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Monetary Reform!
« on: Dec 07, 2013, 10:01:57 am »
 

Geolibertarian

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There are quite a number of important political issues that are virtually screaming out for true reform, but if I had to pick the two most important, they would be (a) election reform, and (b) the subject of this thread -- monetary reform.

If I had the power, I would simultaneously

*  put all derivatives-infected mega-banks through Chapter 11 bankruptcy and, in the reorganization proceedings, legally void all of their derivatives contracts;

*  liquidate all of the ill-gotten assets of criminal scam artists such as Henry Paulson, Lloyd Blankfein and Jamie Dimon, and use the resultant proceeds to help replenish whatever retirement funds they raided;

*  replace our current debt-based money system with a debt-free "Greenback" money system, whereby all new money -- instead of being loaned into circulation at interest -- is spent into circulation at no interest to fund both (a) the production and repair of public goods everyone can see and benefit from (e.g., roads and bridges) and (b) a "National Dividend" -- all at a rate pegged by law to the general price level; and

*  institute a new round of international agreements modeled on the Bretton Woods Accords, with an aim towards replacing the current “floating” exchange rates for national currencies with a fixed rate that, as such, is pegged to the value of either an agreed-upon standardized price index or an agreed-upon “basket” of diverse, widely available, everyday commodities (more on this here).

Now, since derivatives are just glorified gambling bets, and since the derivatives bubble dwarfs not only the most liberal estimate of the U.S. money suppply, but the annual productive output of the entire planet, I think it's important to stress that the monetary issue is actually composed of two logically distinct sub-issues: (a) derivatives, and (b) fractional reserve banking.

In my next two posts I'll address each of those sub-issues in turn.
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #1 on: Dec 07, 2013, 10:02:20 am »
 

Geolibertarian

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Of all the artricles I've read concerning derivatives, I've yet to see one in which the issue of "consideration" is specifically addressed.

For those unfamiliar with the concept of "consideration" as it relates to finance, allow me to provide a brief introduction.

First there's the following video clip:

       http://www.youtube.com/watch?v=xSqi1N_RrUs (Daly v First National Bank of Montgomery)

Then there's the following written explanation (which, although excerpted from a web site based in India, is nevertheless the most straightforward explanation I've seen yet):

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http://business.gov.in/manage_business/contracts_elements.php

Essential Elements of a Contract  

Minimum two parties:  At least two parties are needed to enter into a contact. One party has to make an offer and other must accept it. The person who makes the 'proposal' or 'offer' is called the 'promisor' or 'offeror'. While, the person to whom the offer is made is called the 'offeree' and the person who accepts the offer is called the 'acceptor'....

Lawful consideration:  A contract is basically a bargain between two parties, each receiving 'something' of value or benefit to them. This 'something' is described in law as 'consideration'. Consideration is an essential element of a valid contract. It is the price for which the promise of the other is bought. A contract without consideration is void. The consideration may be in the form of money, services rendered, goods exchanged or a sacrifice which is of value to the other party. This consideration may be past, present or future, but it must be lawful....

Lawful object:  The object of the agreement must be lawful. An agreement is unlawful, if it is: (i) illegal (ii) immoral (iii) fraudulent (iv) of a nature that, if permitted, it would defeat the provisions of any law (v) causes injury to the person or property of another (vi) opposed to public policy.
 
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As some of you already know, an airtight case could be made for invalidating virtually all bank loans on the ground that no "lawful consideration" was made on the part of the banks, since the "money" they offer as consideration for the borrower's promise to repay doesn't really exist. (Ellen Brown explains this more thoroughly here.)

I oppose invalidating traditional bank loans, however, because doing so would cause the entire money supply to collapse and the economy along with it. That's where "converting the existing volume of bank credit into actual money having an existence independent of debt" (while simultaneously abolishing fractional reserve banking) comes in.

Derivatives, however, are another story. Allow me to explain, as best I can, why derivatives contracts are more fraudulent -- and many times more parasitic and destructive -- than even fractional reserve lending, and why they should be invalidated accordingly.

When a regular bank loan is made, the collateral-backed IOU offered by the borrower becomes an "asset" of the bank, while the money offered by the bank becomes an "asset" of the borrower.  Granted, the so-called "money" offered by the bank doesn't even exist until the very moment the loan is extended, and even then exists only as a bookkeeping entry; but at least each party is going through the pretense of offering one legitimate financial asset as "lawful consideration" for another.

Such is not the case with derivatives, because these are mere bets as to whether a given asset will go up in market value.

Ellen Brown explains it this way (all emphasis original):

----------------------------------

In a 1998 interview, John Hoefle, the banking columnist for EIR [Executive Intelligence Review], clarified the derivatives phenomenon using another colorful analogy. He said:

    During the 1980s, you had the creation of a huge financial bubble....You could look at that as fleas who set up a trading empire on a dog....They start pumping more and more blood out of the dog to support their trading, and then at a certain point, the amount of blood that they're trading exceeds what they can pump from the dog, without killing the dog. The dog begins to get very sick. So being clever little critters, what they do, is they switch to trading in blood futures. And since there's no connection -- they break the connection between the blood available and the amount you can trade, then you can have a real explosion of trading, and that's what the derivatives market represents. And so now you've had this explosion of trading in blood futures which is going right up to the point that now the dog is on the verge of dying. And that's essentially what the derivatives market is. It's the last gasp of a financial bubble.

What has broken the connection between "the blood available and the amount you can trade" is that derivatives are not assets. They are just bets on what the asset will do, and the bet can be placed with very little "real" money down. Most of the money is borrowed from banks that create it on a computer screen as it is lent. The connection with reality has been severed so completely that the market for over-the-counter derivatives has now reached many times the money supply of the world. Since these private bets are unreported and unregulated, nobody knows exactly how much money is riding on them; but the Bank for International Settlements reported that in the first half of 2006, their "notional value" had soared to a record $370 trillion. The notional value of a derivative is a hypothetical number described as "the number of units of an asset underlying the contract, multiplied by the spot price of the asset."  Synonyms for "notional" include "fanciful, not based on fact, dubious, imaginary." Just how fanciful these values actually are is evident in the numbers: $370 trillion is 28 times the $13 trillion annual output of the entire U.S. economy. In 2005, the total annual productive output of the world was only $44.4 trillion....

How are these astronomical derivative sums even possible? The answer, again, is that derivatives are just bets, and gamblers can bet any amount of money they want. Gary Novak is a scientist with a website devoted to simplifying complex issues. He writes, "It's like two persons flipping a coin for a trillion dollars, and afterwards someone owes a trillion dollars which never existed." He calls it "funny money." Like the Mississippi Bubble, the derivatives bubble is built on something that doesn't really exist; and when the losers cannot afford to pay up on their futures bets, the scheme must collapse. Either that, or the taxpayers will be saddled with the bill for the largest bailout in history.

-- Web of Debt, pp. 195-97

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In light of the above, may I correctly assume that the person reading this will agree with me when I say that Webster Tarpley was absolutely spot on when he wrote the following?

    FOR RECOVERY, WIPE OUT, SHRED, DELETE ALL DERIVATIVES
      
    J.P. Morgan Chase, therefore, performs no useful or productive social function, and there is absolutely no reason in the world why the people of the United States should want to bail out this pernicious and socially destructive institution. It has probably been several decades since J.P. Morgan Chase created a single modern productive job. J.P. Morgan Chase's strategic commitment in favor of the derivatives bubble means essentially that we can easily dispense with most of the functions of this self-styled "bank," really a casino. Instead of being bailed out, J.P. Morgan Chase ought therefore to be seized by the Federal Deposit Insurance Corporation, and put through chapter 11 bankruptcy. In the course of that bankruptcy reorganization, the entire derivatives book of J.P. Morgan Chase must be deleted, shredded, used as a Yule log, or employed to stoke a festive bonfire of the derivatives. The world did much better when there were no derivatives, and will get along just fine without them.

"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #2 on: Dec 07, 2013, 10:02:46 am »
 

Geolibertarian

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For those who haven't already done so, please take 47 minutes of your time and watch the documentary film, Money As Debt:

     http://www.youtube.com/watch?v=e6LWqgohO4E

Since it's possible that, by the time you read this, the Money As Debt documentary will no longer be viewable at the above link (videos get taken down all the time), I will now -- for the benefit of any relative newcomers who may be learning about all this for the first time -- attempt to explain in my own words how our debt-based money system actually works.

Under the current system, all money is created out of nothing by a private banking cartel and then loaned into circulation at interest -- first by the Federal Reserve, via its purchase of government bonds; and second by commercial banks, via fractional reserve lending.

There are two critical problems with this process.

First, when banks loan (and thereby create) money, they create only the principal, not the interest. This is why the overall indebtedness of the economy is always many times greater than even the most liberal estimate of the money supply. Granted, if no one borrowed, there would be no interest to pay; but there would also be no money supply, and thus no economy.

Second, because all money is created as a loan, whenever the principal of a loan is paid back, the money supply is reduced by that amount.

Allow me to clarify with an example. For the sake of simplicity, let's assume the money supply is currently zero, and that there are only two people in the economy -- Person A and Person B.

Next, let's assume that a newly chartered local bank -- which I'll call Bank X -- has $200 in "excess reserves" (presumably loaned to it by a central bank through a "discount window").

If Bank X loans Persons A & B $100 each and charges them 10% interest, then the money supply increases to $200, total indebtedness increases to $220, and Bank X's excess reserves are exhausted (meaning it can't create additional money by monetizing debt).

Now, if you're Person A, the question arises: since you owe Bank X $110, yet have only $100 to your name, how can you get the extra $10 you need to get out of debt?

Not by going to work for the bank, because Bank X hasn't even received its first interest payment yet, and so has no interest to spend back into the economy.

Thus, the only way you can obtain the $10 you need is by producing a good or service with your labor and offering it to Person B for that very amount. In this way, you "capture" -- through the process of production-and-exchange -- the necessary portion of Person B's loan principal to pay the interest you owe.

Even though money has "circulated" as a result of this transaction, the money supply is still $200. The only thing that has changed is the distribution of that supply, because you now have $110, while Person B has only $90.

Now, here is where we get to the heart of the matter.

When you go to Bank X and pay the $110 you owe, the principal portion of that loan -- $100 -- vanishes back into the nothing from which it was created, while your $10 interest payment goes into Bank X's capital assets. Thus, the most that Bank X can spend back into the economy is $10. Let's assume it does so by paying Person B $10 to wax its floors.

This brings the money supply back up to $100, thereby leaving Person B with $10 of unpayable interest debt –- a debt that will now proceed to compound over time (see http://www.wealthmoney.org/economic-slavery/).

Since the average reader usually concludes at this point of the illustration that the interest debt generated by fractional reserve lending is, by definition, "unpayable" -- and that there is thus a built-in shortage of money -- it is at this same point that debt-money apologists attempt to impress everyone with their knowledge of mathematics.

They do so by asserting that the interest income received by Bank X can be recirculated over and over again -- via "amortization" -- until only a tiny fraction (less than one-half of one percent) of outstanding interest debt remains.

Now, in a purely abstract construct, Person B can, indeed, pay back all but a tiny fraction of the interest he owes, if...

(a) he pays it back a little at a time over the course of, say, five years, with one part of each payment going to pay down the principal, and the other part going to pay down the interest;

(b) Bank X automatically spends all (rather than some) of the interest income it receives from Person B back into the economy; and

(c) this recirculated interest always winds up in Person B's hands and not someone else's.

Thus, if Person B's first payment (assuming a five-year payment plan) is $2.12, $.83 of that goes toward paying off the interest, while the other $1.29 goes towards paying off the principal. Bank X then pays its teller $.83 as wages. Person B mows the bank teller's lawn for $.83, thereby "recapturing" the interest portion paid so far. Person B now possesses $98.71.

In the second payment, Person B pays $2.12 as before, only this time $.82 goes toward paying off the interest, while $1.30 goes toward paying off the principal. Thus, the most Bank X can pay its teller this time around is $.82, which means that, no matter how hard Person B works, the most he can recapture from the bank teller is $.82. Let's assume he does so by mowing her lawn again. Person B now possesses $98.41.

You see how it works? The reason Person B must accept increasingly lower wages for the same work is that, after each payment, there is literally that much less recirculated interest in the economy for him to recapture through production-and-exchange.

That's how it works in a purely abstract construct.

In a real-world construct, however, this theory of Person B paying off his interest debt through amortized payments simply doesn’t work, because real-world constraints have to be assumed out of existence.

There's an old economics joke that goes:

    "How many economists does it take to change a light bulb?

    "Two -- one to change the bulb, another to 'assume' a ladder."

What is being falsely "assumed" in this case are two things:

Assumption 1: as Person B’s wages decrease (not because his labor is “valued” less, but because there is literally less money in existence with which to pay him for that labor), his basic cost of living will decrease right along with them -- i.e., grocery store owners will conveniently ask for less money in exchange for the same food; clothing store owners will conveniently ask for less money in exchange for the same clothes; and apartment building owners will conveniently ask for less money exchange for the same apartments.

Assumption 2: as the money supply contracts, employment opportunities (the very thing Person B relies upon to recapture recirculated interest) will remain constant.

The first assumption is absurd, because as any experienced businessman will tell you, there’s a break-even point (between operating costs and sales revenue) below which business owners simply cannot lower prices without bankrupting themselves in the process.  

The second assumption is even more absurd, because history has shown over and over again that money supply contractions not only cause unemployment, but severe unemployment -- the most obvious case in point being the depression-inducing contraction of the early 1930s.

It therefore follows that amortization does not solve the money-shortage problem, because there are simply too many critical aspects of daily reality that must be assumed out of existence in order for it to work.

So, to summarize, under the current debt-based money system there is a built-in shortage of money, due to

  • the fact that money is "uncreated" whenever the principal of a bank loan is repaid; and
  • the fact that the money needed to pay the interest on that loan is never created in the first place (which means interest can never truly be paid off, but merely shifted to someone else).

That more than anything else is what creates our dog-eat-dog, musical chairs economy -- an economy in which millions of people work frantically to capture other people's loan principal; and in which virtually everyone works (to one extent or another, and whether they realize it or not) as indentured servants to the banking elite.

Austrian School propagandists routinely suggest or imply that a necessary ingredient to solving this problem is to simply halt or slow the creation (or "printing") of money, but as any objective observer can now see, not only would that not solve anything -- since it would neither hault nor even slow the compounding of the countless billions in unpayable interest debt that hangs over our heads -- it would, by increasing the built-in money shortage, merely excelerate the speed by which the banking elite could foreclose on countless properties and businesses nationwide (a fraud-based looting of the real economy that Austrian School cranks like to euphemistically call a market-based “correction” or “adjustment”).

Now, does that mean more “spending” is the answer? No, because at present, more government spending means either more debt or more tax hikes (or both), and we can no more borrow our way out of a debt-caused depression than we can tax an already overtaxed economy into prosperity.

The solution is to go to the root of the problem by instituting a debt-free money system in place of the current debt-based system!

If you understand and agree with me thus far, you may now be asking: "How can we institute such a system without creating either runaway hyperinflation or a depression-inducing money supply contraction in the process?”

I'll address that question in my next post.
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #3 on: Dec 07, 2013, 10:03:35 am »
 

Geolibertarian

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Many proposals have been made over the years on how to switch from a debt-based money system to a debt-free money system.

IMHO, the most sensible and desirable proposal is the one put forth by Robert De Fremery in his book, Rights vs. Privileges.

To understand why, please read the following excerpts (all emphasis original):

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"There are those who believe that once bank credit has been allowed to expand, nothing can be done to prevent a collapse (that is, nothing economically sound and consistent with a free economic system). The Austrian school -- best represented by the writings of Ludwig von Mises -- takes this stand as evidenced in the following statement: 'There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.' (Human Action, p. 570).

"Dr. von Mises believes that the expansion of bank credit causes malinvestment and squandering of scarce factors of production that will inevitably lead to a crash and ensuing depression. But a more plausible theory is that all economic activity is continually reaching a new equilibrium between the total circulating medium of exchange and the goods and services being offered for it. In other words, an expansion of bank credit leads to a collapse not because of mis-directions in production but rather because of the operation of Gresham's Law. The use of bank credit as a medium of exchange gives us what Bishop Berkeley called a 'double money.' Even though bank credit is supposedly convertible into money on demand, nevertheless it is not as good as money. It is a short sale of money. And as the volume of these shortsales increases it is inevitable that Gresham's Law will eventually operate, i.e., the undervalued money (gold or legal tender 'fiat' money) will be exported or hoarded -- thus causing a collapse of bank credit.

"According to this theory, it is possible to avoid a collapse following a period of credit expansion simply by converting the existing volume of bank credit into actual money having an existence independent of debt, and at the same time take away the banking system's privilege of creating any more credit, i.e., force banks to confine their lending operations to the lending of existing funds."

-- Robert De Fremery, Rights vs. Privileges, pp. 49-50


"There are some people who look with distrust upon 'printing press' or 'fiat' money. But they overlook one of the basic facts about money. It is true that we need a 'hard' money. But we should not make the mistake of associating 'hardness' with convertibility into gold. The essence of a hard money is not determined by the material of which it is composed -- or the material into which it is convertible. The essence of a hard money is that its supply is fairly stable and there are precise limits to it. In other words, gold itself is a comparatively hard money because the supply of gold is inelastic. Bank credit convertible into gold is a very soft money because it is elastic and there are no precise limits to its supply, i.e., it expands and contracts. And a purely paper or 'fiat' money can be a hard money if we set precise limits to its supply, or it can be a soft money if we set no limits to its supply."

-- Ibid., pp. 54-5


"Soothing words about the effectiveness of 'government mechanisms' to deal with a liquidity crisis will not allay the fears of those who know its cause. There is only one thing that will allay those fears and that is to put our depository intermediaries on a sound basis. To do this we must convert the existing volume of bank credit into actual money and require banks to stop the unsound practice of borrowing short to lend long.

"Under this stabalized system banks would have two sections: a deposit or checking-account system and a savings-and-loan section. The deposit section would merely be a warehouse for money. All demand deposits would be backed dollar for dollar by actual currency in the vaults of the bank. The savings-and-loan section would sell Certificates of Deposit (CDs) of varying maturities—from 30 days to 20 years—to obtain funds that could be safely loaned for comparable periods of time. Thus money obtained by the sale of 30-day, one-year and five-year CDs, etc., could be loaned for 30 days, one year and five years respectively—not longer. Banks would then be fully liquid at all times and never again need fear a liquidity crisis."

-- Ibid., pp. 84-5


"Since the objective is to have a 100% cash reserve (legal tender) behind all demand deposits, the U.S. Treasury would be ordered by Congress to have printed and then loaned to the banks sufficient new currency to fulfill that objective. In determining the amount to be borrowed, banks would treat their legal reserves at their local Federal Reserve Bank as cash. Those reserves will become actual cash as explained later.

"The debt incurred by each commercial bank to the Treasury could be immediately reduced by the amount of U.S. securities each bank held—simply a cancellation of mutual indebtedness. Henceforth the commercial banks would be prohibited from using the cash reserves behind their demand deposits for their own interest and profit. Those cash reserves belong to the depositors. They are funds against which the depositors wish to draw checks.

"On the day the cash reserves of banks are brought up to 100% of their demand liabilities, they would have outstanding loans which I shall call 'old loans' as distinguished from the new loans that will be made in the future. As these old loans are paid off, each bank would be required to use these funds to pay off their savings and time depositors, and offer them, as an alternative, negotiable CDs. There would be no restriction of any sort on the issuance of such CDs. The maturity dates, the amounts, and the rate of interest would be set by each bank. But banks would not be allowed to lend the funds so obtained for a longer period of time than those funds were available to them; i.e., they would be required to maintain the back-to-back relation suggested by George Moore.

"After each bank had paid off its time depositors, it would still have a sizable amount of 'old' loans outstanding. As the rest of these old loans were paid off, these funds would be used to further reduce the banks’ indebtedness to the Treasury. The treasury, in turn, would be required to use these funds to retire U.S. obligations held by investors outside the banking system. And as the Treasury did this, these investors would presumably buy negotiable CDs offered by the banks.

"Any remaining indebtedness of the banks to the Treasury could be paid off with funds derived from the sale of their 'Other Securities.' Indeed, a good argument can be made for having the Treasury figure in advance how much of each bank’s securities are going to have to be sold and require them to start selling those securities gradually, the day the changeover is made.

"As for the Federal Reserve Banks, they too should borrow from the Treasury sufficient new currency to bring their cash reserves up to 100% of their demand deposits (funds deposited by their member banks for safekeeping plus all government funds against which checks are being drawn by the government). The indebtedness of the Federal Reserve Banks to the Treasury could immediately be canceled by a mutual cancellation of indebtedness as was done by the commercial banks, i.e. by canceling an equivalent amount of U.S. obligations held by the Federal Reserve Banks. The remaining U.S. obligations held by the Federal Reserve Banks should also be canceled in view of the fact that they had originally been bought by the mere creation of bookkeeping entries. That practice would be abolished.

"The supply of money would now consist of the total coin and currency in existence, i.e., the amount previously existing plus the amount newly printed and loaned to the commercial banks and the Federal Reserve Banks. There would no longer be any confusion about what was meant by the supply of money. And the money supply would no longer be altered by such things as the lending activities of banks, or the decisions of individuals to switch funds from a checking account to CDs, or the payment of taxes to the U.S. Treasury, or the disbursement of funds by the Treasury, etc. Whenever an increase in the money supply was needed according to whatever rule of law was adopted (a strong case can be made for a 'population dollar', i.e., a constant per capita supply of dollars), the increase could be made with absolute precision by simply retiring that much of the remaining National Debt with the new money.

