploy did go some way towards elevating him to and keeping him on the throne for a short time but his ultimate unhappy fate was inevitable since he provided no fundamental solutions to the problems of his poverty-stricken community.
Equally, the “helicopter drops” of Fed Chairman Ben Bernanke have provided no fundamental solutions to any of the United States basic economic, financial and social problems. Indeed, to a significant extent, they have made solutions much more challenging and terrifying for the future.
So far, United States policies whether attributable to the Administration, the Fed, the banks or the corporate community have intensified the risks of a collapse of the entire financial and economic system, not only in the United States but globally. Such a collapse of course – if it were to happen – would also destabilise the global social, political and strategic situation in ways which seem to be too terrifying to contemplate – but on which the flow of events may compel us to reflect whether we like it or not.
Basic Causes of the Crisis
In assessing what may happen in the future, we need to go back to identify the basic cause of the present crisis. Fundamentally, the cause lay in the excessively free, recklessly deregulated market and the consequent casino-like character of the leading world economies over a long period especially from the early 1980s onwards.
The accumulation of public, corporate and personal debt was on a scale unimaginable at any earlier period. Neglect of the real economy was almost total – except of course by such countries as the Asian Tigers and those such as China and India which wisely joined them later.
United States policies in particular enabled and provoked unprecedented economic growth in China in the wake of Deng’s declaration of new robust capitalistic economic policies in 1979. From that point, the United States – for the most part inadvertently – gutted its industrial economy and began the abdication of its role as the world’s pre-eminent Superpower. Speculation and a fast-buck culture proceeded to destroy, in just a few decades, much of the great American heritage.
We – in Australia and Britain and many other countries – became progressively more addicted to the notion that we could get rich – all of us – by going to the gaming table and making billions of dollars by brisk and mostly highly leveraged trading in pieces of smart financial paper.
That real income and wealth depend – as ultimately they always do – on real, fixed-capital investment, growing productivity at the work-bench, and production of real consumer goods and services – as well as real producer goods and services – all for a well regulated market was, for many years, given no effective articulation.
Indeed, even now, despite the turmoil of the past couple of years, emphasis on real investment, productivity and production is not a philosophy that is given anything like due prominence in the policies and programmes advocated by most political leaders.
This failure to articulate economic and financial realities distinguished not only the United States but also Australia and many other countries. In that way, addiction to the gaming table spread everywhere and the financial collapse, when it came, affected virtually everyone.
Especially since the Lehman Brothers collapse of September 2008, there can now surely be no doubt of our failure to manage our national economies and the global economy wisely; and we must surely acknowledge just how much damage that failure has caused.
Despite that, the banks and other financial institutions which were among the principal authors of the financial crisis show a marked inclination to return to their old habits.
If this tendency were to continue, the prospect would certainly be that we would become progressively even less capable of dealing with our ever growing financial and economic dilemmas.
A real possibility would then be that the whole international payments system would disintegrate, taking with it much of the civilisation with which we are familiar.
On 29 December 2009, even the London Financial Times – rarely a sensationalist newssheet – warned us:-
Another bomb is being built,
By bankers with no sense of guilt.
It’s ticking now, will louder tick
Unless we stop it, fast and quick.
The Regulation of Banks
Against this background, tackling the size of and motivations for bank or corporation bonuses is far from enough; nor is it enough to tighten regulations on financial institutions and transactions – though this must be done.
There must, above all, be fundamental reform of the entire banking and financial system.
In the Australian idiom, we must revert to the attitude to banking which was characteristic of Ben Chifley at the Royal Commission on Money and Banking in the mid-1930s and of his policies as Treasurer and Prime Minister between 1941 and 1949. We must go even further: we must not be hesitant to adopt towards “Wall Street” attitudes similar to those which were once the trademark of the alleged “firebrand” Eddie Ward.
Ward was a member of the Curtin and Chifley cabinets and his views were often denounced as outrageous. Among other things, he resolutely refused to support Australian membership of the World Bank and the IMF because he held that they were dominated by – they were the creatures of – “Wall Street.”
In the light of recent events, that opposition does not seem nearly as “outrageous” as it did sixty years ago.
We have now reached a point at which we must re-think most carefully what should be an acceptable role for banks and “bank-like” institutions in our economy and society.
We must acknowledge that unacceptable privileges have in recent years been extended to or have been exercised by our banking institutions – including the “Big Four.” They have been allowed to wander too far from the role of trusted intermediaries between saver and investor, between depositor and borrower that is a bank’s essential role.