"S&Ls and MSBs [money services businesses] should be made to operate as they were originally intended, i.e., those who place their funds in such institutions must be reminded that they are shareholders and that they can draw their funds out only when those funds are available for withdrawal. A run on such institutions would no longer be a threat to the banking world. Nor would the failure of bankruptcy of any large bank, corporation, or municipality be the threat to the banking world that it is today. Any such poorly managed entity could, and should, be allowed to go through bankruptcy. There would be no danger of precipitating the type of financial stringency or credit crisis that is feared so much under our present financial system, and justifiably so.

"The multitude of governmental lending agencies that have arisen since the early ‘30s should be dismantled. The lending of money is not a proper function of government. It has been sanctioned so far because banks operated in such a way as to imperil a continuous flow of funds to areas that needed it. With banks now operating on a sound basis, free market forces should be relied upon to keep money flowing in the most healthful manner for all.

"Having corrected the destabilizing element of our monetary system, we should reject the concept of deficit financing and a compensatory budget. Those concepts arose under the old system because when the business and investment world lost confidence—thus leading to a contraction in the supply and/or velocity of money—the government was forced to indulge in deficit financing to try to keep the supply and/or velocity of money from contracting too far. Under the new system the supply of money is non-collapsible and therefore changes in the velocity of money (caused by changes in liquidity preference) would be minimal and self-regulating.

"Government supervision or regulation of banks would now be greatly simplified. In place of all the governmental agencies with overlapping functions that are busily engaged in regulating various activities of banks, we need have only one agency. Its sole function would be to make certain each bank is keeping its cash reserves at 100% of its demand deposits, and that the maturity profile of its outstanding CDs meshes with the maturity profile of its loan portfolio. Except for these restrictions, banks would be free to set the amounts, the maturity dates, and the rates of interest on the CDs they issued. They would also be free to make loans for any purpose they pleased, secured by any collateral they deemed adequate."

-- Ibid., pp. 117-121

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The reform I advocate is the same as De Fremery's, but with two exceptions:

1.  We should mandate by law that new money be issued to fund only (a) the production and repair of public goods that everyone can see and benefit from, and that add to the productive capacity of the economy (roads & bridges and maglev rail would qualify as public goods; prisons and military weapons would not), and (b) a "National Dividend" (see this and this).

2.  Instead of instituting what I consider to be an overly-rigid "population standard" -- whereby the money supply is allowed to expand only to the extent necessary to keep the per capita supply of dollars constant -- we should mandate by law that the debt-free expansion rate of our money supply be such that (a) the per capita supply of money never falls (thus guarding against depression-inducing contractions, such as the 1/3 contraction that caused the Great Depression), (b) the money supply never increases by more than 1/3 in any given year (thus guarding against runaway hyperinflation), and (c) new money issuance is moderately adjusted inversely with the rise or fall of the general price level.

The third requirement is what would keep prices relatively stable, while the first two are fail-safe measures to ensure that no adjustment to the money supply expansion rate is ever so extreme in either direction as to cause economic chaos. No Yugoslavian-style hyperinflation (or anything close to it); no Great Depression-style deflation (or anything close to it).
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #4 on: Dec 07, 2013, 10:04:38 am »
 

Geolibertarian

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For anyone new to this, below are some additional monetary reform measures, any one of which would be an enormous improvement over the current system:

Ellen Brown's Monetary Proposal

       http://webofdebt.wordpress.com/monetary-proposal/

Richard C. Cook’s “Greenback and National Dividend” Proposal

       http://www.globalresearch.ca/video-the-solution-to-the-economic-crisis-credit-as-a-public-utility/12932

The American Monetary Act

       http://www.infowars.com/?p=4174
       http://www.monetary.org/wp-content/uploads/2010/11/amacolorpamphlet.pdf
   
The American Transportation Act

       http://www.wealthmoney.org/articles/transportation-act/
       http://www.wealthmoney.org/articles/what-would-happen-with-debt-free-money/
       http://www.youtube.com/user/TheByronDaleChannel

The Monetary Reform Act

       http://www.themoneymasters.com/monetary-reform-act/
       http://www.youtube.com/watch?v=nNumEm2NzQA
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #5 on: Dec 07, 2013, 10:11:53 am »
 

Geolibertarian

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Below is another key excerpt from Ellen Brown's book, Web of Debt:

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http://www.webofdebt.com/excerpts/chapter-37.php

Chapter 37

THE MONEY QUESTION:
GOLDBUGS AND GREENBACKERS DEBATE



You shall not crucify mankind upon a cross of gold.
    -- William Jennings Bryan, 1896 Democratic Convention


At opposite ends of the debate over the money question in the 1890s were the "Goldbugs," led by the bankers, and the "Greenbackers," who were chiefly farmers and laborers. The use of the term "Goldbug" has been traced to the 1896 Presidential election, when supporters of gold money took to wearing lapel pins of small insects to show their position. The Greenbackers at the other extreme were suspicious of a money system dependent on the bankers' gold, having felt its crushing effects in their own lives. As Vernon Parrington summarized their position in the 1920s:

    To allow the bankers to erect a monetary system on gold is to subject the producer to the money-broker and measure deferred payments by a yardstick that lengthens or shortens from year to year. The only safe and rational currency is a national currency based on the national credit, sponsored by the state, flexible, and controlled in the interests of the people as a whole.

The Goldbugs countered that currency backed only by the national credit was too easily inflated by unscrupulous politicians. Gold, they insisted, was the only stable medium of exchange. They called it "sound money" or "honest money." Gold had the weight of history to recommend it, having been used as money for 5,000 years. It had to be extracted from the earth under difficult and often dangerous circumstances, and the earth had only so much of it to relinquish. The supply of it was therefore relatively fixed. The virtue of gold was that it was a rare commodity that could not be inflated by irresponsible governments out of all proportion to the supply of goods and services.

The Greenbackers responded that gold's scarcity, far from being a virtue, was actually its major drawback as a medium of exchange. Gold coins might be "honest money," but their scarcity had led governments to condone dishonest money, the sleight of hand known as "fractional reserve" banking. Governments that were barred from creating their own paper money would just borrow it from banks that created it and then demanded it back with interest. As Stephen Zarlenga notes in The Lost Science of Money:

    All of the plausible sounding gold standard theory could not change or hide the fact that, in order to function, the system had to mix paper credits with gold in domestic economies. Even after this addition, the mixed gold and credit standard could not properly service the growing economies. They periodically broke down with dire domestic and international results. In the worst such breakdown, the Great Crash and Depression of 1929-33, . . . it was widely noted that those countries did best that left the gold standard soonest.

The debate between these two camps still rages. However, today the Goldbugs are not the bankers but are in the money reform camp along with the Greenbackers. Both factions are opposed to the current banking system, but they disagree on how to fix it. That is one reason the modern money reform movement hasn't made much headway politically. As Machiavelli said in the sixteenth century, "He who introduces a new order of things has all those who profit from the old order as his enemies, and he has only lukewarm allies in all those who might profit from the new." Maverick reformers continue to argue among themselves, while the bankers and their hired economists march in lockstep, fortified by media they have purchased and laws they have gotten passed, using the powerful leverage of their bank-created fiat money.

Congressman Ron Paul of Texas is one of the few contemporary politicians to boldly challenge the monetary scheme in Congress. He is also a Goldbug, who argued in a February 2006 address to Congress:

    It has been said, rightly, that he who holds the gold makes the rules. In earlier times it was readily accepted that fair and honest trade required an exchange for something of real value . . . . As governments grew in power they assumed monopoly control over money. . . . In time governments learned to outspend their revenues {and sought} more gold by conquering other nations. . . . When gold no longer could be obtained, their military might crumbled.

    . . . Today the principles are the same, but the process is quite different. Gold no longer is the currency of the realm; paper is. The truth now is: "He who prints the money makes the rules". . . . Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system.

    . . . The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value.

Modern-day Greenbackers, while having the highest regard for Congressman Paul's valiant one-man crusade, would no doubt debate the details; and one highly debatable detail is his assertion that it is the government that now has monopoly control over money, and it is the government that is counterfeiting the money supply.  Greenbackers might say that the government should have monopoly control over money creation, but it doesn’t. Wars are fought, not to preserve the dollars of the U.S. government, but to preserve the Federal Reserve Notes of a private banking cartel. It is this private cartel that has monopoly control over money, and its monopoly grew out of a shell game called "fractional reserve banking," which grew out of the very "gold standard" the Goldbugs seek to reinstate. We have been deluded into thinking that what is wrong with the system is that the government has a monopoly over creating the money supply. The government lost its monopoly when King George forbade the colonies from printing their own money in the eighteenth century. Banks have created most of the national money supply for most of our national history. The government itself must beg from this private cartel to get the money it needs; and it is this mounting debt to an elite class of banker-financiers, not profligate government spending on social goods, that has brought the United States and most other countries to the brink of bankruptcy. If Congress had used its Constitutional power to create money to fund its own operations, it would not have needed to pursue imperialistic foreign wars to extort money from its neighbors.

[Continued...]

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"Abolish all taxation save that upon land values." -- Henry George

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Re: Monetary Reform!
« Reply #6 on: Dec 07, 2013, 10:12:51 am »
 

Geolibertarian

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Since Ellen Brown, Richard C. Cook, Byron Dale, Stephen Zarlenga, and the makers of both The Money Masters and the recently-released sequel, The Secret of Oz, all advocate instituting a modern-day "Greenback" system, and since "Goldbugs" usually cry foul whenever this is proposed, it's worth considering the following excerpt (all emphasis original) from pages 453-65 of monetary historian Stephen Zarlenga's masterwork, The Lost Science of Money:

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Thanks to over a century of relentless propaganda, the image of the Greenbacks comes down to us as worthless paper money. But upon more careful examination, on balance they were probably the best money system America has ever had....Demonstrating how far monetary history has been distorted, readers may be surprised to learn that every Greenback printed was ultimately as valuable as its gold equivalent, and became redeemable for gold coinage at full value. Today the Greenback supporters are erroneously presented as merely being pro-inflation or against sound money. What they really wanted was a more honest money system, controlled by government, instead of banks....

They [Greenbacks] were receivable for all dues and taxes to the U.S., except import duties, which still had to be paid in coin. The Greenbacks were payable for all claims against the U.S. except interest on bonds which was still payable in coin. The Greenbacks were declared a legal tender for all other debts, public and private....

Greenback critics argue that they were inflationary and mistakenly measure the inflation against gold, starting at equal to a gold dollar in early 1862, and falling to 36 cents against a gold dollar by mid 1864. So one gold dollar exchanged for nearly $2.50 in Greenbacks. That is often the whole of their analysis and it is very misleading. Actually the Greenbacks did drop against gold; first to 58 cents at the end of 1862, then back up to 82 cents in mid 1863 and then down to a brief low of 36 cents on July 16, 1864.

From that point they moved up steadily, averaging 39 cents for August; 45 cents for September; and 48 cents for October, 1864. They retreated to $0.44 in December, and averaged $0.68 for December 1865. From there they gradually rose to $1.00, at par with gold in December 1878. Greenbacks became freely convertible into gold, dollar for dollar, in January 1879....

Economists mistakenly argue that it was only because the Greenbacks were eventually made convertible into gold by law, that made them hold and increase their value. However, that law was a hard fought political struggle, dependent on the 1868 presidential election. The battle could have gone either way and the actual "resumption" law could not get passed by Congress until 1874, for implementation in 1879. This could not have kept the Greenback from further declines, and start moving it upward back in mid-1864.

What did occur in July 1864 was that our government put a limit of $450 million on the Greenbacks and from that month they started rising (i.e. gold began falling in terms of Greenbacks)....

While the Greenbacks lost substantial value for a period, the nation was engaged in the bloodiest war in its history, in which 13% of the population served in the armed forces and 625,000 died....Is it reasonable to expect that any government in those circumstances could completely protect its citizens from financial and other hardships?

[Economic historian Irwin] Unger has noted that:

    "It is now clear that inflation would have occurred even without the Greenback issue."

And comparing a wartime inflation under a government run money system (the Civil War) to wartime inflation under a private banker run system (WW I), Civil War historian [J.G.] Randall wrote:

    "The threat of inflation was more effectively curbed during the Civil War than during the First World War."....

The fact that the Greenbacks were not accepted for import duties may also have been an important negative factor against the currency:

"Hence it has been argued that the Greenback circulation issued in 1862 might have kept at par with gold if it, too, had been made receivable for all payments to the Government," wrote financial historian [Davis Rich] Dewey.

Also, if interest payments on government bonds had been paid in Greenbacks instead of gold, a large part of the demand for gold would have disappeared.



----------------------------------

So the bottom line is that, contrary to popular myth, Greenbacks actually performed quite well (particularly given the extreme circumstances in which they were issued), and would have functioned even better if they had been made receivable for the payment of both import duties and interest on government bonds, and would have functioned better still if they had been issued for the production, rather than destruction, of public goods.
"Abolish all taxation save that upon land values." -- Henry George

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Re: Monetary Reform!
« Reply #7 on: Dec 07, 2013, 10:13:30 am »
 

Geolibertarian

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Two more essential excerpts (all emphasis original) from The Lost Science of Money:

----------------------------------

[Andrew] Jackson and Van Buren removed the monetary power from the private bankers but did not re-establish it in the hands of the nation. Instead, Van Buren organized the Independent Treasury System, establishing 15 sub branches of the Treasury to handle government moneys in 1840. From December 1836 the government moved toward making and receiving all payments in coinage, or truly convertible bank notes....Once the state bank notes were no longer accepted by the government, their circulation was cut back dramatically.

This was the closest our nation has ever come to implementing a real gold/silver standard. Operating under the commodity theory of money, Van Buren, who truly cared for the Republic, helped bring on the worst depression the Nation had ever seen, starting in 1837. It was reportedly even worse than that caused by the 2nd Bank of the U.S. in 1819. Bad as the state bank notes were, they had still been functioning as money!

Those who proclaim that no gold and silver money system has ever failed should consider that whether you are a laborer, farmer, or industrialist, the money system's success or failure is not measured by the value of a piece of metal. When your job, your farm, or factory has disappeared in a monetarily created depression, the system has failed!

-- Stephen Zarlenga, The Lost Science of Money, p. 426


The great German hyper-inflation of 1922-1923 is one of the most widely cited examples by those who insist that private bankers, not governments, should control the money system. What is practically unknown about that sordid affair is that it occurred under the auspices of a privately owned and controlled central bank.

Up to then the Reichsbank had a form of private ownership but with substantial public control; the President and Directors were officials of the German government, appointed by the Emperor for life. There was a sharing of the revenue of the central bank between the private shareholders and the government. But shareholders had no power to determine policy.

The Allies' plan for the reconstruction of Germany after WWI came to be known as the Dawes Plan, named after General Charles Gates Dawes, a Chicago banker. The foreign experts delegated by the League of Nations to guide the economic recovery of Germany wanted a more free market orientation for the German central bank.

[Hjalmar] Schacht relates how the Allies had insisted that the Reichsbank be made more independent from the government:

"On May 26, 1922, the law establishing the independence of the Reichsbank and withdrawing from the Chancellor of the Reich any influence on the conduct of the Bank's business was promulgated."

This granting of total private control over the German currency became a key factor in the worst inflation of modern times.

The stage had already been set by the immense reparations payments. That they were payable in foreign currency would place a great continuing pressure on the Reichsmark far into the future.

HOW IS A CURRENCY DESTROYED?

In a sentence, a currency is destroyed by issuing or creating tremendously excessive amounts of it. Not just too much of it but far too much. This excessive issue can happen in several ways, for example by British counterfeiting as occurred with the U.S. Continental Currency, and with the French Assignats. The central bank itself might print too much currency, or the central bank might allow speculators to destroy a currency through excessive short selling of it, similar to short selling a company's shares, in effect allowing speculators to "issue" the currency.

The destruction of an already pressured national currency through speculation is what concerns us in this case. A related process was recently allowed to destroy several Asian currencies, which dropped over 50% against the Dollar in a few months time, in 1997-98, threatening the livelihood of millions.

It works like this: First there is some obvious weakness involved in the currency. In Germany's case it was World War One, and the need for foreign currency for reparations payments. In the case of the Asian countries, they had a need for U.S. dollars in order to repay foreign debts coming due.

Such problems can be solved over time and usually require national contribution toward their solution, in the form of taxes or temporary lowering of living standards. However, because currency speculation on a scale large enough to affect the currency's value is still erroneously viewed as a legitimate activity, private currency speculators can make a weak situation immeasurably worse and take billions of dollars in "profits" out of the situation by selling short the currency in question. This doesn't just involve selling currency that they own but making contracts to sell currency that they don't own -- to sell it short.

If done in large amounts, in a weak situation, such short selling soon has self-fulfilling results, driving down the value of the currency faster and further than it otherwise would have fallen. Then at some point, panic strikes, which causes widespread flight from the currency by those who actually hold it. It drops precipitously. The short selling speculators are then able to buy back the currency that they sold short, and obtain tremendous profits, at the expense of the producers and working people whose lives and enterprises were dependent on that currency.

The free market gang claim that it's all the fault of the government that the currency was weak in the first place. But by what logic does it follow that speculators take this money from those already in trouble? Currency speculation in such large amounts should be viewed as a form of aggression, no less harmful than dropping bombs on the country in question.

Industrialists should realize that when they allow such activity to be included under the umbrella of "business activity," they are making a serious error. They should help isolate such speculation and educate the populace on how destructive it is, so that it can be stopped through law.

Limitations could easily be placed on speculative currency transactions without limiting those that are a normal part of business and trading, while stopping the kind of transactions that are thinly disguised attacks on the country involved. Placing a small tax on such transactions would be a healthy first move.

TOO MANY GERMAN MARKS ISSUED

By July 1922 the German Mark fell to 300 marks for $1; in November it was at 9,000 to $1; by January 1923 it was at 49,000 to $1; by July 1923 it was at 1,100,000 to $1. It reached 2.5 trillion marks to $1 in mid November, 1923, varying from city to city.

In the monetary chaos Hamburg, Bremen and Kiel established private banks to issue money backed by gold and foreign exchange. The private Reichsbank printing presses had been unable to keep up and other private parties were given the authority to issue money. Schacht estimated that about half the money in circulation was private money from other than Reichsbank sources.

CAUSE OF THE FIRST INFLATION: SCHACHT'S FIRST "EXPLANATION"

There is often a false assumption made that the government allowed the mark to fall, in order to more easily pay off the war indemnity. But since the Versailles Treaty required payment in U.S. Dollars and British Pounds, the inflationary disorder actually made it much harder to raise such foreign exchange.

Hjalmar Schacht's 1967 book, The Magic of Money, presents what appears to be a contradictory explanation of the private Reichsbank's role in the inflation disaster.

First, in the hackneyed tradition of economists, he is prepared to let the private Reichsbank off the hook very easily and blame the government's difficult reparations situation instead. He minimized the connection of the private control of the central bank with the inflation as mere co-incidence....

THEN SCHACHT GIVES THE REAL EXPLANATION

Schacht was a lifelong member of the banking fraternity, reaching its highest levels. He may have felt compelled to give his banker peers and their public relations corps something innocuous to quote. But Schacht also had a streak of German nationalism, and more than that, an almost sacred devotion to a stable mark. He had watched helplessly as the hyper-inflation destroyed "his mark."

For whatever reasons, after 44 years he proceeded to let the cat out of the bag, with some truly remarkable admissions, which shatter the "accepted wisdom" the Anglo-American financial community has promulgated on the German hyper-inflation....

SCHACHT'S REVELATION

It was in describing his 1924 battles in stabilizing the Rentenmarks that Schacht made his revelation, giving the private mechanism of the hyper-inflation. Schacht was obviously very upset when the speculators continued to attack the new Rentenmark currency. By the end of the November 1923:

"The dollar reached an exchange rate of 12 trillion Rentenmarks on the free market of the Cologne Bourse. This speculation was not only hostile to the country's economic interests, it was also stupid. In previous years such speculation had been carried on either with loans which the Reichsbank granted lavishly, or with emergency money which one printed oneself, and then exchanged for Reichsmarks.

"Now, however, three things had happened. The emergency money had lost its value. It was no longer possible to exchange it for Reichsmarks. The loans formerly easily obtained from the Reichsbank were no longer granted, and the Rentenmark could not be used abroad. For these reasons the speculators were unable to pay for the dollars they had bought when payment became due (and they) made considerable losses."

Schacht is telling us that the excessive speculation against the mark -- the short selling of the mark -- was financed by lavish loans from the private Reichsbank. The margin requirements that the anti-mark speculators needed and without which they could not have attacked the mark was provided by the private Reichsbank!

This contradicts Schacht's earlier explanation, for there is no way to interpret or justify "lavishly" loaning to anti-mark speculators as "helping to keep the government's head above water." Just the opposite. Schacht was a bright fellow, and he wanted this point to be understood. He waited until he wrote the Magic of Money in 1967. His earlier book, The Stabilization of the Mark (1927), discussed inflation profiteering but did not clearly identify the private Reichsbank itself as financing such speculation, making it so convenient to go short the mark.

Thus it was a privately owned and privately controlled central bank, that made loans to private speculators, enabling them to speculate against the nation's currency. Whatever other pressures the currency faced (and they were substantial), such speculation helped create a one way market down for the Reichsmark. Soon a continuous panic set in, and not just speculators, but everyone else had to do what they could to get out of their marks, further fueling the disaster. This private factor has been largely unknown in America.

-- Ibid., pp. 579-87

----------------------------------
"Abolish all taxation save that upon land values." -- Henry George

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Re: Monetary Reform!
« Reply #8 on: Dec 07, 2013, 10:16:59 am »
 

Geolibertarian

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http://www.globalresearch.ca/the-tower-of-basel-secretive-plans-for-the-issuing-of-a-global-currency/13239:

The Tower of Basel: Secretive Plans for the Issuing of a Global Currency

Do we really want the Bank for International Settlements (BIS) issuing our global currency

by Ellen Brown
Global Research
April 18, 2009

In an April 7 article in The London Telegraph titled “The G20 Moves the World a Step Closer to
 a Global Currency,” Ambrose Evans-Pritchard wrote:

    “A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order.

    “‘We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,’ it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century.

    “In effect, the G20 leaders have activated the IMF’s power to create money and begin global ‘quantitative easing’. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it.”

Indeed they will.  The article is subtitled, “The world is a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity.”  Which naturally raises the question, who or what will serve as this global central bank, cloaked with the power to issue the global currency and police monetary policy for all humanity?  When the world’s central bankers met in Washington last September, they discussed what body might be in a position to serve in that awesome and fearful role.  A former governor of the Bank of England stated:

    “The answer might already be staring us in the face, in the form of the Bank for International Settlements (BIS). . . . The IMF tends to couch its warnings about economic problems in very diplomatic language, but the BIS is more independent and much better placed to deal with this if it is given the power to do so.”

And if the vision of a global currency outside government control does not set off conspiracy theorists, putting the BIS in charge of it surely will.  The BIS has been scandal-ridden ever since it was branded with pro-Nazi leanings in the 1930s.  Founded in Basel, Switzerland, in 1930, the BIS has been called “the most exclusive, secretive, and powerful supranational club in the world.”  Charles Higham wrote in his book Trading with the Enemy that by the late 1930s, the BIS had assumed an openly pro-Nazi bias, a theme that was expanded on in a BBC Timewatch film titled “Banking with Hitler” broadcast in 1998.  In 1944, the American government backed a resolution at the Bretton-Woods Conference calling for the liquidation of the BIS, following Czech accusations that it was laundering gold stolen by the Nazis from occupied Europe; but the central bankers succeeded in quietly snuffing out the American resolution.
 
In Tragedy and Hope: A History of the World in Our Time (1966), Dr. Carroll Quigley revealed the key role played in global finance by the BIS behind the scenes.  Dr. Quigley was Professor of History at Georgetown University, where he was President Bill Clinton’s mentor.  He was also an insider, groomed by the powerful clique he called “the international bankers.”  His credibility is heightened by the fact that he actually espoused their goals.  He wrote:

    “I know of the operations of this network because I have studied it for twenty years and was permitted for two years, in the early 1960's, to examine its papers and secret records. I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments. . . . In general my chief difference of opinion is that it wishes to remain unknown, and I believe its role in history is significant enough to be known.”

Quigley wrote of this international banking network:

    “The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.  This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences.  The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.”

The key to their success, said Quigley, was that the international bankers would control and manipulate the money system of a nation while letting it appear to be controlled by the government. The statement echoed one made in the eighteenth century by the patriarch of what would become the most powerful banking dynasty in the world.  Mayer Amschel Bauer Rothschild famously said in 1791:

    “Allow me to issue and control a nation’s currency, and I care not who makes its laws.”

Mayer’s five sons were sent to the major capitals of Europe – London, Paris, Vienna, Berlin and Naples – with the mission of establishing a banking system that would be outside government control.  The economic and political systems of nations would be controlled not by citizens but by bankers, for the benefit of bankers.  Eventually, a privately-owned “central bank” was established in nearly every country; and this central banking system has now gained control over the economies of the world.  Central banks have the authority to print money in their respective countries, and it is from these banks that governments must borrow money to pay their debts and fund their operations.  The result is a global economy in which not only industry but government itself runs on “credit” (or debt) created by a banking monopoly headed by a network of private central banks; and at the top of this network is the BIS, the “central bank of central banks” in Basel.

Behind the Curtain

For many years the BIS kept a very low profile, operating behind the scenes in an abandoned hotel.  It was here that decisions were reached to devalue or defend currencies, fix the price of gold, regulate offshore banking, and raise or lower short-term interest rates.  In 1977, however, the BIS gave up its anonymity in exchange for more efficient headquarters.  The new building has been described as “an eighteen story-high circular skyscraper that rises above the medieval city like some misplaced nuclear reactor.”  It quickly became known as the “Tower of Basel.”  Today the BIS has governmental immunity, pays no taxes, and has its own private police force.  It is, as Mayer Rothschild envisioned, above the law.

The BIS is now composed of 55 member nations, but the club that meets regularly in Basel is a much smaller group; and even within it, there is a hierarchy.  In a 1983 article in Harper’s Magazine called “Ruling the World of Money,” Edward Jay Epstein wrote that where the real business gets done is in “a sort of inner club made up of the half dozen or so powerful central bankers who find themselves more or less in the same monetary boat” – those from Germany, the United States, Switzerland, Italy, Japan and England.  Epstein said:

    “The prime value, which also seems to demarcate the inner club from the rest of the BIS members, is the firm belief that central banks should act independently of their home governments. . . . A second and closely related belief of the inner club is that politicians should not be trusted to decide the fate of the international monetary system.”

In 1974, the Basel Committee on Banking Supervision was created by the central bank Governors of the Group of Ten nations (now expanded to twenty).  The BIS provides the twelve-member Secretariat for the Committee.  The Committee, in turn, sets the rules for banking globally, including capital requirements and reserve controls.  In a 2003 article titled “The Bank for International Settlements Calls for Global Currency,” Joan Veon wrote:

    “The BIS is where all of the world’s central banks meet to analyze the global economy and determine what course of action they will take next to put more money in their pockets, since they control the amount of money in circulation and how much interest they are going to charge governments and banks for borrowing from them. . . .

    “When you understand that the BIS pulls the strings of the world’s monetary system, you then understand that they have the ability to create a financial boom or bust in a country.  If that country is not doing what the money lenders want, then all they have to do is sell its currency.”

The Controversial Basel Accords

The power of the BIS to make or break economies was demonstrated in 1988, when it issued a Basel Accord raising bank capital requirements from 6% to 8%.  By then, Japan had emerged as the world’s largest creditor; but Japan’s banks were less well capitalized than other major international banks.  Raising the capital requirement forced them to cut back on lending, creating a recession in Japan like that suffered in the U.S. today.  Property prices fell and loans went into default as the security for them shriveled up.  A downward spiral followed, ending with the total bankruptcy of the banks.  The banks had to be nationalized, although that word was not used in order to avoid criticism.

Among other collateral damage produced by the Basel Accords was a spate of suicides among Indian farmers unable to get loans.  The BIS capital adequacy standards required loans to private borrowers to be “risk-weighted,” with the degree of risk determined by private rating agencies; and farmers and small business owners could not afford the agencies’ fees.  Banks therefore assigned 100 percent risk to the loans, and then resisted extending credit to these “high-risk” borrowers because more capital was required to cover the loans.  When the conscience of the nation was aroused by the Indian suicides, the government, lamenting the neglect of farmers by commercial banks, established a policy of ending the “financial exclusion” of the weak; but this step had little real effect on lending practices, due largely to the strictures imposed by the BIS from abroad.

Similar complaints have come from Korea.  An article in the December 12, 2008 Korea Times titled “BIS Calls Trigger Vicious Cycle” described how Korean entrepreneurs with good collateral cannot get operational loans from Korean banks, at a time when the economic downturn requires increased investment and easier credit:

    “‘The Bank of Korea has provided more than 35 trillion won to banks since September when the global financial crisis went full throttle,’ said a Seoul analyst, who declined to be named.  ‘But the effect is not seen at all with the banks keeping the liquidity in their safes.  They simply don’t lend and one of the biggest reasons is to keep the BIS ratio high enough to survive,’ he said. . . .

    “Chang Ha-joon, an economics professor at Cambridge University, concurs with the  analyst. ‘What banks do for their own interests, or to improve the BIS ratio, is against the interests of the whole society.  This is a bad idea,’ Chang said in a recent telephone interview with Korea Times.”

In a May 2002 article in The Asia Times titled “Global Economy: The BIS vs. National Banks,” economist Henry C K Liu observed that the Basel Accords have forced national banking systems “to march to the same tune, designed to serve the needs of highly sophisticated global financial markets, regardless of the developmental needs of their national economies.”  He wrote:

    “National banking systems are suddenly thrown into the rigid arms of the Basel Capital Accord sponsored by the Bank of International Settlement (BIS), or to face the penalty of usurious risk premium in securing international interbank loans. . . . National policies suddenly are subjected to profit incentives of private financial institutions, all members of a hierarchical system controlled and directed from the money center banks in New York. The result is to force national banking systems to privatize . . . .

    “BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies. . . . The IMF and the international banks regulated by the BIS are a team: the international banks lend recklessly to borrowers in emerging economies to create a foreign currency debt crisis, the IMF arrives as a carrier of monetary virus in the name of sound monetary policy, then the international banks come as vulture investors in the name of financial rescue to acquire national banks deemed capital inadequate and insolvent by the BIS.”

Ironically, noted Liu, developing countries with their own natural resources did not actually need the foreign investment that trapped them in debt to outsiders:

    “Applying the State Theory of Money {which assumes that a sovereign nation has the power to issue its own money}, any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation.”

When governments fall into the trap of accepting loans in foreign currencies, however, they become “debtor nations” subject to IMF and BIS regulation.  They are forced to divert their production to exports, just to earn the foreign currency necessary to pay the interest on their loans.  National banks deemed “capital inadequate” have to deal with strictures comparable to the “conditionalities” imposed by the IMF on debtor nations: “escalating capital requirement, loan writeoffs and liquidation, and restructuring through selloffs, layoffs, downsizing, cost-cutting and freeze on capital spending.”  Liu wrote:

    “Reversing the logic that a sound banking system should lead to full employment and developmental growth, BIS regulations demand high unemployment and developmental degradation in national economies as the fair price for a sound global private banking system.”

The Last Domino to Fall

While banks in developing nations were being penalized for falling short of the BIS capital requirements, large international banks managed to escape the rules, although they actually carried enormous risk because of their derivative exposure.  The mega-banks succeeded in avoiding the Basel rules by separating the “risk” of default out from the loans and selling it off to investors, using a form of derivative known as “credit default swaps.”

However, it was not in the game plan that U.S. banks should escape the BIS net.  When they managed to sidestep the first Basel Accord, a second set of rules was imposed known as Basel II.  The new rules were established in 2004, but they were not levied on U.S. banks until November 2007, the month after the Dow passed 14,000 to reach its all-time high.  It has been all downhill from there.  Basel II had the same effect on U.S. banks that Basel I had on Japanese banks: they have been struggling ever since to survive.

Basel II requires banks to adjust the value of their marketable securities to the “market price” of the security, a rule called “mark to market.”  The rule has theoretical merit, but the problem is timing: it was imposed ex post facto, after the banks already had the hard-to-market assets on their books.  Lenders that had been considered sufficiently well capitalized to make new loans suddenly found they were insolvent.  At least, they would have been insolvent if they had tried to sell their assets, an assumption required by the new rule.  Financial analyst John Berlau complained:

    “The crisis is often called a ‘market failure,’ and the term ‘mark-to-market’ seems to reinforce that. But the mark-to-market rules are profoundly anti-market and hinder the free-market function of price discovery. . . . In this case, the accounting rules fail to allow the market players to hold on to an asset if they don’t like what the market is currently fetching, an important market action that affects price discovery in areas from agriculture to antiques.”

Imposing the mark-to-market rule on U.S. banks caused an instant credit freeze, which proceeded to take down the economies not only of the U.S. but of countries worldwide.  In early April 2009, the mark-to-market rule was finally softened by the U.S. Financial Accounting Standards Board (FASB); but critics said the modification did not go far enough, and it was done in response to pressure from politicians and bankers, not out of any fundamental change of heart or policies by the BIS.

And that is where the conspiracy theorists come in.  Why did the BIS not retract or at least modify Basel II after seeing the devastation it had caused?  Why did it sit idly by as the global economy came crashing down?  Was the goal to create so much economic havoc that the world would rush with relief into the waiting arms of the BIS with its privately-created global currency?  The plot thickens . . . .
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #9 on: Dec 07, 2013, 10:17:56 am »
 

Geolibertarian

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http://www.monetary.org/a-refutation-of-mengers-theory-of-the-origin-of-money-abridged/2010/12:

A REFUTATION OF MENGER'S THEORY OF THE ORIGIN OF MONEY

Here below is a two page summary plus communication with the Austrian School

A challenge to the Austrian School of Economics and the Ludwig Von Mises Institute. Of much more general importance than it sounds, obeisance is universally paid to Menger's 19th century re-incarnation of John Law's theory of money, by present day Austrian economists. Menger's origin theory is also at the base (often explicitly) of much so-called libertarian thinking and writing today. For example Robert Nozick uses it to launch his book Anarchy, State, And Utopia, (p.18) one of the Libertarian's "bibles".

This paper most likely deals a "death blow" to this core thesis of the Austrian School, as formulated by Carl Menger, the school's founder. In effect the Austrian's are left without a viable theory of money. It would be difficult to imagine that one could be provided by Von Mises a more confused and self contradictory book than THE THEORY OF MONEY AND CREDIT. The understandable reluctance of "Austrian gatekeepers" to address this issue is documented below.

SYNOPSIS:
The paper challenges Menger on three grounds:

METHODOLOGICAL GROUNDS:
Though it is generally assumed that Menger's theory is at least in part derived from historical evidence, the paper demonstrates that its derivation is entirely theoretical, by showing that all the historically based evidence cited by Menger, is 180 degrees counter to his theory. The paper points out the inappropriateness of attempting to divine an historical event or process with only deductive logic.

RATIONAL GROUNDS:
The paper points out that even within the framework of Menger's scheme, there are two fatal flaws. First the circularity of his reasoning in determining his causes of liquidity, which arises from his use of the "development of the market and of speculation in a commodity" as a cause of liquidity, when in fact it is a definition of liquidity and even Menger uses it as such. The paper explains the crucial difference. This is not quite an example of what has been called "Weiser's Circle". Second, the paper points out that within Menger's scheme, it is not liquidity, but volatility (or lack of it) which is much more important.

FACTUAL GROUNDS:
The paper shows that some of Menger's closely held general views of the stability of gold and silver and their universal use as money, are simply false. In addition the existence of the millennia long dichotomy in the gold-silver ratio between east and west, which Menger seems to be unaware of, appears sufficient to doom his theory.The paper presents some of the factual evidence gathered by William Ridgeway, in the ORIGIN OF METALLIC WEIGHTS AND STANDARDS; by A.H. Quiggin in A SURVEY OF PRIMITIVE MONEY; by Paul Einzig in PRIMITIVE MONEY; and by Bernard Laum in HEILEGES GELD; all as an indication that an institutional origin of money, whether religious or social, is much more likely to have occurred than Menger's assumed market origin.

[Continued...]
"Abolish all taxation save that upon land values." -- Henry George

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Re: Monetary Reform!
« Reply #10 on: Dec 07, 2013, 10:18:42 am »
 

Geolibertarian

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http://www.globalresearch.ca/democratizing-the-us-monetary-system-urgency-of-the-american-monetary-act/13520

Democratizing the US Monetary System: Urgency of the American Monetary Act

A monetary system which serves the American people

by Richard C. Cook
Global Research
May 6, 2009
 
On Thursday, April 23, 2009, Stephen Zarlenga, director of the American Monetary Institute (AMI), delivered two briefings on Capitol Hill on the American Monetary Act that AMI drafted and that may be introduced as legislation during the current congressional session. This single measure has the potential of bringing together the tens of millions of people who have realized it’s our bank-run debt-based monetary system that lies at the center of the financial rot that is destroying our republic and its values.

Attending the briefings were congressional staffers and members of the public. Zarlenga was introduced by Congressman Dennis Kucinich (D-OH), who has spoken in favor of wholesale reform of the monetary system on the floor of the U.S. House of Representatives. Kucinich is also sponsor of H.R. 7260, the “Transparency in the Creation of Wealth Act of 2008.” This act would require the Federal Reserve to resume reporting on the quantity of M3 in the economy (mega-money accessible only to large financial institutions), along with several other economic indicators it now keeps to itself, such as total credit market debt and the holding of Federal Reserve notes by foreign interests.

Stephen Zarlenga is author of The Lost Science of Money (American Monetary Institute, 2002), a monumental 736-page book that shows how money has served socially beneficial purposes throughout history only when created by governments as an instrument of law and not as the private preserve of the rich.

Hugh Downs, an unusually well-informed media personality with a strong social conscience, said of The Lost Science of Money, that it “has some stunning historical vistas of the whole concept of media of exchange.” Renowned progressive economist Dr. Michael Hudson said, “The history of money is critical to understanding the greatest problem the third millennium will face. Stephen Zarlenga's Lost Science of Money provides the needed background for seeing the basic structural issues at work."

Since Zarlenga published The Lost Science of Money, the American Monetary Institute has grown, with chapters in Boston , New York , Chicago , Iowa , Seattle , and other locations. He conducts an annual monetary reform conference at Roosevelt University in Chicago and has a busy travel and speaking schedule. He has addressed audiences at the U.S. Treasury Department in Washington , D.C. , and the British House of Lords in London.

The American Monetary Act may be viewed and downloaded from the AMI website at http://www.monetary.org/American_Monetary_Act_version_10_feb_06.htm.

The main thrust of the act is to replace the bank-centered debt-based monetary system with the direct creation of money by the federal government which would spend it into circulation as was done with the Greenbacks of the latter part of the 19th century.

The money would be spent on all types of legislated government requirements but would focus on infrastructure improvements, including education and health care. The act not only would create a new monetary supply denominated in U.S. Treasury notes, but would rebuild our job base which has been outsourced to other nations by the globalist corporations and big financial interests.

The critical role of the Greenbacks in U.S. history has been distorted and downplayed by the establishment interests that control the writing of history textbooks. The Greenbacks originated during the Civil War when the government printed and spent them to meet wartime needs. Contrary to mythology, the Greenbacks were not inflationary. They continued to serve as a key part of the nation’s monetary supply into the early 20th century. As late as 1900 they formed a third of the nation’s circulating currency, with coinage, along with gold and silver certificates, forming another third, and national bank notes the remainder.

Later the value of both the Greenbacks and metallic-based currency were destroyed by the inflation caused by the introduction of Federal Reserve Notes after the approval of the Federal Reserve System by Congress in 1913. From that point on, the creation of money in the U.S. became a monopoly of the private banking system. This led to the Great Depression when the banking system crashed the economy through its deflationary policies.

The nation recovered from the Depression through the New Deal and the adoption of Keynesian economic policies during and after World War II. But now, in the early years of the 21st Century, the financial system again has collapsed through the gigantic speculative bubbles of the last 30 years. The Bush-Obama bailouts that are costing taxpayers trillions of dollars are benefiting the financial controllers but are not doing anywhere near enough for the producing economy. Even though officials are starting to forecast an economic recovery, there is every indication it will be another “jobless” recovery like the one from 2002-2005.

The American Monetary Act would put a stop to the travesties of the bank-controlled monetary system that has wrecked what was once the world’s greatest industrial democracy. In addition to reintroducing the Greenbacks, the act would eliminate fractional reserve banking by requiring banks to borrow money from the U.S. Treasury to bring their cash reserves up to the level of their lending portfolio rather than allowing them to continue to create money “out of thin air.” The banks would no longer be able to create trillions of dollars of credit, backed by nothing, which they use to fuel the speculative equities, hedge fund, and derivative markets.

The act also contains a provision for a citizens’ dividend through direct payment of cash to individuals. While it does not authorize a dividend at the level Stephen Shafarman and I have proposed in our respective books, Peaceful, Positive Revolution and We Hold These Truths: The Hope of Monetary Reform, it is a major step in the right direction. In what I have called the "Cook Plan" I advocate a dividend of $12,000 a year per capita for adults who apply with the money, once spent, being used to capitalize a new network of community savings banks.

With the 2008-2009 collapse of the financial system, the deep recession we are now suffering through, and the injustice of the government’s bank bailouts currently being administered by Secretary of the Treasury Timothy Geithner, millions of people in the U.S. and around the world have had enough of government policies that enrich the financial oligarchy and destroy the livelihood of everyone else. The world today is headed for a dark age of debt-slavery and ruinous poverty for much of the world’s population, including working people in the U.S.

The only way a catastrophe can be averted is for mankind to wake up and demand the creation of a new monetary system where money and credit are treated as a public utility. This means that money and credit should serve the needs of the producing economy while assuring a decent living and sufficient income for everyone.

To reach this goal, it is counterproductive for people simply to complain about what is happening or support half-measures like the call to embrace a gold standard. Any attempt to impose a new gold standard would play into the hands of those who control the gold; i.e., the bankers. Creating a new gold standard appears to be the objective of movements like “End-the-Fed.”