The basic value of the banks to the modern society as an intermediary to assist in the production of real income and wealth through real investment has been lost – not yet entirely but to an extent that has been and persists in being deeply damaging to the economy and society. The role they have played in the casino economy in recent years has been self-destructive and is unsustainable.
It may be time for an updated Royal Commission on Money and Banking; but we may not have time for that, given the likelihood that catastrophic crises may hit our own economy and other economies around the world without much warning at any time.
The Role of the IMF
Little real attention has been given by governments, by the private sector or by the global academic economic and financial community to the magnitude of the risks that lie ahead and how imminently those risks threaten the entire global situation – politically and strategically as well as economically and financially..
If little has been done to deal with FUNDAMENTAL economic and financial problems nationally, virtually nothing has been done to confront realistically problems at the international level.
Indeed, our capacity to handle these global problems has been diminished by the marked inclination of the Group of Twenty and others to fob off responsibility for dealing with them on to the International Monetary Fund.
This is equivalent to passing the management of an asylum to one of its most incurable lunatics.
We might recall what Eddie Ward thought of the IMF.
In the early years of the Fund’s life, from the end of World War Two to the closing of the gold window by the United States in 1971, the IMF performed pretty much according to specification. Exchange rates were fixed and remained reasonably stable. There was relatively little volatility. Speculation and the migration of hot money across national frontiers were relatively modest and reasonably contained.
It looked as though Eddie was wrong.
But the record since 1971 has gone a long way towards establishing his credentials as one of the few lunatics in the asylum who turned out – over time – to be sane.
With the closing of the gold window, the IMF moved from a system in which exchange rates were fixed to one in which exchange rates were allowed to “float”. In practice, some rates floated freely while some, such as China’s renminbi, were “fixed” or pegged to the United States dollar or a basket of currencies.
This essentially floating system – or lack of system – allowed such freedom to individual governments and so diminished or abolished one of the most essential stabilising functions of the IMF that volatility of exchange rates was inevitable. This volatility is at the heart of the massive speculation or gambling – the undisguised placing of bets – that distinguishes the foreign-exchange markets today.
In addition, in “helping” countries with balance-of-payments difficulties, the IMF has lost none of its genius for turning troubled situations into financial and economic basket-cases.
The way it destroyed Argentina, for example, some years ago is typical of the way it seems still to handle critical situations in countries today which are the victims of unwise borrowing, lending and unrepayable debt.
The only way out for these current victims seems now to be the way adopted eventually by Argentina: defy the IMF and go it alone.
But there is something even more basic than that. The IMF was originally intended to establish sound rates of exchange and to maintain stability in these rates over long periods. Rules were laid down to allow some flexibility of rates under the Articles of Agreement; but there was nothing like the degree of volatility in exchange rates either for trade or, crucially, for movement of funds for whatever purposes across national frontiers, that we have seen since 1971. As a result, trading or what is effectively speculation in currencies has grown massively as the years have passed.
Now it is billions or trillions of dollars in various currencies that are traded regularly over short periods of days or weeks – or even within a single trading day.
Some of this currency trading is essential. It is the means of effecting payment for legitimate trade. It is also the means by which the flow of funds for valuable long-term fixed-capital investment can take place easily and quickly.
But, increasingly, most of the trading has been for unqualified speculation or gambling. Among other things, the volatility of the currency markets has made a farce out of the post-war goals we had in 1945 to promote free, non-discriminatory trade in competitive goods and services. That was the sort of trade envisaged under GATT and now still envisaged under WTO.
Exchange rates now vary, with little predictability, with movements, for example, in domestic interest rates.
The terms on which trade is conducted and economies compete with each other are changed significantly and frequently according to criteria which have little or nothing to do with relative efficiency or “comparative advantage” for the production of real goods and services or relative productivity of labour forces.
The carry trade has become a major “institution” globally. It stops and starts as relative interest rates rise and fall and relative exchange rates go up or down. Hot money or cold money – money traded according to urgent need or money traded according to cold calculation of speculative profit – moves as risks fluctuate. Speculation rather than legitimate trade and long-term fixed-capital investment determine exchange rates – and, incidentally, the competitive position of products of the real economy on world markets.
In the last quite short period, the Australian dollar has moved from around 50 or 60 US cents to around 90 to 98 US cents. It has been worth 0.58 of a Euro or 0.62 of a Euro over relatively short periods. Sometimes the movement has been enough to protect Australian exports as much as or more than our tariffs once did.
Sometimes it appreciates to such an extent that we lose markets in which we had reasonable expectations of establishing ourselves as steady, long-term suppliers.