The key is not whether money is backed by gold or any other commodity but whether it serves the needs of real people, allows the trade and productivity of the nation to move, restores our job base, and supports consumer purchasing power. The American Monetary Act would meet these objectives. With the financial disasters of the last two years, millions of people realize the system is rigged against them. Jobs and savings continue to disappear while debt and the power of the banking millionaires increase. The time for Congress to act is now.
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #11 on: Dec 07, 2013, 10:21:07 am »
 

Geolibertarian

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http://www.globalresearch.ca/web-of-debt-the-inner-workings-of-the-monetary-system/13510

"Web of Debt": The Inner Workings of the Monetary System
A review of Ellen Brown's book

by Stephen Lendman
Global Research
May 6, 2009



This is the first of several articles on Ellen Brown's superb 2007 book titled "Web of Debt," now updated in a December 2008 third edition. It tells "the shocking truth about our money system, (how it) trapped us in debt, and how we can break free." Given today's global economic crisis, it's an appropriate time to review it and urge readers to digest the entire work, easily gotten through Amazon or Brown's webofdebt.com site. Her book is a remarkable achievement - in its scope, depth, and importance.

In the forward, banker/developer Reed Simpson said:

"I have been a banker for most of my career, and I can report that even most bankers (don't know) what goes on behind (top echelon) closed doors....I am more familiar than most with the issues (Brown covered, and) still found it an eye-opener, a remarkable window into what is really going on....(Although many banks follow high ethical practices), corruption is also rampant, (especially) in the large money center banks, in one of which I worked."

"Credible evidence (reveals) a world (banking) power elite intent on gaining absolute control over the planet and its natural resources, including its subservient human (ones)." Money is their "lifeblood," and "fear (their) weapon." Ill-used, they can "enslave nations and ensure perpetual wars and bondage." Brown exposes the scheme and offers a solution.

Debt Bondage

What president Andrew Jackson called "a hydra-headed monster...." entraps entire nations in debt. Financial commentator Hans Schicht listed how:

-- by making concentrated wealth invisible;

-- "exercising control through leverage(d) mergers, takeovers" or other holdings "annexed to loans;" and

-- using a minimum of insider front-men to exercise "tight personal management and control."

Powerful bankers want to rule the world by creating and controlling money, the very lifeblood of world economies without which commerce would cease. Professor Henry Liu calls the monetary system a "cruel hoax" in that (except for government issued coins) "there is virtually no 'real' money in the system, only debts" - to bankers "for money they created with accounting entries....all done by a sleight of hand," only possible because governments empowered them to do it.

The solution is simple but untaken. As the Constitution mandates, money-creation power must "be returned to the government and the people it represents." Imagine the possibilities:

-- the federal debt could be eliminated, at least a more manageable amount before it mushroomed to stratospheric levels;

-- federal income taxes could as well; entirely for low and middle income people and at least substantially overall;

-- "social programs could be expanded....without sparking runaway inflation;" and

-- financial resources would be available to grow the nation economically and produce stable prosperity.

It's not pie-in-the-sky. It happened successfully under Abraham Lincoln and early colonists. More on that below.

Brown's book explains that:

-- the Federal Reserve isn't federal; it's a private banking cartel owned by its major bank members in 12 Fed districts;

-- except for coins, they "create" money called Federal Reserve notes, in violation of the Constitution under Article I, Section 8 that gives Congress alone the right "To coin (create) money (and) regulate the value thereof....;"

-- "tangible currency (coins and paper money comprise) less than 3 percent of the US money supply;" the rest is in computer entries for loans;

-- money that banks lend is "new money" that didn't exist before;

-- 30% of bank-created money "is invested for their own accounts;"

-- banks once made productive loans for industrial development; today they're "a giant betting machine" using countless trillions for high-risk casino-type operations - through devices like derivatives and securitization scams;

-- since Andrew Jackson's presidency (1829 - 1837), the federal debt hasn't been paid, only the interest - to private bankers and other owners of US obligations;

-- the 16th Amendment authorized Congress to levy an income tax; it was done "to coerce (the public) to pay interest to the banks on the federal debt;"

-- the amount has mushroomed to about $500 billion annually and keeps rising;

-- creating money doesn't cause inflation; it's "caused by banks expanding the money supply with loans;"

-- developing nations' inflation was caused "by global institutional speculators attacking local currencies and devaluing them on international markets;"

-- it could happen in America or anywhere else just as easily; and

-- escaping this trap is simple if Washington reclaims its money-issuing power; early colonists did it; so did Lincoln.

As long as bankers control our money, we'll remain in a permanent "web of debt" and experience cycles of boom, bust, inflation, deflation, instability and crisis. Yet none of this has to be nor repeated and inevitable bubbles - created by design, not chance, to advantage empowered "moneychangers," much like today with its fallout causing global havoc.

Prior to the Fed's creation, the House of Morgan was dominant in contrast to the early colonists' model. Operating out of Philadelphia, the nation's first capital, it favored state-issued and loaned out money, collecting the interest, and "return(ing) it to the provincial government" in lieu of taxes.

Lincoln used the same system to finance the Civil War, after which he was assassinated and bankers reclaimed their money-issuing power. Wall Street's "silent coup (was) the passage of the (1913) Federal Reserve Act," the most destructive ever congressional legislation, thereafter extracting a huge toll amounting to permanent debt bondage with national wealth transference from the public to private bankers - with most people none the wiser.

From Gold to Federal Reserve Notes

After the 1862 Legal Tender Act was rescinded (the so-called Greenback law letting the government issue its own money), new legislation replaced it empowering bankers by making all money again interest-bearing. Here's the problem. "As long as the money supply (is an interest-bearing) debt owed back to private bankers....the nation's wealth (will) continue to be drained off into private vaults, leaving scarcity in its wake."

Dollars should belong to everyone. Early colonists invented them as "a new form of paper currency backed by the 'full faith and credit' of the people." Today, a private banking cartel issues them by "turning debt into money and demanding" due interest be paid.

Ever since, it's controlled the nation and public by entrapment in permanent debt bondage, and they do it through the Federal Reserve that's neither federal nor has reserves. It doesn't have money. It creates it with  electronic entries, any amount at any time for any purpose, the main one being to enrich its owner banks.

This body is a power unto itself, secretive, unaccountable, and independent of congressional oversight or control. It's a money-creating machine by turning debt into money, but only a small fraction of the total money supply. Individual commercial banks create most of it.

A 1960s Chicago Fed booklet (called Modern Money Mechanics) explained how - through "fractional reserve" alchemy. It states:

"(Banks) do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts."

Money is created by "building up" deposits in the form of loans. They, in turn, become deposits, not the reverse. "This unique attribute of banking" goes back centuries, the idea being that paper receipts could be issued and loaned out for the same gold (in those days) many times over, so long as enough gold was held in "reserve" so depositors had access to their money. "This sleight of hand (became known) as 'fractional reserve' banking," using money to create multiples more of it.

As for credit market debt, William Hummel (on the web site Money: What It Is, How It Works) explains that banks create only about 20% of it. The rest is by other non-bank financial institutions, including finance companies, pension and mutual funds, insurance companies, and securities dealers. They "recycle pre-existing funds, either by borrowing at a low interest rate and lending at a higher (one) or by pooling (investor) money and lending it to borrowers." In other words, just like banks, "they borrow low and lend high, pocketing the 'spread' as their profit."

But banks do more than borrow. They also "lend the deposits they acquire....by crediting the borrower's account with a new deposit." Banks thus increase total bank deposits that grow the money supply. It amounts to a sleight of hand like "magically pull(ing) money out of an empty hat."

The US "money supply is the federal debt and cannot exist without it. (To) keep money in the system, some major player has to incur substantial debt that never gets paid back; and this role is played by the federal government." It's why the nation's debt can't be repaid under a banker-controlled system. Today's size and debt service compounds the problem, around double the amount Brown cited, growing exponentially to unimaginable levels.

Colonial Paper Money - Another Way Predating the Republic's Birth

In 1691, three years before the Bank of England's creation, Massachusetts became "the first local government to issue its own paper money...." in the form of a "bill of credit bond or IOU....to pay tomorrow on a debt incurred today." This money "was backed by the full 'faith and credit' of the government."

Other colonies then did the same, some as IOUs redeemable in gold or silver or as "legal tender" money to be legally accepted to pay debts. Cotton Mather, a famous New England minister, later redefined money - not as gold or silver, but as a credit: "the credit of the whole country."

Benjamin Franklin so embraced the "new medium of exchange" that he's called "the father of paper money," then called "scrip." It made the colonies independent of British banks and let them "finance their local governments without" taxation. It was done in two ways, and most colonies used both:

-- direct issue "bills of credit" or "treasury notes;" essentially government-backed IOUs to be repaid by future taxes, with no interest owed bankers or foreign lenders; "they were just credits issued and sent into the economy on goods and services;" and

-- a system of generating "revenue in the form of interest by taking on the lending functions of banks; a government loan office called a 'land bank' (issued) paper money and (loaned) it to residents (usually farmers) at low interest rates....the interest paid....went into the public coffers, funding the government;" it was the preferred way to assure a stable currency rather than by issuing "bills of credit."

Pennsylvania did it best. It's 1723-established loan office showed "it was possible for the government to issue new money (in lieu of) taxes without inflating prices." For over 25 years, it collected none at all. The loan office provided adequate revenue, supplemented by liquor import duties. Throughout the period, prices remained stable.

Prior to this system, Pennsylvania lost "both business and residents (for) lack of available currency." With it, its population grew and commerce prospered. The "secret was in not issuing too much, and in recycling the money back to the government in the form of principal and interest on government-issued loans."

Colony-based British merchants and financiers objected strongly to Parliament. Enough so that in 1751, King George II banned new paper money issuance to force colonists to borrow it from UK bankers. In 1764, Franklin petitioned Parliament to lift the ban. In London, Bank of England directors asked him to explain colonial prosperity at a time Britain experienced rampant unemployment and poverty. It's because Colonial Scrip was issued, he stated, "our own money" with no interest owed to anyone. He added:

"You do not have too many workers, you have too little money in circulation, and that which circulates, all bears the endless burden of unrepayable debt and usury."

With banks loaning money into the economy, more was "owed back in principle and interest than was lent in the original loans (so) there was never enough in circulation to pay interest and still keep workers fully employed." Unlike banks, government can both lend and spend money in circulation - enough to pay "interest due on the money it lent, (keep) the money supply in 'proper proportion' and (prevent) the 'impossible contract' problem (of having) more money owed back on loans than was created (from) the loans themselves."

Franklin's efforts notwithstanding, the Bank of England got Parliament to pass a Currency Act making it illegal for the colonies to issue their own money. It turned prosperity into poverty because the money supply was halved with not enough to pay for goods and services. According to Franklin:

"the poverty caused by the bad influence of the English bankers on the Parliament" got colonists to hate the British enough to spark the Revolutionary War. "The colonies would gladly have borne the little tax on tea and other matters (if) England (hadn't taken their money), which created unemployment and dissatisfaction." So much that outraged people again issued their own money in spite of the ban. As a result, they successfully financed a war against a major power - with almost no hard currency and no taxation. Thomas Paine called it the Revolution's "corner stone."

However, British bankers responded by attacking its "competitor's currency," the Continental, driving down its value by flooding the colonies with counterfeit scrip. It was "battered but remained stable." Where Britain failed, speculators succeeded - "mostly northeastern bankers, stockbrokers and businessmen, who bought up the revolutionary currency at a fraction of its value after convincing people it would be worthless after the war." It had "to compete with states' paper notes and British bankers' gold and silver coins....The problem might have been avoided by making the Continental the sole official currency, but the Continental Congress (didn't have) the power to enforce" such an order - with no courts, police or authority to collect taxes "to redeem the notes or contract the money supply."

Having just rebelled against British taxation, colonists weren't about to let Congress tax them. Speculators took advantage and traded Continentals at discounts enough to make them worthless and give rise to the expression "not worth a Continental."

How the Government Was Persuaded to Borrow Its Own Money

John Adams once said: "there are two ways to conquer and enslave a nation. One is by the sword. The other is by debt." The latter method is stealth enough so people don't know what's happening and submit to their own bondage. Openly, nothing seems changed, yet a whole new system becomes master "in the form of debts and taxes" that people think are for their own good, not tribute to their captors. That's today's America writ large.

After the Revolutionary War, "British bankers and their Wall Street vassals" pulled it off by acquiring a controlling interest in the new United States Bank. It discredited paper scrip through rampant Continental counterfeiting and so disillusioned the Founders that they omitted mentioning paper money in the Constitution. Congress was given power to "coin money (and) regulate the value thereof, (and) to borrow money on the credit of the United States...." It left enough wiggle room for bankers to exploit to their advantage - but only because Congress and the president let them.

Alexander Hamilton bears much blame, the nation's first Treasury Secretary and Tim Geithner of his day (1789 - 1795). He argued that America needed a monetary system independent of foreign control, and that required a federal central bank - to handle war debts and create a standard form of currency. In 1791, it was created, hailed at the time as a "brilliant solution to the nation's economic straits, one that disposed of an oppressive national debt, stabilized the economy, funded the government's budget, and created confidence in the new paper dollars....It got the country up and running, but left the bank largely in private hands" - to be manipulated for private gain, much like today. Worse still, "the government ended up in debt for money it could have generated itself."

Instead, it had to pay interest on its own money in lieu of creating it interest free. Today, Hamilton is acclaimed as a model Treasury Secretary. For Jefferson, he was a "diabolical schemer, a British stooge pursuing a political agenda for his own ends." He modeled the Bank of the United States on the Bank of England against which colonists rebelled. It so angered Jefferson that he told Washington he was a traitor. It fostered a bitter feud between them with Jefferson ultimately prevailing.

Hamilton's Federalist Party disappeared after 1820 while Jefferson and Madison's Democratic-Republicans became the forerunner of today's Democrats after the party split into two factions, the Whigs no longer in existence and Jacksonians that by 1844 officially became the Democratic Party. Shamefully they veered far from Jacksonian and Jeffersonian principles.

For his part, Hamilton wasn't entirely bad. He stabilized the new economy and got the country on its feet. He restored the nation's credit, established a national currency, and made it economically independent. However, his legacy has a dark side - a "privileged class of financial middlemen (henceforth able) to siphon off a perpetual tribute in the form of interest." He delivered money power into private hands, "subservient to an elite class of oligarchical financiers," the same Wall Street types today holding the entire nation hostage - in permanent debt bondage.

From Abundance to Debt

Charging excessive interest is called "usury," but originally it meant charging anything for the use of money. The Christian Bible banned it, and the Catholic Church enforced anti-usury laws through the end of the Middle Ages.

Old Testament scripture was more lenient, prohibiting it only between "brothers." Charging it to foreigners was allowed and encouraged, which is why Jews unfairly were called "moneychangers." They, like others, suffered greatly from money-lending schemes. For centuries, they were "persecuted for the profiteering of a few," then scapegoated to divert attention from the real offenders.

Fiat money is legal tender by government decree - a simple tally representing units of value to be traded for goods and services. Paper money was invented in 9th century Mandarin China and successfully used to fund its long and prosperous empire. The same was true in medieval England. The tally system worked well for over five centuries before banker-controlled paper money began demanding payment in the form of interest.

History portrays the Middle Ages as backward, impoverishing, and a form of economic enslavement only the Industrial Revolution changed. In fact, the era was entirely different, characterized by 19th century historian Thorold Rogers as a time when "a labourer could provide all the necessities for his family for a year by working 14 weeks," leaving nearly nine discretionary months to work for himself, study, fish, travel, or do what he pleased, something today's overworked, over-stressed, underpaid workers can't imagine.

Some attribute Middle Age prosperity to the absence of usurious lending. Instead of paying tribute in the form of interest, "people relied largely on interest-free tallies." They avoided depressions and inflation since the supply and demand for goods and services grew in proportion to each other, thus holding prices stable. "The tally system provided an organic form of money that expanded naturally as trade (did) and contracted (the same way) as taxes were paid."

No bankers set interest rates or manipulated markets to their advantage. The tally system kept Britain stable and thriving until the mid-17th century, "when Oliver Cromwell (1599 - 1658)....needed money to fund a revolt against the Tudor monarchy."

The Moneylenders Take Over England

In the 19th century, the Rothchild banking family's Nathan Rothchild said it well:

"I care not what puppet (sits on) the throne of England to rule the Empire on which the sun never sets. The man who controls Britain's money supply controls the British empire, and I (when he ran the Bank of England) control the British money supply."

Centuries early, moneylender power was absent. But after the 1666 Coinage Act, money-issuing authority, once the sole right of kings, was transferred into private hands. "Bankers now had the power to cause inflations and depressions at will by issuing or withholding their gold coins." 

King William III (1672 - 1702), a Dutch aristocrat, financed his war against France by borrowing 1.2 million pounds in gold in a secret transaction with moneylenders, the arrangement being a permanent loan on which debt would be serviced and its principle never repaid. It came with other strings as well:

-- lenders got a charter to establish the Bank of England (in 1694) with monopoly power to issue banknotes as national paper currency;

-- it created them out of nothing, with only a fraction of them as reserves;

-- loans to the government were to be backed by government IOUs to serve as reserves for creating additional loans to private borrowers; and

-- lenders could consolidate the national debt on their government loan to secure payment through people-extracted taxes.

It was a prescription for huge profits and "substantial political leverage. The Bank's charter gave the force of law to the 'fractional reserve' banking scheme that put control of the country's money" in private hands. It let the Bank of England create money out of nothing and charge interest for loans to the government and others - the same practice central banks now employ.

For the next century, banknotes and tallies circulated interchangeably even though they weren't a compatible means of exchange. Banker money expanded when "credit expanded and contracted when loans were canceled or 'called,' producing cycles of 'tight' money and depression alternating with 'easy' money and inflation." In contrast, tallies were permanent, stable, fixed money, making banknotes look bad so they had to go.

For another reason as well - because of King William's disputed throne and fear if he were deposed, moneylenders again might be banned. They used their influence to legalize banknotes as the money of the realm called "funded" debt with tallies referred to as "unfunded," what historians see as the beginning of a "Financial Revolution." In the end, "tallies met the same fate as witches - death by fire."

They were money of the people competing with moneylending bankers. After 1834 monetary reform, "tally sticks went up in flames in a huge bonfire started in a House of Lords stove." Ironically, it got out of control and burned down Westminster Palace and both Houses of Parliament, symbolically ending "an equitable era of trade (by transferring power) from the government to the" central bank.

Henceforth, private bankers kept government in debt, never demanding the return of principle, and profiting by extracting interest, a very lucrative system always paying off "like a slot machine" rigged to benefit its operators. It became the basis for modern central banking, lending its "own notes (printed paper money), which the government swaps for bonds (its promises to pay) and circulates as a national currency."

Government debt is never repaid. It's continually rolled over and serviced, today with no gold in reserve to back it. Though gone, tallies left their mark. The word "stock" comes from the tally stick. Much of the original Bank of England stock was bought with these sticks. In addition, stock issuance began during the Middle Ages as a way to finance businesses when no interest-bearing loans were allowed.

In America, "usury banks fought for control for two centuries before" getting it under the 1913 Federal Reserve Act. An issue that once "defined American politics," today is no longer a topic for debate. It's about time it was reopened.

Jefferson and Jackson Sound the Alarm

Moneylenders conquered Britain, then aimed to entrap America - by provoking "a series of wars. British financiers funded the opposition to the American War for Independence, the War of 1812, and both sides of the American Civil War." They caused inflation, heavy government debt, the chartering of the Bank of the United States to fund it, thus giving private interests the power to create money.

Jefferson opposed the first US Bank, Jackson the second, and both for similar reasons:

-- distrust of profiteers controlling the nation's money; and

-- concern about the nation's banking system falling into foreign hands.

Jefferson got Congress to refuse to renew the first US Bank charter in 1811 and learned on liquidation that two-thirds of its owners were foreigners, mostly English and Dutch and none more influential than the Rothschilds. Later, Madison signed a 20-year charter. However, when Congress renewed it, Jackson vetoed it.

The Powerful Rothschild Family

The House of Rothschild was British in name only. In the mid-18th century, it was founded in Frankfort, Germany by Mayer Amschel Bauer, who changed his name to Rothschild, fathered 10 children, and sent his five sons to open branch banks in major European capitals. Nathan was the most astute and went to London. "Over the course of the nineteenth century, NM Rothschild would become the biggest bank in the world, and the five brothers would come to control most of the foreign-loan business of Europe."

Belatedly, Jefferson caught on to the scheme - that "private debt masquerading as paper money....owed to bankers" placed the nation in bondage. In his words, "deliver(ing) itself bound hand and foot to bold and bankrupt adventurers and bankers...." Jefferson's idea for a national bank was a wholly government-owned one issuing its own credit without having to borrow it from private interests.

Jackson believed the same thing in calling the Bank of the United States "a hydra-headed monster." When the bank charter was renewed, he promptly vetoed it, yet understood that the battle was just beginning. "The hydra of corruption is only scotched, not dead," he said.

He was right. The Bank's second president, Nicolas Biddle, retaliated "by sharply contracting the money supply. Old loans were called in and new ones refused. A financial panic ensued, followed by a deep economic depression." However, Biddle's victory was short-lived. In April 1834, the House rejected re-chartering the Bank, then January 1835 became Jackson's "finest hour."

He did something never done before or since. He paid off the first installment of the national debt, then reduced it to zero and accumulated a surplus. In 1836, the Bank's charter expired. Biddle was arrested and charged with fraud. He was tried and acquitted but spent the rest of his life in litigation over what he'd done. "Jackson had beaten the Bank." Imagine today if Obama defeated the Fed and its Wall Street puppeteers instead of embracing them with limitless riches.

Lincoln Foils the Bankers and Pays with His Life

Like Jackson, Lincoln faced assassination attempts, before even being inaugurated. "He had to deal with treason, insurrection, and national bankruptcy" during his first days in office. Considering the powerful forces against him, his achievements were all the more remarkable:

-- he built the world's largest army;

-- "smashed the British-financed insurrection,"

-- took the first steps to abolish slavery; it became official on December 6, 1865 when the 13th Amendment was ratified, eight months after Lincoln was assassinated;

-- during and after his tenure, the country became "the greatest industrial giant" in the world;

-- "the steel industry was launched; a continental railroad system was created; the Department of Agriculture was established; a new era of farm machinery and cheap tools was promoted;"

-- the Land Grant College system established free higher education;

-- the Homestead Act gave settlers ownership rights and encouraged new land development;

-- government supported all branches of science;

-- "standardization and mass production was promoted worldwide;"

-- labor productivity increased by 50 - 75%; and

-- still more was accomplished "with a Treasury that was completely broke and a Congress that hadn't been paid" as a result.

It was because the government issued its own money. "National control was reestablished over banking, and the economy was jump-started with a 600 percent increase in government spending and cheap credit directed at production." Roosevelt did the same thing with borrowed money. Lincoln did it with United States Notes called Greenbacks. They financed the war, paid the troops, spurred the nation's growth, and did what hasn't been done since - let the government print its own money, free from banker-controlled debt slavery, the very system strangling us today the way Lincoln feared would happen.

His advisor was Henry Carey, a man historian Vernon Parrington called "our first professional economist." Lincoln endorsed his prescription:

-- "government regulation of banking and credit to deter speculation and encourage economic development;"

-- its support for science, public education and national infrastructure development;

-- "regulation of privately-held infrastructure to ensure it met the nation's needs;"

-- government-sponsored railroads and "scientific and other aid to small farmers;"

-- "taxation and tariffs to protect and promote productive domestic activity;" and

-- "rejection of class wars, exploitation and slavery, physical or economic, in favor of a 'Harmony of Interests' between capital and labor."

Leaders like Jefferson, Jackson and Lincoln are sorely missed, but for Lincoln it was costly.

He Loses the Battle with "the Masters of European Finance"

German Chancellor Otto von Bismark (1815 - 1898) called them that in explaining how they engineered the "rupture between the North and the South" to use it to their advantage, then later wrote in 1876:

"The Government and the nation escaped the plots of the foreign bankers. They understood at once that the United States would escape their grip. The death of Lincoln was resolved upon." The last Civil War battle ended on May 13, 1865. Lincoln was assassinated on April 15.

European bankers tried but failed to trap him "with usurious war loans," at 24 - 36% interest had he agreed. Using government-issued Greenbacks shut them out entirely, so they determined to fight back - eliminate the thorn, then get banker-friendly legislation passed, achieved through the National Bank Act reversing the Greenback Law. It was "only a compromise with bankers, (but) buried in the fine print," they got what they wanted.

Although the Controller of the Currency got to issue new national banknotes, it was just a formality. In fact, the new law "authorized the bankers to issue and lend their own paper money." They "deposited" bonds with the Treasury, but owned them so "immediately got their money back in the form of their own banknotes." It was an exclusive franchise to control the nation's money forcing government back into debt bondage where it never had to be in the first place. A whole series of private banks were then chartered, all empowered to create money in lieu of debt free Greenbacks.

One other president confronted bankers and paid dearly as well - James Garfield. In 1881, he charged:

"Whoever controls the volume of money in any country is absolute master of all industry and commerce....And when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."

Garfield took office on March 4, 1881. On July 2, he was shot. He survived the next two and half months, then died on September 19. It was a time of depression, mass unemployment, poverty, and starvation with no safety net protections. "The country was facing poverty amidst plenty," because bankers controlled money and kept too little of it in circulation - an avoidable problem if government printed its own.

Gold v. Inflation - Debunking Common Fallacies

The classical "quantity theory of money" holds that "too much money chasing too few goods" causes inflation, excess demand over supply forcing up prices. The counter argument is that if paper money is tied to gold, an inflation-free stable money supply will result. Another fallacy is that adding money (demand) raises prices only if supply remains fixed.

In fact, if new money creates new goods and services, prices stay stable. For thousands of years, the Chinese kept prices of its products low in spite of their money supply being "flooded with the world's gold and silver, and now with the world's dollars....to pay for China's cheap products."

What's important is not what money consists of but who creates it. "Whether the medium of exchange (is) gold or paper or numbers in a ledger," when created by and owed to private lenders with interest, "more money would always be owed back than was created...spiraling the economy into perpetual debt....whether the money takes the form of gold or paper or accounting entries."

Today's popularism is associated with the political left. However, 19th century Populists saw "a darker, more malevolent force....private money power and the corporations it had spawned, which was threatening to take over the government unless the people intervened."

Lincoln also feared it saying:

"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have been enthroned, an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few and the Republic is destroyed."

Today's America is the reality he feared. A tiny elite own the vast majority of the nation's wealth in the form of stocks, bonds, real estate, natural resources, business assets and other investments. In contrast, 90% of Americans have little or no net worth. Of all developed nations, concentrated wealth and inequality extremes are greatest here with powerful bankers sitting atop the pyramid, now more than ever with their new riches extracted from public tax dollars and Fed-created money.

A follow-up article will discuss how "bankers capture(d) the money machine."
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #12 on: Dec 07, 2013, 10:21:45 am »
 

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http://www.globalresearch.ca/america-s-money-machine/13548

America's "Money Machine"
Reviewing Ellen Brown's "Web of Debt:" Part II

by Stephen Lendman
Global Research
May 9, 2009

This is the second of several articles on Ellen Brown’s remarkable book titled “Web of Debt….the shocking truth about our money system, (how it) trapped us in debt, and how we can break free.” It’s a multi-part snapshot. Reading the entire book is strongly recommended – easily obtainable through Amazon or Brown’s www.webofdebt.com site.



Bankers Capture the Money Machine - Fighting for the Family Farm

In the 1890s, "keeping the family homestead was a key political issue" given that foreclosures and evictions "were occurring in record numbers," much like today. The "Bankers Manifesto of 1892" spelled it out - a willful plan "to disenfranchise farmers and laborers of their homes and property," again like today except that now our very freedom and futures are at stake as sinister forces aim to steal them by turning America into Guatemala and lock it down by police state repression.

The panic of 1893 caused an earlier depression - severe enough to establish a precedent of street protests, the result of the first ever march on Washington. Businessman/populist Jacob Coxey led his "Coxey's Army (of around 500) from Massilon, Ohio (beginning March 25, Easter Sunday) to the nation's capital to demand jobs and a return to debt and interest-free Greenbacks. Local police intervened. The marchers were disbanded. Coxey was arrested. He spent 20 days in jail for disturbing the peace and violating a local ordinance against walking on the grass. However, he was never charged, then released, and is now remembered for his heroics.

He began a tradition later sparking suffragist marches; unemployed WW I veterans for their "Bonus Bill" money; numerous anti-war and earlier civil rights protests; in 2004, one million in the nation's capital for women's rights, and the previous day thousands protesting IMF-World Bank policies.

The late 19th century Populist movement was the last serious challenge to private bankers' monopoly power over the nation's money. Journalist William Hope Harvey wrote a popular book titled "Coin's Financial School" that explained the problem in simple English - that restricting silver coinage was a conspiracy to enrich "London-controlled Eastern financiers at the expense of farmers and debtors." He called England "a money power that can dictate the money of the world, and thereby create world misery."

He referred to the "Crime of 73" that limited free silver coinage and replaced it with British gold. It forced America to pay England $200 million annually in gold in interest on its bonds and inspired William Jennings Bryan's "Cross of Gold" speech. He nearly became president, but lost in a close (big-monied financed) race to William McKinley, but he, too, paid a price. He was later assassinated, likely for his protectionism, very much disadvantaging British bankers. With him gone, the Morgans and Rockefellers dominated US banking, and arranged for friendly leaders to run the country, Teddy Roosevelt included, a man with more bark than bite.

"The trusts and cartels remained the puppeteers with real power, pulling the strings of puppet politicians" who were bought and paid for like today.

The Secret Government

Various presidents suggested the worst of what's now clear. By signing the Federal Reserve Act, Woodrow Wilson was a tool of big money. Yet he belatedly expressed regret, said "I have unwittingly ruined my country," and called America "one of the worst ruled....most completely controlled governments in the civilized world (run by) a small group of dominant men."

Franklin Roosevelt was as clear in saying "The real truth (is that) a financial element in the large centers has owned the government since the days of Andrew Jackson." Other officials said the same thing, and so did Matthew Josephson (in his 1934 book) calling bankers and business titans "Robber Barons" - men who "lived for market conquest, and plotted takeovers like military strategy."

They sought monopolies for market dominance and trusts - concentrated wealth in a few hands to be manipulated for maximum profits and power. During the Gilded Age, trusts became strong enough to plant "their own agents in the federal commissions, (use) government regulation (for) greater control....protect themselves from competition," and keep prices high.

Four names (among others) stand out - Andrew Carnegie, John D. Rockefeller, Henry Ford, and JP Morgan running finance with the power of a potentate. "He didn't build, he bought. He took over other people's businesses, and he hated competition" so he eliminated it. Together with Rockefeller, they dominated business and finance through interlocking directorates, the same way as today throughout industry, commerce and finance.

For his part, Morgan was so dominant, financial writer John Moody called him "the greatest financial power in the history of the world" even before the establishment of the Federal Reserve. Morgan died months before its creation, but his influence made it possible.

His long arm favored the fortunate - with enough funding to monopolize their industries. "But where did (he and other bankers get their money)?" Congressman Wright Patman explained that they created it "out of an empty hat." They held the ultimate credit card, limitless accounting-entries to buy out competitors, corner raw materials markets, control politicians, and after the birth of public relations, popular opinion the way distinguished author/psychogist and activist Alex Carey explained in his seminal book titled "Taking the Risk out of Democracy:"

"The 20th century has been characterized by three developments of great political importance: The growth of democracy, the growth of corporate power, and the growth of propaganda as a means of protecting corporate power against democracy." It came into its own during WW I, then grew, became dominant, and remains near-omnipotent today, even with fissures appearing with enough promise to challenge it.

The Jekyll Island Affair - Establishing the Federal Reserve

In 1910, seven financial titans met secretly on this privately-owned island off the coast of Georgia and created the Federal Reserve:

-- established three years later on December 23, in the middle of the night, by an act of Congress;

-- its most outrageous action ever that few legislators, if any, even read or would have understood if they did because the text was so intentionally vague;

-- it enfranchised powerful bankers to hold the nation hostage in permanent debt bondage by giving them the right to create money, in violation of Article I, Section 8 of the Constitution that states Congress alone has the power "To coin (create) money (and) regulate the value thereof...."

Woodrow Wilson made it possible, "Morgan's man in the White House" with an administration staffed with his cronies. This act was so publicly harmful it had to be shepherded through a carefully arranged Conference Committee, scheduled for between 1:30 - 4:30AM three days before Christmas when many lawmakers had left town and many others were asleep. It was then enacted the next day - one that will live in infamy for the damage it caused.

"The bill was so obscurely worded that no one really understood its provisions." The nation's money would be printed by the US Bureau of Engraving and Printing, then issued as a government obligation (or debt) to the private Federal Reserve with interest.

Nominally, Congress and the president appoint Fed governors, but they operate secretly with no government oversight or control. As a privately owned banking cartel, they're a power unto themselves. The chairman sits at its helm, but he's a mere tool of the bankers who control him.

The 1913 Federal Reserve Act "was a major coup" for them. The Fed exists to serve them, not the government or public interest. Therein lies its problem and why it must be abolished.

For over a century, powerful international bankers wanted a private central bank giving them "the exclusive right to 'monetize' the government's debt (that is, print their own money and exchange it for government securities or IOUs.)" The entire Act was written in obscure Fedspeak so no one but its creators knew its purpose.

"In plain English, the Federal Reserve Act authorized a private central bank to create money out of nothing, lend it to the government at interest, and control the national money supply, expanding or contracting it at will." Nothing has been the same since.

Who Owns the Federal Reserve?

Contrary to common belief, it's a private banking cartel owned by its member banks in each of its 12 Fed districts. "The amount of Federal Reserve stock" each one holds "is proportional to its size." The New York Fed is most dominant (like a mother bank) owning 53% of the System's shares because the nation's largest commercial banks are located there, on Wall Street, of course, with names like JP Morgan Chase, Citigroup, Goldman Sachs, and Morgan Stanley prominent and familiar. Bank of America was founded in California and remains concentrated heavily in Western and Southwestern states, yet operates globally like the others.

The largest banks are financial superpowers with interests in commercial and investment banking, insurance, real estate, home mortgages, credit cards, and virtually all things financial - nationally and globally.

Financial commentator Hans Schicht refers to Wall Street's "master spider" controlling a powerful inner circle of men, headed by him. Their business is done secretly behind closed doors by what he calls "spider webbing." It exercises "tight personal management and control, with a minimum of insiders and front-men who themselves have only partial knowledge of the game. They also have "leverage" over mergers, takeovers, chain store holdings where one company holds shares of others, conditions annexed to loans, and so forth.

Further, they make concentrated wealth "invisible. The master spider studiously avoids close scrutiny by maintaining anonymity, taking a back seat, and appearing to be a philanthropist."

Post-WW II, the center of power shifted from the House of Rothschild to Wall Street with David Rockefeller Sr. (John D's grandson) becoming "master spider," a sort of boss of bosses, much like the underworld but much more deadly and powerful.

All the more so because "the Robber Barons (used) their monopoly over money to buy up the major media, educational institutions," and other means of communications. They got all this but Morgan wanted more - to "secure the banks' loans to the government with a reliable source of taxes, (gotten directly from) the incomes of the people. There was just one snag." The Supreme Court "consistently" declared federal income taxes unconstitutional. So how were they instituted and why are they willingly paid?

The Federal Income Tax

The Constitution omits any mention of a federal income tax because the Founders "considered the taxation of private income, the ultimate source of productivity, to be economic folly." They also decided that the States and federal government shouldn't impose the same tax at the same time. Congress was to have responsibility "for collecting national taxes from the States' " tax revenues.

Direct taxes were to be apportioned according to each State's population. "Income taxes were considered unapportioned direct taxes in violation of this provision of the Constitution."

Except in times of war, no federal income tax existed until the 16th Amendment was ratified on February 13, 1913 empowering Congress to levy one - unapportioned among the states. Even without one, the economy grew impressively for nearly a century and a half, adequately funded by customs and excise taxes.

For a brief period, Congress enacted an income tax in 1894 when the nation was at peace. On April 8, 1895, in Pollock v. Farmers' Loan and Trust Company, the Supreme Court held that unapportioned income taxes were unconstitutional. "That ruling has never been overturned." To get around it, Wall Street packaged the 16th Amendment with the Federal Reserve Act, both in 1913. It applied only to annual incomes over $4000, well above the average level at the time.

The original tax code was simple enough to be covered in 14 pages. It's now a 17,000 page monster, filled with obscure provisions professionals struggle to understand or even know about. It also has "whole pages devoted to private interests," including loopholes exempting powerful corporations from paying rightfully owed taxes.

Before WW II, income taxes affected few people. However, from 1939 - 1944, Congress passed various ones, including to fund the war effort, and began letting workers (voluntarily) pay them in installments. Thereafter, "withholding" became mandatory.

"Today the federal income tax has acquired the standing of a legitimate tax enforceable by law, despite longstanding (Supreme Court rulings) strictly limiting its constitutional scope." Numerous other taxes were also added, including on capital gains, real estate, corporate income, FICA, sales, luxury, and IRS interest and penalties. With all hidden ones included (dozens in all), up to 40% of an average worker's income goes for taxes.

Enough for some tax protesters to challenge the 16th Amendment's legitimacy on grounds that it was improperly ratified. However, US courts rejected the argument and now it's "beyond review" - even though no tax would be needed if the federal government printed its own money interest-free instead of taking ours to defray banker-imposed charges.

After signing the Federal Reserve Act, Woodrow Wilson called himself "a most unhappy man. I have unwittingly ruined my country." Yet he knew precisely what he did. He was a lawyer, a Ph. D, a historian and political scientist, and former Princeton University president before entering politics.

Reaping the Whirlwind - The Great Depression

In theory, the Federal Reserve was established to stabilize the economy, smooth out the business cycle, manage a healthy, sustainable growth rate, and maintain stable prices. It failed dismally on all counts - most noticeably in the 1930s after a depression followed the crash. The Fed wasn't the solution. It was the problem.

As in recent years, it kept interest rates low and money plentiful - not money, in fact, but "credit" or "debt," the same problem creating havoc today. In the 1920s, production rose faster than wages, but (again like today) people could borrow on credit. Then as stocks soared in "value," Wall Street promoted buying them on margin (namely, leverage on credit) on the premise that higher prices could repay loans. It turned "investing" into a "speculative pyramid scheme" based on money that didn't exist.

The Fed caused the whole scheme with easy and plentiful money (credit). It assured the inevitable crash, and late in the game Fed officials saw it coming. New York Fed governor, Benjamin Strong, warned wealthy industrialists, politicians, and high foreign officials to sell stocks, then began reducing the money supply and raising bank-loan rates to correct the bubble "naturally." It caused a huge liquidity squeeze. Stock purchases declined. Prices fell. Margins were called causing the crash over three days - so-called Black Thursday (on October 24), Monday and Tuesday.

The subsequent fallout was disastrous. From 1929 - 1933, "the money stock fell by a third, and a third of the nation's banks closed their doors....It was dramatic evidence of the dangers of delegating the power to control the money supply to a single autocratic head of an autonomous agency."

It resulted in a "vicious cyclone of debt....dragging all in its path into hunger, poverty and despair" - the very process repeating today, including insiders being tipped off, selling high, profiting from the collapse at fire sale prices, and letting the public pay for the dirty scheme they had in mind in the first place. Then, like today -  shifting huge wealth amounts from "the Great American Middle Class to Big Money."

Instead of shutting the Fed and prosecuting its conspirators, Congress enacted the Federal Deposit Insurance Corporation (FDIC), "ostensibly to prevent" another collapse. It insured deposits up to $5000 at the time and rescued some banks, but not all. It was for "rich and powerful" ones, the equivalent of prominent names today and considered then like now, "too big to fail" run by officials too important to offend.

Milton Friedman blamed the Great Depression on the contraction of the money supply, but others disagreed. Chairman Louis McFadden of the House Banking and Currency Committee said it "was not accidental. It was a carefully contrived occurrence....The international bankers sought to bring about a condition of despair here so that they might emerge as rulers of us all."

The "Bankers Manifesto of 1934" suggested the same thing, and some observers today believe it's again playing out, this time on a global scale for much greater stakes for both winners and losers.

Roosevelt, Keynes and the New Deal

Roosevelt addressed the collapse straightaway, starting impressively in his first 100 days with the passage of 15 landmark acts, covering:

-- emergency banking;

-- Glass-Steagall and the FDIC;

-- empowering the Reconstruction Finance Corporation that was toothless under Hoover;

-- the Securities Act of 1933, then the Securities  Exchange Act of 1934;

-- the Home Owners' Loan Corporation to refinance homes and prevent foreclosures; and

-- an alphabet soup of development agencies in charge of constructing national infrastructure and producing jobs for the unemployed.

In all, it was a whirlwind of achievement in a few short months unlike anything before or since - so much in such a short time. This writer's late April article said:

Despite its flaws and failures, FDR's New Deal was remarkable in what it accomplished. It helped people, put millions back to work, reinvigorated the national spirit, built or renovated 700,000 miles of roads, 7800 bridges, 45,000 schools, 2500 hospitals, 13,000 parks and playgrounds, 1000 airfields, and various other infrastructure, including much of Chicago's lakefront where this writer lives. It cut unemployment from 25% in May 1933 to 11% in 1937, then it spiked before early war production revived economic growth and headed it lower.

Challenging Classical Economic Theory - Keynesianism

Post-WW II, it dominated economic policy, the idea being that deficit spending could propel nations to prosperity unlike the classical economic belief that money supply increases weren't needed. Its theory was that when the supply contracts, so do prices and wages naturally leaving everything in balance like before.

It didn't work at a time people wanted jobs, but there were few around. Factories could produce, but there was little demand, and resources were available but unused - for the lack of enough pump priming to reinvigorate a collapsed economy.

Enough, but not too much because as long as bankers print money, added liquidity means more debt and a greater amount to service. In addition, doing it crowds out social services, sacrifices industrial growth, and increases inflation hugely over time. The 5 cent ice cream cone and candy bars this writer remembers as a boy today cost around $2.50. If government printed its own money, they might still be a nickel or pretty close.

Congressman Wright Patman suggested it in 1933 by asking: "Why is it necessary to have Government ownership and operation of banks? The Constitution of the United States says that Congress shall coin money and regulate its value," not hand it over to predatory private bankers.

Instead of returning money-creation power to the government, Roosevelt let "moneychangers" keep it under an overhauled Federal Reserve - a still powerful private banker-controlled "citadel, run from the top down (by) a small cartel of appointed banking representatives (operating) behind a curtain of secrecy," more powerful than government itself. Had Roosevelt acted like Jackson and Lincoln, it would have been his greatest achievement.

Even so, in his first few months in office, he got enacted tough reformist legislation, very much impacting bankers. He also "took aim at the trusts and monopolies that had returned in force" in the anything-goes 1920s. By 1929, consolidation left around 200 companies "in control of over half of all American industry."

FDR reversed the trend with new legislation, reviving earlier trust-busting efforts. He also imposed banking regulations as cited above - enough to get him to call financiers "unanimous in their hatred of me, and I welcome their hatred." Lucky for him he survived. Big money plays for keeps, wins more often than it loses, and generally on what matters most.