The IMF does nothing to stop this speculation or to regulate it. It shows no inclination to do it in the future.
More and more each day the sums involved in the flow of largely speculative funds internationally and the creation of more and more unstable global debt raise the spectre of total breakdown of our financial system – and collapse of our real national and global economies along with it.
We have no reliable idea when such an explosive breakdown might occur or what might detonate it.
As a major trading economy relying on the well-regulated flow of funds into and out of the economy for trade and investment purposes, Australia cannot imagine it is or will be immune from developments in global currency markets. The evidence is that we have been involved – and probably are still heavily involved – in the carry trade. I do not know just how dangerously we are exposed and what will happen to us and other participants when the music stops more finally and completely than it has so far in the several cycles of stop and go in the carry trade over recent years.
But it is a high-risk situation; and the reasonable prognosis must be that significant damage could be done to individual national economies and the global economy if there is a sudden breakdown. That damage could be painful for the domestic economy – housing for example – and especially for those parts of our economy, including financial institutions, linked more directly to our external trade and payments.
The Lang Saga
Perhaps this is a good point to recall the attempted default on NSW State debt by Premier Jack Lang in the early 1930s. There is a chilling similarity between the way in which New South Wales and, more generally, Australia teetered on the edge of national “bankruptcy” at that time and the situation as it could develop now in Australia through “bankruptcy” or financial difficulties of other countries.
The last couple of years have demonstrated how difficult it is to forecast how the financial dominoes will fall once the process of collapse has begun.
In 1932, we owed much or most of our overseas debt to Britain and Britain in turn was heavily indebted to the United States. As the pressures mounted from one creditor and another, Lang tried to default rather than cut State spending. He was dismissed by the State Governor, Sir Philip Game. The Commonwealth – Australian – Government intervened to meet the State Government’s liabilities.
At that time, we had no effective central bank. In effect, the Bank of England seems to have “supervised” much of our financial management. If need be, it sent out such “advisers” as Sir Otto Niemeyer to help us toe the line.
We would like to think of ourselves as more independent and “mature” in our financial management these days.
Furthermore, my understanding is that we are this time not seriously in hock to the United Kingdom; and probably not to the United States although the carry trade, for example, seems recently to have had us actively borrowing low interest-rate currencies, including Japanese yen and United States dollars to make higher-yielding Australian “investments.”
Whatever the current situation, we need to reflect on what the impact would be on the global economy and on our own national economy if the massive and complex web of global debt were to suffer any breakdown – major or even middling to minor – over the next few weeks, months or years.
In most respects, my understanding is that the debts of the Commonwealth and States are not so large now relative to population and GDP as they were at the start of the Great Depression; but the last figure I saw for our private commercial external indebtedness suggested that those “private” debts were of the order of $A500 billion – or about half a trillion. (Household debt in Australia is said to be now more than total GDP at well over a trillion dollars.)
In any event, our external indebtedness in various forms is substantial and is mostly in currencies other than our own. If we were to have difficulty in meeting payments on those external liabilities, would we:
(1) Follow the Lang line and default;
(2) Follow the Niemeyer line and impose such harshly restrictive policies on government spending, social welfare, infrastructure investment and growth and employment as might enable us – or be thought to enable us – to pay our debts?
(3) Follow policies of growth and full employment through public and private investment which would enable us to recover and eventually, if we had had to suspend debt repayments, repay our debts rather belatedly but in full?
All of this is of course to reflect rather morbidly on what might be no more than an implausibly worst-case scenario.
At the moment, the Australian Government and people have handled the crisis with relative calm. The Australian Government has taken swift action more efficiently and convincingly than most others.
(One of the positive features of our policy has been the valuable emphasis on public investment on a wide range of infrastructure projects. A more negative feature has been rejection of the idea that we should create or acquire a major public bank – perhaps on the model of the now privatised Commonwealth Bank of Australia.)
Despite our record so far, we cannot afford to be in any way complacent and we need to keep in mind that the worst-case scenario might be more likely to emerge from the policies, faults, fecklessness and ultimately the financial collapse of other countries rather than that of Australia.
Such a collapse by one relatively small country and economy could be alarming enough but a collapse by more than one of those countries which seem currently to be seriously at risk could be devastating, not only to Australia but the whole global community.
At this stage, it is hard to define the nature, size and complexity of the risk from a possible financial default or series of defaults but certainly it or they could have global repercussions which then in turn might have a serious, even devastating impact on economies even as robust and resilient as, so far, Australia seems to have shown itself to be.
That is the background against which we must view the downgrading of some economies by some of the more prominent international rating agencies.