Wright Patman Exposes the Money Machine

A Texas Democrat, he served in Congress from 1929 - 1976 where from 1963 - 1975 he headed the House Banking and Currency Committee until his death. Unlike his counterparts today in the House and Senate, he was called an "economic Populist," one way being for how he exposed Fedspeak to reveal the scheme behind it.

In an August 5, 1964 Committee document titled "A Primer on Money," he concluded:

"The Federal Reserve is a total moneymaking machine. It can issue money or checks. And it never has a problem of making its checks good because it can obtain the $5 and $10 bills necessary to cover (them) simply by asking the Treasury Department's Bureau of Engraving to print them."

Although the Fed now returns most interest on its government bonds to the Treasury, of far greater importance is the windfall its member banks get. "The bonds that have been acquired essentially for free become the basis of the Fed's 'reserves" - the phantom money that is advanced many times over by commercial banks in the form of loans."

Virtually all money in circulation comes from the Fed and its member banks, expanded by a factor of about 10 (through fractional reserve lending) for every federal debt dollar monitized. It all "consists of loans on which the banks have been paid interest." This interest, not what the Fed gets, is the real windfall to the banks.

The limitless money-creation machine is kept hidden "in obscure Fedspeak," even undecipherable to people who think they understand the process. In The Creature from Jekyll Island, Ed Griffin states that:

"modern money is a grand illusion conjured by the magicians of finance and politics. (The Fed's function) is to turn debt into money. It's just that simple....if one remembers that the process is not intended to be logical but to confuse and deceive." It has to be. Would the public ever put up with it if they realized they'd be had - that their tax money was being used to enrich bankers, and Washington made it possible.

"Magical(ly) multiplying reserves is called fractional reserve banking" that seems more like a con or "shell game." Each dollar deposited "magically" becomes about 10 in the form of loans or computer-generated funds. As explained below, "reserves" are being phased out so the 10 - 1 multiple is actually higher but the principle is the same.

So if $1 million deposited becomes $10 million, and $900,000 can be loaned out (the other $100,000 required for reserves), "money created out of thin air (at 5% interest) is doubled in about two years."

The Fed claims it returns 95% of its profits to the Treasury. In fact, it's only the interest on federal securities held as reserves. Far more important is the windfall afforded banks, the Fed's owners, that "use the securities as the 'reserves' that get multiplied many times over in the form of loans" that generate huge profits for them.

Wright Patman wanted to abolish the Open Market Committee and nationalize the Fed, thus giving Congress control of it as a "truly federal agency" issuing interest-free money.

The Fed is now heading for a zero percent reserve requirement meaning they'll be "no limit to the number of times deposits can be relent." There's effectively no limit now as if banks exhaust their reserves, they can borrow freely from the Fed - today at zero percent interest.

Inside the Fed's Playbook

"Banks don't have to have the money they lend before they make loans, because the Fed will 'provide' the necessary reserves by making them available at the federal funds rate" - today amounting to limitless free money at zero percent interest to be loaned out at higher rates for profit. The "slight of hand" is that the Fed "creates reserves out of thin air."

Loans then become deposits that banks can freely re-lend many times over - the more deposits, the greater the amount of lending. It's a process of multiplying the money supply and charging interest for doing it, a very profitable business when working well in a healthy economy.

So, the process works as follows:

-- banks "lend money (they) don't have;"

-- loans become deposits on their books;

-- when borrowers spend their money, banks raise their reserves back to the required 10% (or less) "by borrowing from the Fed or other sources;" and

-- the Fed never runs out of reserves because its "open market operations" create more of them; it simply manufactures whatever amounts it wishes out of thin air, and the public is none the wiser or that they're being taxed to pay for this shell game.

Reserves don't comprise safe money to pay claimants. They're accounting entries at Federal Reserve banks letting commercial banks "make many times those sums in loans." In plain English, "reserve accounts are a smoke and mirrors accounting trick concealing the fact that banks create the money they lend out of thin air, borrowing any 'reserves' they need from the Fed, which also creates the money out of thin air." What a business, especially given how secretive it is under the protection and auspices of the federal government that sanctions the con.

There's more as well. Besides what they loan out, banks "create their own investment money" to use for their own purposes. Traditionally, commercial banks invested conservatively, but not investment banks. They raise money for their clients through stock issuances and sales. But more important is their "proprietary trading" that involves using their own money to buy or sell stocks, bonds, currencies, commodities, or any other financial instrument or derivative thereof no matter how risky.

Since investment and commercial banks may be one in the same, limitless sums are available through magical money creation and open-ended Fed borrowing, then leveraged multiple times through more borrowing. The game worked "magically" until it no longer did the old way, so alternatives are used.

Bear Raids and Short Sales

The 1929 "Crash" happened on three "Black" days but "continued for nearly four years, stoked by speculators who made huge profits not only on the market's" ascent but during its plunge to 11% of its peak value.

Called a "bear raid," it targets vulnerable stocks for "take-down" quick profits or corporate takeovers at fire sale prices. When done on a large scale, short selling can impact markets greatly on the downside just like heavy "program buying" can rocket it up. The whole business amounts to blatant manipulation for quick profits.

Short sellers actually do it with borrowed (not owned) stock, then sell it into the market. If it declines (it may also rise, of course), it's re-bought at the lower price, returned to the seller, with short-sellers pocketing the difference as profit. It's not investing. It's gambling with someone else's stock, without permission to borrow it, and as a result harms its owner by driving down the price when it works.

"Short selling is sometimes justified as being necessary to keep a brake on (over-exuberance) that might otherwise drive popular stocks into dangerous 'bubbles.' (However,) Any alleged advantages to a company from the liquidity afforded by short selling (and supposedly keeping markets honest) are offset by the serious harm (this causes) companies targeted for take-down(s) in bear raids." When done with enough force, it can destroy companies if that's the intent.

"Short selling is the modern version of the counterfeiting (that brought) down the Continental in the 1770s." Currencies, bonds, and commodities can be shorted just like stocks - to manipulate them for profit.

Worse still, and illegal, is so-called naked short-selling without first borrowing the security shorted, assuring it can be borrowed, or arranging to borrow it as required by law - the reason being that it's an even easier way to manipulate stock prices so SEC regulations ban it.

Even so, the idea that markets move randomly is rubbish. So is believing that companies or nations don't target competitors for destruction by attacking their worth through short selling or other manipulative ways.

Hedge funds and Derivatives

"Hedge funds are private funds that pool the assets of wealthy investors with the aim of making 'absolute returns' - making a profit whether (markets go) up or down" on whatever financial assets they invest in. Leverage is used for maximum profitability, the more of it the greater gain or loss. In futures trading, it's called the margin - placing "many more bets than if they had paid the full price."

Originally, hedge funds were to "hedge (investment) bets....against currency or interest rate fluctuations (but) they quickly became instruments for manipulation and control." At their peak, they controlled over half of daily equity market trading because of their numbers, size, amount of capital, and frequency of their buying or selling.

Derivatives are one of their key tools - essentially making "side bets that some underlying investment will go up or down" to insure against the risk. "All derivatives are variations on futures trading (and like it) is inherently speculation or gambling." Familiar examples include puts and calls - on whether assets will go down or up.

"Over 90% of the derivatives held by banks....are 'over-the-counter' (ones) specially tailored to financial institutions (with) exotic and complex features, not traded on standard exchanges." They're unregulated, hard to trace, and "very hard to understand," quite often impossible. In a 1998 interview, banking columnist John Hoefle called them "the last gasp of a financial bubble." More recently Warren Buffett said they were "financial weapons of mass destruction" even though he owns a sizable amount of them and incurred considerable losses as a result.

Derivatives aren't assets. They're "just bets" on how assets will perform using very little real money. Most is borrowed to make private unreported, unregulated bets that have soared to a "notional value" of around $370 trillion, according to the Bank for International Settlements as of 2006. Notional value is "the number of units of an asset underlying the contract, multiplied by the spot price of the asset." In other words, "fanciful, dubious or imaginary" assets.

The amount gets so large because when unregulated "gamblers can bet any amount of money they want," and when markets work well for them, the sky's the limit. In mid-2006, the Office of the Controller of the Currency reported that around 97% of US bank-held derivatives were owned by five major US banks, including JP Morgan Chase and Citigroup. In November 2005, Bloomberg reported that the credit derivatives market was "vulnerable to a crisis if one (of their major bank holders) fails to pay on contracts that insure creditors from companies defaulting...." John Hoefle warned we were "on the verge of the biggest financial blowout in centuries, bigger than the Great Depression...."

Since banks can create money out of thin air, how can they go bankrupt? Because under accounting rules, commercial banks have to balance their books so their assets equal liabilities. "They can create all the money they can find borrowers for, but" if loans default, banks must record a loss.

[Continued...]
"Abolish all taxation save that upon land values." -- Henry George

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Re: Monetary Reform!
« Reply #13 on: Dec 07, 2013, 10:22:58 am »
 

Geolibertarian

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http://www.globalresearch.ca/the-rise-and-fall-of-the-international-gold-standard/13559

The Rise and Fall of the International Gold Standard
Reviewing Ellen Brown's "Web of Debt:" Part III

by Stephen Lendman
Global Research
May 13, 2009

This is the third in a series of articles on Ellen Brown’s superb 2007 book titled “Web of Debt,” now updated in a December 2008 third edition. It tells “the shocking truth about our money system, (how it) trapped us in debt, and how we can break free.” This article focuses on global debt entrapment.



Global Debt Enslavement - From Gold Reserves to Petrodollars

"The gold standard (while it lasted) was a necessary step in giving bankers' 'fractional reserve' legitimacy, but the ruse could not be sustained indefinitely" because exiting gold to defray foreign debts results in money backing it to be withdrawn from circulation. The result - contraction, recession, or depression, the very problem that forced FDR to drop the gold standard to prevent an even greater collapse. In 1971, Nixon did it permanently "when foreign creditors threatened to exhaust US gold reserves by cashing in their paper dollars for gold."

John Kennedy was the last president to challenge Wall Street, contends Donald Gibson in one of his two books about him. In "Battling Wall Street: The Kennedy Presidency," he said that Kennedy opposed "free trade," believed industry should serve the nation, and that America should sustain its independence by developing cheap energy. That "pitted him against the oil/banking cartel," intent on "raising oil prices to prohibitive levels in order to" entrap the world in a "web of debt."

Evidence also suggests that "Kennedy crossed the bankers by seeking to revive a silver-backed currency," independent of the Fed. In fact, on June 4, 1963, he issued Executive Order (EO) 11110 giving the president authority to issue currency. He then ordered the Treasury to print over $4 billion of "United States Notes" in place of Federal Reserve Notes. Some believe that he intended to replace them all when enough of the new currency was in circulation - to return money-creation power to the government where it belongs.

Five and a half months later, he was assassinated. In his second book on the president, "The Kennedy Assassination Cover-up," Gibson contends that a private network of wealthy individuals did it - not the FBI, CIA, Mafia, LBJ, the oil cartel, or anti-Castro extremists. Whatever the truth, bankers regained their power in short order when Johnson rescinded Kennedy's EO and fully restored their money-creation authority. They've had it ever since.

Bretton Woods - The Rise and Fall of the International Gold Standard

In mid-1944, the Bretton Woods monetary management system was established, about a year before WW II ended but when its outcome was clear. It created a postwar international monetary system of convertible currencies, fixed exchange rates, free trade, the US dollar as the world's reserve currency linked to gold, and those of other nations fixed to the dollar. It also designed an institutional framework for market-based capital accumulation to ensure that newly liberated colonies would pursue capitalist economic development beneficial to the victorious powers, most of all America.

In August 1971, the system unraveled when Nixon closed the gold window - ending the last link between gold, the dollar, and sound money. Thereafter, currencies would float and compete with each other in a casino-like environment, easily manipulated by powerful insiders, hedge funds, giant international banks, or governments at times in their own self-interest.

According to F. William Engdahl: "Market forces now could determine the dollar (entirely without gold). And they did it with a vengeance."

Bretton Woods was to ensure stability along with the IMF and World Bank's original missions - to establish exchange rates for the former and provide credit to war-torn Third World countries for the latter. Both bodies are, in fact, hugely exploitative while David Rockefeller ostensibly convened Bretton Woods to ensure gold-backed currencies would "justify a massive expansion of US dollar debt around the world."

The scheme worked until Vietnam war debt unraveled it. It might have continued (for a while at least) by raising the gold price. Instead it was kept at $35 an ounce forcing Nixon to close the gold window permanently, then take "the brakes off the printing presses" to generate as many dollars as there were willing takers. After that, Wall Street financiers "proceeded to build a worldwide financial empire based on a 'fractional reserve' banking system (using) bank-created paper dollars in place of the time-honored gold. Dollars became the reserve currency for a global net of debt to an international banking cartel."

Skeptics said they planned it that way to pull off "the biggest act of bad faith in history." True or not, gold failed as a global reserve currency because there isn't enough of it to go around. Inevitably shortages result forcing something to change.

Flawed as it is, however, "floating" exchange rates are much worse, especially for developing nations at the mercy of giants, like America, able to devalue currencies by attacking them through short selling. Manipulative power is so great, it can extract painful concessions that are hugely profitable to bankers.

Earlier in the 1930s, floating exchange rates proved disastrous, yet most countries agreed to them post-1971. Ones that resist are very vulnerable and can be coerced as a condition of debt relief, much like what happened after oil quadrupled in price in 1974. Suspicions about it at the time were justified.

It was a Kissinger - Saudi royal family scheme to revive dollar dominance by recycling petrodollars into US investments and weapons in return for guaranteeing the kingdom's safety - mainly from America had they turned us down. In a word, it was protection money like the underworld extracts on a smaller scale with oil now backing dollars instead of gold. Henceforth, countries need dollars to buy it and require exports for enough of them.

As for oil producers, Wall Street and London bankers profited from windfall petrodollar deposits - recyclable as developing nation loans to buy oil but at the same time to be entrapped in permanent debt bondage. Pre-1973, Third World debt "was manageable and contained....financed mainly through public agencies (for projects) promising solid economic success." That changed when commercial banks took over. Their business isn't development. It's "loan brokering (or) loan sharking," preferably with dictator/strongmen able to cut deals on their own.

Later the IMF got involved. At the behest of giant bankers, as "debt policemen" instituting rigorous structural adjustments, including slashed wages and social benefits as well as state asset sales on favorable terms to private investors.

At the same time, America got deeply indebted. It's now the world's largest by far and needs hundreds of billions annually to keep the dollar recycling game going - in the last 12 months alone, far more than that after the national debt doubled. Today, the nation is "hopelessly mired in debt to support the banking system of a private international cartel." Ordinary people pay the price.

Germany Finances a War without Money

The 1919 Versailles Treaty imposed onerous post-WW I terms on Germany. In May 1921, it got a six-day ultimatum to accept them or have the industrial Ruhr Valley militarily occupied. Even worse, it lost its colonies, all their resources, and the population had to pay the cost of war, amounting to three times the value of all property in the country. At the same time, German mark speculation caused it to plummet causing hyperinflation that by 1923 was catastrophic.

In January, the mark dropped to 18,000 to the dollar. By July, it was 353,000, by August 4,620,000, and by November an astonishing 4,200,000,000,000 - effectively worthless from the greatest ever hyperinflation, ravaging the nation's savings and making later calamitous events inevitable.

Loss of German assets compounded the problem. Britain took its colonies along with Alsace-Lorraine and Silesia with its rich mineral and agricultural resources. Lost was 75% of the country's iron ore, 68% of zinc ore, 26% of coal as well as Alsatian textile industries and potash mines. In addition, Germany's entire merchant fleets were taken, a portion of its transport and fishing fleet plus locomotives, railroad cars and trucks - all justified as legitimate war debts that were fixed at an impossible to pay 132 billion gold marks at 6% interest.

The 1923 Dawes Plan (named for US banker Charles Dawes) imposed fiscal control to continue the looting and assure reparations were paid. A huge debt pyramid resulted that collapsed after the 1929 crash along with radical political elements gaining prominence.

How to cope was the key question. Like the earlier American Greenbackers, Germany issued its own money after Hitler came to power. He had two choices, and like Lincoln, did it right. He freed the country from debt bondage and at the same time implemented vast infrastructure development - what Roosevelt as well did, but in his case by indebtedness to bankers.

Hitler issued $1 billion interest-free, "non-inflationary bills of exchange, called Labor Treasury Certificates." He put millions back to work, paid them with the Certificates that were used for goods and services to create more jobs and revive prosperity. Within two years, Germany was "back on its feet....with a solid, stable currency, no debt, and no inflation, at a time" America and Western economies were still struggling.

Hitler, however, diverged from the Greenbackers by equating bankers with Jews and launching a reign of terror against them. Greenbackers knew the real enemy - private bankers imposing debt bondage with onerous terms.

Beyond that and his imperial aims, Hitler reinvigorated the Third Reich in a few years, became hugely popular, and achieved it even before undertaking large-scale military spending. It impressed Pastor Sheldon Emry to write:

"Germany issued debt-free and interest-free money from 1935 and on, accounting for its startling rise from the depression to a world power in 5 years. Germany financed its entire government and war operation from 1935 to 1945 without gold and without debt, and it took the whole Capitalist and Communist world" to bring him down and restore the power of bankers.

Had Germany created debt and interest-free money post-Versailles, it could have escaped its disastrous inflation, later ravages, and rise of a tyrant like Hitler. In the 1920s, the privately-owned Reichsbank, not the government, caused havoc by flooding the economy with money compounded by foreign investor speculators shorting the mark and betting on its decline - because the Reichsbank printed massive currency amounts to be loaned "at a profitable interest to the bank. When (it couldn't keep up with demand), other private banks were allowed to create marks out of nothing and lend them at interest as well."

According to Hitler's Reichsbank president, Hjalmar Schacht, the government regulated the Bank, ended speculation by eliminating "easy access to loans of bank-created money," and solved the previous decade's hyperinflation problem as a result.

Reexamining the Inflation Humbug

Old theories die hard. It's not money creation that causes inflation. It's because merchants have to raise prices to cover costs, the result of "a radical (currency) devaluation" stemming usually from it being manipulated by its floating exchange rate.

Case in point - post-Soviet Russia's ruble collapse. It had nothing to do with rampant money creation. As F. William Engdahl explained in his Century of War:

"In 1992, the IMF demanded a free float of the Russian ruble as part of its 'market-oriented' reform. The ruble float led within a year to (a 9900%) increase in consumer prices, and a collapse in real wages of 84 percent. For the first time since 1917, at least during peacetime, the majority of Russians were plunged into existential poverty."

American-imposed "shock therapy" was the economic equivalent of military conquest, and most Russians have paid dearly to this day. With the IMF in charge, the nation and its former republics were weakened and made dependent "on Western capital and dollar inflows for their survival." A tiny elite got "fabulously rich" while most Russians experienced deep poverty and despair.

In 1993 - 1994, it was even worse for Yugoslavia and Ukraine, by some estimates an even greater hyperinflation than in Weimar Germany. Again the textbook explanation was rubbish.

Yugoslavia collapsed because the IMF "prevented the government from obtaining the credit it needed from its own central bank." Unable to create money and issue credit, social programs couldn't be financed or the provinces kept in place as one country.

Yugoslavia's problem was its success under a mixed free-market socialist model that threatened Western capitalism once the Soviet Union disbanded. It was feared that other former republics would emulate it, free from IMF shock therapy. As a result, the country had to be dismembered and its model destroyed, especially because of its strategic location - its "critical path" to potential Central Asian oil and gas.

In the 1980s, its imports exceeded exports, and it borrowed huge foreign sums for unprofitable factories. With too few dollars for repayment, IMF debt relief was requested under its usual terms. The result was 20% unemployment after 1100 companies went bankrupt. Worse still, inflation rose dramatically to over 150% in 1991. With still too little money to retain the provinces, "economic chaos followed causing each (one) to fight for its own survival" lasting a decade and causing tens of thousands of deaths and destruction.

Washington-imposed policies made it worse - a total embargo causing hyperinflation and 70% unemployment while blaming it on Milosevic. Ukraine met the same fate the result of IMF diktats. The currency collapsed, inflation soared, and state industries unable to get credit went bankrupt - as planned.

It's an ugly scheme to let Western predators buy assets on the cheap. Once Europe's breadbasket, Ukraine was reduced to begging the US for food aid, which then dumped its excess grain on the country, further exacerbating its self-sufficiency. Predatory capitalism is ruthless. This is how it works with bankers in the lead role.

Argentina is another example - "swallowed (by) the same debt monster" as the others. In the late 1980s, inflation rose 5000 percent, but money creation had nothing to do with it.

Post-WW II, the country was troubled by inflation, but it wasn't critical until after Juan Peron's 1974 death. Over the next eight years, it increased seven-fold to 206 percent - not by printing pesos but by radically devaluing the currency combined with a 175 percent rise in oil prices. One source said it was done intentionally to benefit exporters, speculators, and capitalists to prove free-market policies work best.

Nonetheless, high inflation and speculation became "hallmark(s) of Argentine financial life," the result of disastrous government policies. Even worse was that Argentina was "targeted by international lenders for massive petrodollar loans." When interest rates rocketed in the 1980s, repayment became impossible, and obtaining concessions came at the expense of IMF demands.

In the 1990s, they were implemented. The peso was pegged to the dollar. Currency devaluations ceased. The country lost its international competitiveness. The "money supply was fixed, limited and inflexible," and as a result national bankruptcies occurred in 1995 and again in 2001, but government reaction wasn't as expected. Argentina defied its creditors, defaulted on its debt, and began its road to recovery - with no foreign help or intervention. Post-2001, the economy grew by 8% for two successive years. Exports increased. The currency stabilized. Investors returned. The IMF was paid off, and unemployment eased.

Numerous other examples are similar. Professor Henry CK Liu calls foreign capital a "financial narcotic that would make the (19th century) Opium War(s) look like a minor scrimmage." In the late 1990s, Asian Tiger economies got a taste.

America's Economic War on Asia

Today's Japan evolved out of its feudal past once a modern central government was formed. Its 20th century economic model "has been called 'a state-guided market system.' The (government) determines the priorities and commissions the work, then hires private enterprise to carry it out."

America's military-industrial complex resembles it, but differs in one major respect. Post-WW II, Japan developed its economy without war. America practically worships it to the detriment of everyone at home and abroad.

At the end of the 1980s, "Japan was regarded as the leading economic and banking power in the world," and thus a challenge to US supremacy as the country that could say no. Its model was so successful that Asian "Tiger" economies copied it - in South Korea, Malaysia, Taiwan, Thailand, and elsewhere. Washington determined to undercut them as early as the 1985 James Baker-engineered Plaza accord and Baker-Miyazawa agreement.

He got Toyko to exercise monetary and fiscal measures to expand domestic demand and reduce Japan's trade surplus. At the same time, the Bank of Japan cut interest rates to 2.5% in 1987 and held that level until May, 1989. The idea was for lower rates to stimulate US goods purchases, but instead, cheap money went into Japanese stocks and real estate fueling two colossal bubbles.

The yen was also affected. Within months, it shot up 40% against the dollar, and overnight Japan became the world's largest banking center. At its twin bubble peaks, Tokyo real estate (in dollars) exceeded all of America's and its stock market represented 42% of world valuations - but not for long.

In 1990, Japan proposed financing former Soviet republics on its model and drew strong US opposition for two reasons. It might exclude US companies, and it would rely on the successful model that fueled Japanese and Asian Tiger growth. It had to be stopped and was.

Pressure was applied with threats of drastic US troop cuts that might endanger Japan's security. The scheme was drop your economic plans or defend yourself. At the same time, the country's twin bubbles imploded, and within months its Nikkei index lost $5 trillion in value, the result of predatory Wall Street short selling intervention. It left Japan severely hurt and no longer a challenge to America.

Confronting Asia's Tiger economies came next. In a Century of War, F. William Engdahl explained:

These economies "were a major embarrassment to the IMF and free-market model. Their very success in blending private enterprise with a strong state economic role" threatened IMF exploitation. "So long as the Tigers appeared to succeed with a model based on a strong state role, the former communist states and others could argue against taking the extreme IMF course. In east Asia during the 1980s, economic growth rates of 7 - 8 per cent per year, rising social security, universal education and a high worker productivity (free from debt) were all backed by state guidance and planning under market-based rules."

In 1993, Washington demanded changes - deregulate, open financial markets, and allow free foreign capital flows. Easing followed along with trouble. From 1994 - 1997, hot money flooded in and created speculative real  estate, stock, and other asset bubbles ripe for imploding.

Hedge fund predators like George Soros took full advantage, attacking the weakest regional economy and its currency - Thailand and its baht. The aim: forced devaluation, and it worked. Thailand floated its currency and needed first-time ever IMF help.

Next came the Philippines, Indonesia, and South Korea with much the same result and fallout. Prosperous Asian Tigers were forced into IMF debt bondage as their populations sank into economic chaos and mass poverty, the result of a liquidity crisis severe enough to plunge the region into depression. Within months, over $100 billion shifted to private hands, and within a year $600 billion in stock market valuations were lost.

East Asia was effectively looted. Real earnings plummeted. Unemployment soared with the International Labor Organization estimating around 24 million lost jobs along with the region's remarkable miracle - its prosperous middle class. People literally were thrown overboard - small farmers and business owners, unions, and millions of ordinary people made human wreckage, the result of Wall Street-designed predation, the same scheme wrecking havoc today on a global scale.

China Awakens and Prospers

Under Deng Xiaoping, China changed from a centrally-planned economy to its own market-based model under government-owned banks able to issue credit for domestic development. Until the global economic crisis emerged, it grew impressively at double-digit rates.

Key is its banking system, its government-issued currency, and a system of state-owned banks. Henry CK Liu distinguishes between "national" and "central" banks - the former serves the national and public interest; the latter, private international finance at the expense of the nation and people.

In 1995, China's Central Bank Law gave the People's Bank of China (PBoC) central bank status, but more in name than form in that it still follows government policies by directing money for internal development, not bank profits. In addition, China is debt free and thus unemcumbered by IMF mandates and predatory banking cartel interests. It also protected its currency by refusing to let it float (beyond a minor adjustment) and be vulnerable to speculative predators.

The proof is in the results. China's independent monetary policy works, much like colonial America, government under Lincoln, and Nazi Germany under Hitler. They printed their own money, debt free, and prospered - impossible under today's American model of indebtedness to predatory bankers.

Even worse are New World Order and WTO rules for a global government run by powerful international bankers and corporations - "oppressing the public through military means and restricting individual freedoms." Financial terrorism as well by shifting wealth hugely to the top at the expense of beneficial social change to be abandoned.

A follow-up article focuses on America captured in a "web of debt."
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #14 on: Dec 07, 2013, 10:24:52 am »
 

Geolibertarian

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http://www.globalresearch.ca/the-financial-storm/13599

The Financial Storm
Reviewing Ellen Brown's "Web of Debt:" Part IV

by Stephen Lendman
Global Research
May 15, 2009

This is the fourth in a series of articles on Ellen Brown’s superb 2007 book titled “Web of Debt,” now updated in a December 2008 third edition. It tells “the shocking truth about our money system, (how it) trapped us in debt, and how we can break free.” This article focuses on America’s “web of debt” entrapment.

The Debt Spider Captures America - American Workers Consigned to Debt Serfdom

America has been trapped for over two centuries, with today's debt level way exceeding developing nations. Like bankrupt people staying "afloat by making the minimum payment(s) on (their) credit card(s), the government (avoids) bankruptcy by paying just the interest on its monster debt" - now double in size since Brown's first edition and onerous enough for Controller of the Currency David Walker to warn earlier of its unaffordability by this year. If America can't service the amount, it's officially bankrupt and the economy will collapse. If it happens, IMF austerity will follow and turn America into Guatemala. Other vulnerable economies as well - permanent debt bondage and worker serfdom.

Catherine Austin Fitts was a former high-level Wall Street and government insider. She points to a "financial coup d'etat" conspiracy between the two to hollow out America, centralize power and knowledge, shift wealth to the top, destroy communities and local infrastructure, create new wealth by rebuilding them, and leave human wreckage in its wake.

She also calls today's crisis "a criminal leveraged buyout of America (meaning) buying (the) country for cheap with its own money and then jacking up the rents and fees to steal the rest." She calls it the "American Tapeworm" model:

It's "to simply finance the federal deficit through warfare, currency exports, Treasury and federal credit borrowing and cutbacks in domestic 'discretionary' spending...This will then place local municipalities and local leadership in a highly vulnerable position - one that will allow them to be persuaded with bogus but high-minded sounding arguments to further cut resources. Then to 'preserve bond ratings and the rights of creditors,' our leaders can be persuaded to sell our water, national resources and infrastructure assets at significant discounts of their true value to global investors" - masquerading as a plan to "save America by recapitalizing it on a sound financial footing."

In fact, it's to loot the country by shifting wealth offshore and to the top. Also, to destroy the country's middle class, consign US workers to serfdom, then meet expected civil disobedience with military force, followed by mass internment in over 800 FEMA detention camps in every state.

Today, the rich are getting richer while millions of Americans struggle daily to get by and live perilously from paycheck to paycheck, a mere one away from insolvent disaster.

Given where we're heading, Warren Buffett warns that America is changing from an "ownership society" to a "sharecroppers' " one, no different than feudal serfdom. Economist Paul Krugman calls it "debt peonage," much like the post-Civil War South that forced debtors to work for their creditors.

Make no mistake, it's a corporate America scheme for a plentiful reserve army of labor no better off than in developing countries - at low wages, no benefits, weak unions if any, and government engineering the whole scheme. Even personal bankruptcy protection eroded under the Bankruptcy Abuse Prevention and Consumer Protection of 2005 - benefitting lenders at the expense of borrowers by keeping them chained to their debts.

It requires many more people "to file under Chapter 13, which does not eliminate debts but mandates that they be repaid under a court-ordered payment schedule over a three to five year period." Homes, in some cases, may be seized and even owe a "deficiency, or balance due" if its sales price doesn't cover it. This Act "eroded the protection the government once provided against (various) unexpected catastrophes (like job loss and high medical expenses) ensuring that working people (henceforth) are kept on a treadmill of personal debt."

Even worse are loopholes in the law letting "very wealthy people and corporations....go bankrupt....and shield(ing) their assets from creditors..." This bill was written at the behest of credit card companies that entrap consumers in debt, charge usurious interest, and demand repayment no matter what besets them. In one respect, debt bondage is worse than slavery. As property, slaves had to be cared for. Debt slaves have to fend for themselves and pay tribute (interest) to their captors.

The Illusion of Home Ownership

In 2004, household home ownership rates were "touted" to be nearly 69%. In fact, only 40% of homes are debt-free, but that percentage fell given the amount of refinancing in recent years. As a result, "most mortgages on single-family properties today are less than four years old" meaning they're many years away from free and clear ownership.

"The touted increase in home ownership actually means an increase in debt (and) Households today owe more relative to their disposable income than ever before," although in recent months they've been repaying it and saving more.

Earlier, and still now, low "teaser rates" entrapped households in onerous debt, fueling the housing bubble as another Federal Reserve/lender ploy to pump "accounting-entry money into the economy," set it up for trouble, then let financial predators exploit it for profit. The same strategies for Third World countries are playing out in America with too few people the wiser.

The 19th century "Homestead Laws that gave settlers their own plot of land (cost and debt free) have been largely eroded by 150 years of the 'business cycle,' in which bankers have periodically raised interest rates and called in loans, creating successive waves of defaults and foreclosures" - worst of all for subprime and other risky mortgage holders defaulting in record numbers with millions still ahead in what's playing out as the nation's worst ever housing crisis showing no signs of ending.

The Perfect Financial Storm

It looms in the form of inflation and deflation given the enormity of newly created money at the same time borrowers can't repay loans that then default. When that happens, "the money supply contracts and deflation and depression result."

When the housing market corrected between 1989 - 1991, "median home prices dropped by 17%, and 3.6 million mortgages" defaulted. The equivalent 2005 decline "would have produced 20 million defaults, because the average equity-to-debt ratio....had dropped dramatically" - from 37% in 1990 to 14% in 2005, a record low as a result of equity extracted refinancings.

"What would 20 million defaults do to the money supply?" Two trillion dollars would evaporate or about one-fifth of M3. The fallout would cause huge stock and home value declines, income taxes needing to be tripled, Social Security, Medicare and Medicaid benefits halved, and pensions and comfortable retirements gone for the vast majority of workers. And that's assuming a modest housing price decline when it's already far more severe and continuing, giving pause to the virtually certain calamity ahead and devastation for the millions affected.

Policy changes in 1979 - 1981 laid the groundwork for today's crisis by "flood(ing) the housing market with even more new money," and much more. They let Fannie and Freddie speculate in derivatives and mortgage-backed securities and by so doing assume enormous risk.

In June 2002, writer Richard Freeman warned of the impending dangers in an article titled: "Fannie and Freddie Were Lenders - US Real Estate Bubble Nears Its End." He cited the largest housing bubble in history made all the greater by Fannie and Freddie manipulation and stated: ...."what started out as a simple home mortgage has been transmogrified into something one would expect to find at a Las Vegas gambling casino. Yet the housing bubble now depends on (highly speculative derivatives as new) sources of funds," made all the riskier through leverage.

In 2003, Freddie was caught cooking its books to make its financial health look sound. In 2004, Fannie did the same thing. Meanwhile, housing peaked in 2006, then steadily imploded, bringing the economy down with it.

Derivatives in the Eye of the Cyclone

In November 2006, financial expert and investor safety advocate Martin Weiss called the derivatives crisis:

"a global Vesuvius that could erupt at almost any time, instantly throwing the world's financial markets into turmoil....bankrupting major banks....sinking big-name insurance companies....scrambling the investments of hedge funds (and) overturning the portfolios of millions of average investors."

Gary Novak's web site explains the derivatives crisis as follows: the banking system gridlocked because "pretended assets are fake and fake assets" consumed real ones. Deregulation, beginning in the 1980s, caused the problem. Once eliminated, "funny money became the order of the day (in the form) of very complex vehicles (called) derivatives, which were often made intentionally obscure and confusing." Even financial experts don't understand them, and that was the whole idea - to sell junk to the unsuspecting, profit hugely as a result, and let buyers handle the problems.

It was a Ponzi scheme disappearing money "down the derivatives hole." Holders are now stuck with "pretend" values. They can't sell and no one will buy. A global liquidity shortage resulted. "The very thing derivatives were designed to create - market liquidity - has been frozen to immobility in a gridlocked game." Ironically, derivatives are sold as insurance "against something catastrophic going wrong." The solution is now the problem writ large.

Something gone wrong makes counterparties (on the other side of the bet) "liable to fold their cards," take losses, "and drop out of the game."

In May 2005, early signs of a crisis emerged after GM and Ford debt was downgraded to junk. Dire warnings followed of "a derivatives crisis 'orders of magnitude beyond LTCM" in 1998. To head it off, the Fed and other central banks covertly flooded the market with liquidity by no longer reporting M3 - "the main staple of money supply management and transparent disclosure for the last half-century, the figure on which the world has relied in determining the soundness of the dollar."

Even worse is that the government isn't doing it interest and inflation-free. The private Federal Reserve and banks are creating a massive amount of government debt, debasing the currency, and risking a future hyperinflation even though none is around today. When the Fed buys government bonds with newly issued money, they stay in circulation, "become the basis for generating many times their value in new loans; and the result is highly inflationary."

Catherine Austin Fitts describes an Orwellian (pump and dump) scheme letting "the powers that be steal money by manipulation (then) keep this thing going, but in a way that leads to a highly totalitarian government and economy - corporate feudalism" with workers as serfs. Another observer said: "The only way government can function and maintain control in an economically collapsed state is through a military dictatorship," where it looks like we're heading with police state laws enacted and hundreds of concentration camps nationwide to handle expected civil disobedience disruptions once people realized they've been had.

Financial Market Rigging

The notion that markets move randomly and reflect investors' sentiment is rubbish. There's a "mechanism at work, like the Wizard of Oz behind a curtain, pulling on strings and pushing buttons." Indeed there is with names.

In 1989, Reagan's EO 12631 created the Working Group on Financial Markets (WGFM) in response to the 1987 market crash. It's more commonly known as the Plunge Protection Team (PPT), including the president, Treasury secretary, Fed chairman, SEC chairman, and Commodities Futures Trading Commission (CFTC) chairman. Its purpose: to enhance "the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and (maintain) investor confidence."

The plain truth is that the PPT rigs market performance up or down at Wall Street's discretion because insiders profit both ways. Money used to manipulate markets is "Monopoly money, funds created from nothing and given for nothing" just to move markets as insiders wish.

In a June 2006 article titled "Plunge Protection or Enormous Hidden Tax Revenues," Chuck Austin wrote bluntly stating:

"....Today the markets are, without a doubt, manipulated on a daily basis by the PPT. Government controlled 'front companies' such as Goldman Sachs, JP Morgan and many others collect incredible revenues through market manipulation. Much of this money is probably returned to government coffers, however, enormous sums....are undoubtedly skimmed off by participating companies and individuals."

They're no different from Mafia crime families but far larger and more profitable. Further, these banks are global crimes syndicates writ large, and, unlike the Mafia, have limitless Fed-supplied funds, free from accountability, investigation, and prosecution.

"The PPT not only cheats investors out of trillions of dollars, it also eliminates competition that refuses to be 'bought' through mergers. Very soon now, only global companies and corporations owned and controlled by the NWO (New World Order) elite will exist." Wall Street giants sit atop that pyramid.

Along with the PPT, the "Exchange Stabilization Fund (ESF) exists - "authorized by Congress to keep sharp swings in the dollar's exchange rate from 'upsetting' financial markets." In a word, like the PPT, it operates by rigging markets for insiders, the usual suspects being major Wall Street firms - getting inside information on how to invest or the equivalent of tomorrow's Wall Street Journal today.

Another organization exists for the same purpose - the so-called Counterparty Risk Management Policy Group (CRMPG), established in 1999 to handle the LTCM crisis and protect against future ones. According to one account, it was "set up to bail out its members from financial difficulty by combining forces to manipulate markets" with US government approval.

One of its devices is for the nation's giant banks to collude in large-scale program trading, amounting to over half of all daily New York Stock Exchange volume and on some days much more. Knowing which way to bet puts them at odds with smaller firms and ordinary investors, vulnerable to losing out by a scam designed to defraud them - supported, however, by the full faith, credit, and muscle of the government.

But is an eventual day of reckoning coming? Hans Schicht believes so and says:

"In 2003, master spider David Rockefeller was 88 years old, so today," he'll be 94 in June. "(W)herever we look, his central command is seen to be fading. Neither is there a capable successor in sight to take over the reigns....Corruption is rife....Rivalry is breaking up the empire."

"What has been good for Rockefeller, has been a curse for the United States. Its citizens, government and country indebted to the hilt, enslaved to his banks...The country's industrial force lost to overseas in consequence of strong dollar policies (pursued for bankers not the country....)"

With Rockefeller leaving the scene, sixty years of dollar imperialism (is ending)....The day of financial reckoning is not far off any longer....With Rockefeller's strong hand losing its grip and the old established order fading, the world has entered a most dangerous transition period, where anything could (and may) happen."

Consider also the possibility that the "spider" moved to London where a "navy of pirate hedge funds....rule the world out of Cayman Islands" - an "epicenter for globalization and financial warfare" run by "Anglo-Dutch oligarchy" chosen officials allied with major global banks and shadow financial system players.

But even best laid plans at times fail, given how vulnerable even major banks are from their derivatives bets. As gold expert Adrian Douglas observed:

The system is so corrupted that if huge bets go wrong, the giants "have no other choice (than) to manipulate the price of underlying asset prices to prevent financial ruin....Instead of stopping this idiotic sham business from growing to galactic proportions, they've let it spin out of control (placing them) all on the hook....(This) sham is coming unglued because the huge excess liquidity (in the system ballooned to) asset bubbles all over the place."

He concluded that when derivatives buyers catch on to the scam and "quit paying premiums for insurance that doesn't exist, (they'll be) a whole new definition of volatility....the financial equivalent of a hurricane Katrina hitting every US city on the same day....When the bubble(s collapse), the banking empire....built on (them) must collapse as well."

To fend it off, Wall Street and its European partners are using desperate measures, "including a giant derivatives bubble that is jeopardizing the whole shaky system." In a February 2004 article called "The Coming Storm," the London Economist warned that "top banks around the world are now massively exposed to high-risk derivatives (posing a systemic) risk of an industry-wide meltdown."

John Hoefle believes that "the Fed has been quietly rescuing banks ever since. (He) contends that the banking system went bankrupt in the late 1980s, with the collapse of the junk bond market and the real estate bubble." The S & L crisis was "just the tip of the iceberg."

The Fed secretly took over Citicorp in 1989," arranged shotgun mergers for other giant banks, back door bailouts, and "bank examiners were ordered to ignore bad loans. These measures, coupled with a headlong rush into derivatives and other forms of speculation gave banks a veneer of solvency while actually destroying what was left of the US banking system."

It got in trouble because big gambles failed, including Third World debt defaults as well as Enron and other corporate bankruptcies. Giant US banks "are masters at....counting trillions of dollars of worthless IOUs (like derivatives) on their books at face value (to make it look like they're) solvent."

Between 1984 - 2002, takeovers papered over failures by reducing bank numbers nearly in half and consolidating the top seven into three - Citigroup, JP Morgan Chase, and Bank of America. According to Hoefle:

"The result of all these mergers is a group of much larger, and far more bankrupt giant banks. (A) similar process played out worldwide." He added that "zombies have now taken over the asylum" and writer Michael Edward agreed in a 2004 article titled: "Cooking the Books - US Banks Are Giant Casinos (engaging in) smoke and mirror accounting," then merging with each other to conceal their derivatives losses with "paper asset" bookkeeping. It means that "US banks have become (a giant) Ponzi scheme paying account holders with other account holder assets or deposits" - robbing Peter to pay Paul but promising to end very badly.

Does this "mark the inevitable end times of a Ponzi scheme that is inherently unstable?" Perhaps private banking as well, replaced by pension and mutual funds, and others able to operate efficiently at low cost.

Battling back, giants expanded into investment banking with repeal of Glass-Steagall, but profits continued to fall as the economic downturn accelerated, resulting in investment banks converting to commercial ones and retrenching temporarily from core businesses like M & A and corporate lending. "Meanwhile, banking as a public service has been lost to the all-consuming quest for profits," the very strategy getting giants in trouble and needing periodic government bailouts.

Very few of their services involve "taking deposits, providing checking services, and making consumer or small business loans." Instead, they concentrate on "dubious practices" responsible for a giant Ponzi scheme with "the entire economy in its death grip." They created a "perilous derivatives bubble that has generated billions of dollars in short-term profits but has destroyed the financial system in the process."