Admittedly, the agencies which have been rating debtors – whether individuals, corporations or national economies – have no great reputation for efficiency or integrity themselves.
They have recently downgraded Greek sovereign debt and the rating even of the United States and the United Kingdom as sovereign debtors might well be questioned at some time during 2010.
Several lesser economies are suspect, particularly in Eastern Europe. Default by Eastern Europeans could be serious for Austrian banks and any Austrian difficulties could have an impact on the wider European Union. In this way, there could be a snowballing of financial troubles through such relatively small economies as Iceland, Greece, Latvia, Hungary and other Eastern European countries to Austria and then perhaps major economies such as Spain and Italy.
Forebodings about these issues are not likely to go away because of such distractions as climate change.
My own feeling has been that climate change can be more effectively dealt with by confronting specific problems such as, for example, the use of cleaner and alternative energy sources, finding solutions to national and global water shortages and preserving our remaining forests and embracing effective policies of reafforestation.
These more focussed policies might serve us better than grander and less practical ambitions to halt or slow everything which we include under the banner of climate change, with complex processes such as those involved in emissions trading and unfocussed aid to developing countries.
Even if we find solutions to problems of the planet and its environment, the problem of debt – and increasingly the problem of sovereign debt – will still be there to haunt us and put at risk everything else we might otherwise be rationally inclined to do.
Given that the problem of debt – personal, corporate and sovereign – is massive and that it will not go away any time soon is the Government doing enough to confront it – domestically or globally?.
Is there anything that individuals, corporations and especially the Australian Government and Government leaders personally can do to confront what is a highly challenging situation?
Can we afford to stand by and watch the global economy and the global financial system – and ours as part of it – tumble into the abyss?
The first thing is that we must not fall for our own hype about recovery being on the way – and Australia being out of recession and back to being one of the luckiest of lucky countries once more. So far, the Asian economies on which we have come to depend so heavily have continued to grow – though at a slower pace than a few years ago.
We need to be constantly mindful that they – or most of them – have achieved their continuing growth only with the aid of stimuli that have been just as big if not bigger than those of the old developed economies, including ourselves. Their economies, based on real investment, productivity and production rather than smart financing, are likely to continue to do better than the United States and others; but there is no guarantee. We must acknowledge that we must work for more stability by whatever means we legitimately can.
The second thing is that we must look to real, fundamental reform of our banking and financial system – domestically – as quickly and energetically as we can. The banks and other bank-like institutions are not going to regulate themselves. If we continue to let them do what they like, they will do what suits them best and that is what lines most extravagantly the pockets of those who run them. They have taken full advantage of their freedoms and their privileges in the past two or three decades in ways that more than justify the society – the ordinary men and women of Australia – taking realistic steps to curb their conduct and practices so as to be in at least broad harmony with the society’s reasonable needs and aspirations.
Just as one example among many, we must put a stop to loan-shark rates by the “Big Four” banks as well as others. Their own statements show that they charge 19% or more on debits in customers’ accounts while paying something like 00.01% on customer credits. That must stop.
One of the inexcusable mistakes of the past couple of decades was the “privatisation” of the Commonwealth Bank of Australia – a public bank that was one of the great achievements of King O’Malley, Andrew Fisher and the Australian Labor Party, way back in 1913. Chifley built on this achievement through the Banking Act and the Commonwealth Bank Act of 1944. We should create a new public bank fundamentally on the model of the old Commonwealth Bank of Australia as a matter of prime urgency.
The third thing we should do is seek to initiate urgent talks on dealing with sovereign debt. We should not use the IMF which is an institution which has failed in its purpose – in ALL of its original purposes. It is unlikely to change its spots sufficiently to help reform the global financial system in acceptable ways now. Perhaps the Group of Twenty could be used to get the process to create a new international financial institution going but how soon will it meet again? And how effective will it be as compared with a group of Sherpas drawn from, just as one example, Australia, Brazil, Canada, China, India, Russia, Germany and the United States?
As one possibility, we should give thought to reviving the activities envisaged under the Economic and Social Provisions of the United Nations Charter. The Australian Government, led by Ben Chifley was a prime mover in having these provisions adopted during the negotiation of the UN Charter in 1944-45. We should never have allowed their implementation to decay into almost total misuse as we have done in recent decades.
These are great and urgent issues confronting Australia and the whole global community right at this moment. It will be a miracle if we achieve complete success in dealing with ALL of them; but we must try to deal with them in a way that, though less than perfect, will get us safely through the next few months and then, having set a rational process in motion, through the next few years, with whatever safety and security we can manage.
Food, Interest Rates and Credit
I do not pretend I have dealt above with all the issues that confront us.
For example, as a major world exporter of food, Australia must be concerned with global food production and shortages in both the short and longer term. We have an immediate problem of massive global short-term malnutrition and starvation and a long-term problem of rapidly growing world population, expanding demand for food as living standards rise in such countries as China and India and limited arable land available anywhere on the planet to bring into production.
Australia can and will want to play a key role in debating and resolving these problems.
At the more technical financial level, I believe that for the last forty years at least, we have failed adequately to understand how our interest-rate and credit policies should be crafted to meet our reasonable requirements for stable growth and high and stable levels of employment.
Central banks have inadvertently promoted inflation instead of managing it. In some cases – and this is threatened globally right at this moment – our interest-rate and credit policies have caused severe deflation and killed growth. The Japanese experience has been a chastening example of how wrong our policies can be; and the dangers are real that we could slip into a similar deflationary depression globally. Such a depression could be more debilitating and last longer even than that of the 1930s.
A Possible UN Role
We must try to understand such fundamental issues better. Resort to the economic and social provisions of the United Nations Charter might be one approach.
The United Nations Economic and Social Council might be revived and reconstructed as a global “supervisor” and analyst of economic and financial problems and policies. It could meet in permanent session, as the United Nations Security Council does.
Australia was one of the most active participants in the Council’s creation and in much of its early work.
When a major recession threatened in the United States in 1949, the Council appointed a distinguished international group to report on “National and International Measures for Full Employment”. The group was chaired by an Australian, Dr. E. Ronald Walker. Its report is a valuable document, still relevant to many issues which confront us today.
If we do not revive ECOSOC itself, another approach might be to institute a process for pragmatic global analysis by having ECOSOC commission “Sherpas” for specific tasks. Those “Sherpas” might include some government analysts but the groups would go beyond “official” and “expert” groups who have failed us so miserably in the past – and who continue to fail us right now.
At least, what we do not want is to continue with meetings of the Group of Twenty or of such bodies as the Organisation for Economic Cooperation and Development (OECD) which meet without adequate preparation and end with laboured communiqués of useless generalities and clichés. They are reminiscent of World Economic Conferences and other meetings during the Great Depression which achieved as little in economic benefit for us as the League of Nations achieved in slowing down our drift to world war.
Social, Political and Strategic Aspects
That brings me to the point that I have dealt essentially with financial and economic problems in this message. I know that I do not need to say it once again to you, but I emphasise for others that our financial and economic problems have social, political and strategic aspects of the highest importance. If we solve – at least to a reasonable extent – the economic and financial issues, we might have some hope and even expectation that we will be able to handle our major social, political and strategic concerns too.
At the same time, we in the developed world might help resolve our financial and economic problems by reforming and expanding our support for the developing countries. Those countries have received inadequate support for decades, not only in volume but – except inadvertently for such countries as the Asian Tigers, China and India – in its effectiveness. Now might well be an opportunity to solve problems of demand, employment and growth in the highly developed countries by setting the poorer countries more effectively on the road to real and sustained growth in the years ahead.
How important is it that we adopt policies along these lines?
If we do not resolve the major financial and economic issues, then the outlook for our global community will be grim. The Great Crash of 1929 was followed by the Great Depression of the 1930s and the Great Depression led directly to – and was in some respects “resolved” by – the greatest war that we have inflicted on ourselves until now.
If that tragic course were followed again this time, the even more terrible war which could be unleashed could bring civilisation as we know it virtually to an end.
We already have a world armed to the teeth. Through regular national armies, terrorists, militias and even some private armies, we are capable of delivering much more death and devastation than ever before. Quite apart from nuclear weapons, there are weapons in the hands of all sorts of formal and informal forces which make the arms we used in the Second World War seem almost like childish toys. Those “childish toys” killed about 20 million people.
How “efficient” will our modern weapons be?
We do not control the production and merchandising of those weapons. Certainly we do not do it effectively. To that extent, we cannot claim to be doing anything to slow our mad rush to self-destruction, either through our economic and financial policies or through our policies of “disarmament”.
“Civilisations,” Toynbee wrote, “die from suicide, not by murder.”
We could scarcely have done more than we have done in recent years to prove him right.
The sort of peaceful change which is crucial to human survival at least at a quality of life which is even remotely acceptable by the standards of our present civilisation, can be achieved only if we think, plan and act together now.
That is our task for the years ahead.
My very best wishes to you personally and to your Government, in 2010 and beyond.
James Cumes