The "too big to fail" concept resulted from the S & L crisis when many of them collapsed and Citibank lost half its value. In 1989, Congress passed the Financial Institutions Reform, Recovery and Enforcement Act, bailing S & Ls out with taxpayer money. It was a brushfire compared to today's global conflagration, making it far harder to contain and effectively teetering all banks on bankruptcy. Considering the damage they've done, it's time to cut them loose and let them survive or fail on their own. And if the latter, it will be a major step toward restoring economic health overall.

Banking services can more efficiently be provided than by parasites using us as their food source."The irony is that our economic system is built on an illusion. We have been tricked into believing we are inextricably mired in debt, when the 'debt' was for an advance of 'credit' that was ours all along." It's high time we reclaimed it.

The next article focuses on taking back our money power.
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #15 on: Dec 07, 2013, 10:26:16 am »
 

Geolibertarian

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http://www.globalresearch.ca/global-economic-crisis-recapturing-what-is-ours-and-turning-scarcity-into-abundance/13647

Global Economic Crisis: "Recapturing What is Ours and Turning Scarcity into Abundance"
Review of Ellen Brown's "Web of Debt:" Part V

by Stephen Lendman
Global Research
May 19, 2009

This is the fifth of several articles on Ellen Brown's superb 2007 book titled "Web of Debt," now updated in a December 2008 third edition. It tells "the shocking truth about our money system, (how it) trapped us in debt, and how we can break free." This article focuses on taking back our money power.

Recapturing What's Ours and Turning Scarcity to Abundance

In 1952, Norman Vincent Peale (1898 - 1993) first published his most famous book - "The Power of Positive Thinking." It sold about five million copies and was a New York Times bestseller for 186 consecutive weeks delivering messages like: "Never talk defeat. Use words like hope, belief, faith, victory." FDR struck the same theme in saying: "The only thing we have to fear is fear itself."

In 1900, Frank Baum's The Wizard of Oz was first published, conveying "the notion that a life of scarcity could be transformed in an instant into one of universal abundance...." In real life, the secret is by taking back our money power from the private bankers who stole it in 1913, in the middle of the night, two days before Christmas, and kept it ever since.

Today's real cause of scarcity is that "somebody is paying interest on most of the money in the world all of the time," and by so doing enslaves nearly everyone in perpetual debt bondage. Meeting America's huge debt burden requires the money supply to keep expanding, "and for that to happen, borrowers must continually go deeper into debt, merchants must continually raise their prices, and the odd men out in the bankers' game of musical chairs must continue to lose their property to the banks."

The result - inevitable wars, competition, strife, inflation, deflation, recessions, depressions, debt bondage, poverty, and despair, while at the same time bankers get fabulously richer and more powerful. The obvious solution is to stop "parasitic" banks from "feeding on the world's prosperity," but the "Witches of Wall Street" don't yield easily. Dethroning them will take the process Francis Fox Piven explained in her 2006 book, "Challenging Authority." She quoted Thomas Jefferson responding to the repressive 1798 Alien and Sedition Acts saying:

"A little patience, and we shall see the reign of witches pass over, their spells dissolve, and the people, recovering their true sight, restore their government to its true principles."

Disruptive social actions have done it as Piven explained:

"ordinary people (have) power....when they rise up in anger and hope, defy the rules....disrupt (state) institutions....propel new issues to the center of political debate (and force) political leaders (to) stem voter defections by proferring reforms. These are the conditions that produce" democratic change.

Sidestepping the Debt Web with "Parallel" Currencies

Community currencies, for example, that historically rose "spontaneously when national (ones) were scarce, unobtainable," or in the case of Weimar Germany worthless because of hyperinflation. "Hundreds of communities in the United States, Canada and Europe did the same thing during the Depression" when hard times forced creative solutions. "Like the medieval tally, these currencies were simply credits (letting bearers) trade (them) for an equivalent value in goods and services...."

Today, community currencies "operate legally in more than 35 countries...." and in North America over 30 are available in places like Ithaca, New York where Ithaca HOUR scrip is used, saying on the back:

"This is money (entitling) the bearer to receive one hour of labor or its negotiated value in goods and services. Please accept it, then spend it...."

Another example is corporate credits like airline frequent flyer miles entitling holders to free flights and other benefits like lodging, rental cars, restaurant meals and even groceries.

Computer technology provides other alternatives as well, without currencies, by facilitating trades electronically. In 1981 after IBM released its XT computer, the first electronic currency system was devised - a Local Exchange Trading System (LETS) for recording transactions and keeping accounts by simply having "an information system for recording human effort." It tallied credits in and debits out, tax and interest free, and stored electronically.

Check out these sites for more information:

-- ithacahours.com;

-- madisonhours.org;

-- communitycurrency.org; and

-- geog.le.ac.uk/ijccr.

The main drawback to these systems is they're small, local, and fail to address the greater problem - "the mammoth debt spider that is sucking the lifeblood from the national economy" and our well-being. Solving that requires national currency reform - returning money creation power to the people who own it from bankers who stole it.

Goldbugs v. Greenbackers

In 1896 at the Democratic National Convention, William Jennings Byran railed against Goldbugs and their moneyed interests backers in support of Greenbacker farmers and laborers saying: "You shall not crucify mankind upon a cross of gold." The arguments went like this:

-- Bankers claimed gold was a stable medium of exchange; "sound" or "honest" money in relatively fixed supply that couldn't be inflated by irresponsible governments out of proportion to the demand for goods and services;

-- Greenbackers called scarcity a drawback letting governments condone "dishonest" money through fractional reserve banking; they'd be harmed too many previous times not to know it; also, during the 1850s Gold Rush, its supply and consumer prices rose sharply, did again from 1917 - 1920, and during the 1970s when gold rose from $40 an ounce to $800 and inflation along with it.

The debate still continues, but today's goldbugs are money reformers, not bankers who have it all going their way so why change.

As a medium of exchange, gold has serious drawbacks. In the Great Depression, it left the country, exacerbating deflation that caused the money supply and demand to contract. Another problem is that productivity is linked to its availability, but more practical matters are also relevant like needing gold bars for large purchases, something avoided by paper, checkbook and electronic money.

In the 1990s, Harvey Barnard proposed a new currency reform idea that included a national sales tax in lieu of the federal income tax with the aim of zero inflation and a stable economy. The National Economic Stabilization and Recovery Act (NESARA) he called it. His idea was for the government to issue currency in three forms - standard silver coins, standard gold ones, and Treasury credit notes or Greenbacks. Treasury notes would replace Federal Reserve ones with the Federal Reserve abolished.

NESARA was never introduced in Congress and might work if enacted. But why bother when the central problem is more simply addressed by returning money creation power to the government as the Constitution mandates. Paper currency isn't the problem. A private banking cartel controlling it is what's at issue to fix. By doing it, "the water of a free-flowing money supply can transform an arid desert of debt into the green abundance envisioned by our forefathers." It's there for the taking by simply "eliminating the financial parasite that is draining our abundance away," and there's nothing complicated about doing it.

The Federal Debt

How to pay it off is the question Congress one day must address. We can't grow our way out, but here's another way - pay it off "by turning (government) bonds into what they should have been all along, legal tender."

Economic analyst Al Martin cites a 2001 US Treasury study showing that US debt service may force the government to raise the personal income tax to 65% by 2013, and if interest can't be paid, bankruptcy and economic collapse will follow as well as for global economies within five days. The only alternative at that point would be "through currency (and) military might, or internal military power...."

However, two centuries ago, Alexander Hamilton showed "that Congress could dispose of the federal debt by 'monetizing' it, but Congress made the mistake of delegating that function to a private banking system." It can fix it by "buying back its own bonds with newly-issued US Notes" it can print in limitless amounts - debt and interest free.

It's being done now - "not by the government but by the private Federal Reserve." However, doing it leaves the bonds in circulation, with two sets of securities (bonds and cash) instead of one. "This highly inflationary (scheme) could be avoided" if the government just bought back its own bonds and voided them out - a win-win arrangement for the nation and public with only bankers losing out as they should.

It's simple to do and would be able to "extinguish the national debt with the click of a mouse." In January 2004, the Treasury did it when it "called" (paid off) a 30-year bond issue prior to its due date. Paying "in book-entry form" eliminated doing it with paper currencies or checks and turned securities from interest-bearing to non-interest bearing ones. Bondholders had a choice. They could take their redemption amount in cash or not sell and get no interest.

By this method, the Treasury "can pay off the entire federal debt....It just has to announce that it is calling its bonds and other securities, and that they will be paid 'in book-entry form.' " No cash is involved and funds received can be otherwise reinvested. The process can be accomplished gradually as securities come due. It's just a matter of doing it along with restoring money creation power to the government and making America democratic again, unbeholden to bankers.

Federal Debt Liquidation without Inflation

"Inflation results when the money supply increases faster than goods and services, and replacing government securities with cash would not change the size of the money supply." If government buys its own bonds, they simply convert from interest-bearing notes into non-interest-bearing legal tender (cash). The money supply remains unchanged, and there's no inflationary impact.

That's "very different from what happens today" with the Fed buying bonds, not voiding them out, and creating "reserves" for issuing "many times their value in new loans." It adds new cash to the money supply - a "highly inflationary (scheme simply avoided by having) the government buy back its own bonds and (take) them out of circulation."

It's also a way to solve the "Social Security crisis." Resolve it by "simply cashing out (of) federal bond holdings (in exchange for) newly-issued US notes" with no inflationary effect because no new money would be created. Bonds would become cash, remain in the fund, and be used for future pay-outs.

Fed-held securities could be cashed out the same way and just as benignly. Cash would replace bonds. They'd be voided out. The money supply would be unchanged, and inflation would be avoided. It would work no differently for foreign central bank held debt since bonds and cash are the same thing and either can be held in reserve to support their own currencies or to buy oil per the 1974 OPEC agreement.

Already sovereign debt holders are cutting back, reducing their US securities reserves but doing it discretely so as not to be disruptive. However, "the tide is rolling out, and US bonds will be coming back to (our) shores whether we like it or not." At issue is who'll buy them and whether an inflationary or non-inflationary path will be taken. So far it's the former with all the dangers involved.

Federal Reserve-Issued "Helicopter" Money

Early in the new millennium, deflationary concerns were great enough for Ben Bernanke to deliver a Washington 2002 speech titled: "Deflation: Making Sure 'It' Doesn't Happen Here." He explained that lowering interest rates isn't the sole way to inject new money into the economy. The "US government has a new technology, called a printing press (an electronic one), that allows it to produce as many US dollars as it wishes at essentially no cost." The government could reflate the economy and buy hard assets at the same time. At issue again is whether government or private bankers do it (or local communities acting independently) and the positive or negative effects of each choice.

Today we're banking cartel controlled, and it's "brought the system to the brink of collapse. The privately-controlled Federal Reserve, which was chartered specifically to 'maintain a stable currency,' has allowed the money supply to balloon out of control. The Fed manipulates the money supply and regulates its value behind closed doors, in blatant violation of the Constitution and the antitrust laws" with the full faith and blessing of the administration, Congress and courts. It "can't be held to account; it doesn't even have to explain its rationale or reveal what is going on."

Imagine the difference if the "banking spider....could be decapitated, returning national (money creation) sovereignty to the people themselves." In other words, the rightful owner.

A final article addresses a people-oriented banking system.
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #16 on: Dec 07, 2013, 10:27:20 am »
 

Geolibertarian

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http://www.globalresearch.ca/restoring-national-sovereignty-with-a-truly-national-banking-system/13713

Restoring National Sovereignty with A Truly National Banking System
Reviewing Ellen Brown's "Web of Debt:" Part VI

by Stephen Lendman



Global Research
May 23, 2009

This is the sixth and final article on Ellen Brown's superb 2007 book titled "Web of Debt," now updated in a December 2008 third edition. It tells "the shocking truth about our money system, (how it) trapped us in debt, and how we can break free." This article focuses on establishing a people-oriented banking system. It's high time we had one and reclaimed what's rightfully ours.

Restoring National Sovereignty with A Truly National Banking System
 
One serving everyone, not powerful moneychangers alone, the so-called Money Trust cartel of Wall Street bankers looting the national wealth for themselves and heading the country for bankruptcy, tyranny and ruin. Stopping them is Job One, and only mass activist outrage can do it.
 
At the Chicago Democratic National Convention, William Jennings Bryan won the nomination saying:
 
    "(W)e believe that the right to coin money and issue money is a function of government....I stand with Jefferson (and say), as he did, that the issue of money is a function of the government and that banks should go out of the governing business....(W)hen we have restored the money of the Constitution, all other necessary reforms will be possible, and....until that is done there is no reform that can be accomplished."

No Fed existed at that time. If one did and operated like today, Bryan would have said abolish it or make it truly federal. As a US government agency, money created would go directly to the Treasury. But that's only 3% of the money supply. What about the other 97% in the form of commercial loans? Would that put government in the commercial lending business?
 
"Perhaps, but why not. As Bryan said, banking is the government's business, by Constitutional mandate" - at least the part of it involved in creating new money. The rest could be in private hands, like today - through banks and other financial institutions, such as finance companies, pension and mutual funds, insurance companies, and securities dealers. "These institutions do not create the money they lend but merely recycle pre-existing funds." With government printing money, banks would become more equitable recyclers - "borrowing money at a low rate and lending it at a higher one," except for one downside. Some would go bankrupt, but start-ups would replace them under a more stable and equitable system.
 
In 1946, the Bank of England was nationalized in name only and retained its (privately-controlled) money printing power. In 2003, James Robertson and John Bunzl proposed changing it their book titled: "Monetary Reform: Making It Happen." They advocated making it illegal for banks to create new money as loans. Only a central bank should do it with commercial banks having to borrow it for relending.
 
Government officials, however, balked at the idea saying the nation would be harmed as banks would go broke having been stripped of their "credit multiplier" capacity - the British version of fractional reserve lending. London banks are second only to Wall Street so rather than risk this fate they'd likely relocate "en masse to the Continent" and force the British economy to collapse.
 
In the 1940s, Representative Jerry Voorhis proposed a similar plan to Congress called "the 100 Percent Reserve Solution," his idea being "to require banks to establish 100 percent reserve backing for their deposits" - done by borrowing from the Treasury to supply what they needed.
 
In "The Lost Science of Money," Stephen Zarlenga wrote:
 
    "With this elegant plan, all the bank credit money the banks have created out of thin air, through fractional reserve banking, would be transformed into US government legal tender - real, honest money."


True enough but at a cost so great that (in 1946) it launched Richard Nixon's political career with a vicious red-baiting campaign accusing Voorhis of Communist Party links.
 
His plan was later revived but never enacted into law. One of its advocates is Zarlenga's American Monetary Institute. It drafted an American Monetary Act to eliminate fractional reserve banking and impose a 100% reserve requirement on all demand deposits, making them unavailable to loan and only for "a (fee-based) warehousing and transferring service." The Fed would be incorporated into the Treasury with the government solely authorized to create new money - to be circulated inflation and deflation-free for purposes such as: infrastructure development, education, health care, job creation, financing local economies, and funding government at all levels. For their part, banks would function traditionally - as intermediaries for deposits loaned out to borrowers.
 
 A Monetary Reform Act goes further by requiring:
 
 -- 100% reserve requirement on all bank deposits, including savings; deposits wouldn't be counted as reserves against which to make loans; they'd be held in trust solely for their depositors' use;
 
 -- banks servicing depositors could only lend their own money; and
 
 -- doing it with depositors' funds would require they establish separate institutions, not called banks.
 
If Congress reclaims its money-creation power, banks will have to maintain 100% reserve requirements (available for withdrawals), to "avoid the electronic duplication that is the source of" money supply growth today. It would require them to raise enough money to "fund" all outstanding loans. "The 'credits' (or loans then) become 'deposits' that represent 'liabilities' of the banks, money (they) owe to the depositors." It would be secured (by borrowing) around $6 trillion or more in real money, not the fictitious kind they create today.
 
In turn, they'd have to raise interest rates, pay depositors less, operate on thinner margins, and likely drive customers to more competitive non-bank institutions, already controlling 80% of the market.
 
In December 2006, William Hummel proposed an alternative in an article titled "A Plan for Monetary Reform" under which banks could sell their existing loans to investors with ready cash if the federal debt was paid off by monitizing it with government-issued currency. Federal bond holders would need a new home for their savings with a rate of return making up for what they lost. Investment funds would likely create new vehicles for it. They could buy bank loans with investors' money and bundle them as securities for resale with interest.
 
Selling the loans would let banks avoid incurring substantial new debt to meet the new 100% reserve requirement. Bank "balance sheets could be wiped clean and they could start fresh with new loans" - operating traditionally by borrowing low and lending higher. However, these new limitations could prove harmful, "imposing an unfair burden on unsuspecting shareholders, warranting some equitable division of the sale proceeds in compensation."
 
Consider also that if these type restrictions existed, banks "would have little incentive to service the depository needs of the public." A solution would be to transfer its "depository role to a system of (nationwide) bank branches acting as one entity under the (government-run) Federal Reserve." In other words, a government-run public utility.
 
It would make the Fed "the sole depository and only its branches would be called 'banks.' " Others would close down or become private financial institutions in whatever form they'd choose.
 
Robert Guttman explains that basic banking is fairly simple - to provide a safe place to store money and transfer it to others. A government agency could handle it easily. It did earlier through the US Postal System (until shut down in 1967) and can do it again.
 
With the restoration of traditional banks, servicing credit cards would also have to be addressed as banks might be unable to do it. One solution would be to turn credit extension "over to a system of truly national banks (authorized to operate with) the 'full faith and credit of the United States' as agents of Congress," newly empowered to create money. In addition, government banks wouldn't be profit driven enough to charge exorbitant rates. They'd be "reasonable, predictable and fixed."
 
Consider also that old banks (namely existing branches) could be bought to become government-run ones, or if insolvent banking giants were nationalized, their branches alone might do the job. The FDIC could hire new management or have existing ones operate under new guidelines. The difference would be that interest would accrue to the government (and the) 'full faith and credit of the United States' would become an asset of the" country.
 
There's one other limitation as well - 100% reserve requirements would restrict money growth so it would have to expand to meet demand by other means. One way in a system with no federal debt or interest is to let consumer debt be self-regulated as under the LETS system in which "money is created whenever someone pays someone else with 'credits,' and it is liquidated when the outstanding credits are used up."
 
Nationwide, "money would come into existence when it was borrowed from the community-owned bank, (then) extinguished as the loans were repaid." It's no different than how money is created now except that communities, not bankers (siphoning off interest in windfall profits), will do it. None of the above systems are perfect, but they're far better than the current corrupted one benefitting bankers, not people.
 
The Question of Interest - Solving the "Impossible Contract" Problem
 
Money controlled by banks only creates the "principle and not the interest" to repay loans. Governments, on the other hand, can "not only lend but spend money into the economy, covering the interest shortfall and keeping the money supply in balance."
 
However, "returning all the interest collected on loans to the government would require nationalizing" all forms of lending at interest, including banks. In the real world, a semi-private, semi-public system might work better as follows:
 
 -- governments would create money and be its initial lender;
 
 -- private financial institutions, including banks, "would recycle this money as loans;"
 
 -- they'd still earn interest, but not as much;
 
 -- as a result, the money supply would need to expand to cover it, but not as much as now; and
 
 -- overall it would expand proportionally to demand keeping inflation contained.
 
Vilified today as socialism, it's the very system colonists used successfully to jump-start the country, make it grow, and do it without taxes or inflation. Franklin and Jefferson championed it. So did Jackson, Lincoln, and perhaps Kennedy later on.
 
Early 20th century Australia's Commonwealth Bank created money, made loans, and collected interest at a fraction of what private bankers charged. It worked well enough for the country to have one of the highest standards of living in the world at that time. Once private banks printed money, Australia became heavily indebted, and its living standard fell to a 23rd place ranking.
 
In the 1930s, the Fed printed money. However, FDR empowered the Reconstruction Finance Corporation to provide plenty of cheap credit to build infrastructure, create jobs, and provide emergency loans to states. The US Postal Savings System, Small Business Administration (SBA), Fannie and Freddie initially worked the same way outside the private banking system.
 
After being privatized, these mortgage lenders became corrupted, then bankrupt proving government can be the solution, not the problem, and a cheaper, more efficient one besides. From her own experience as Assistant HUD Secretary, Catherine Austin Fitts states:
 
    "The public policy 'solution' has been to outsource government functions to make them more productive. In fact, this jump in overhead (simply subsidizes) private companies and organizations....regardless of (their) performance. (The scheme) make(s) no sense except for the property managers and owners who build and manage it for layers of fees."

It's the same argument used against privatized health care as opposed to cheaper, more efficient universal coverage leaving out insurer middlemen, letting government buy drugs at lower cost, and still leaving lifelong, high quality, comprehensive, and affordable choices in consumers' hands. It's a system begging to be instituted but won't be under Obama.
 
Once again, fear of big government is misguided. It should protect and serve everyone equally - impossible with the Money Trust running it, the way it works now with bankers creating money and extracting the national wealth for themselves.
 
Masquerading as "free enterprise today is a system in which giant corporate monopolies (use) their affiliated banking trusts to generate unlimited funds to buy up competitors, the media, and the government itself, forcing truly independent private enterprise out" - the very system Adam Smith and other classical economists abhorred.
 
Private banks have America and most other nations by the throat. They force governments to pay interest on their own money as well as "advance massive loans to their affiliated cartels and hedge funds, which use the money to raid competitors and manipulate markets." Its Darwinism in the extreme giving power brokers the right to choose who survives and who doesn't with ordinary people faring worst of all.
 
The solution is "publicly-operated police, courts and laws to keep corporate predators at bay" under a nationalized banking system, creating its own money, and serving people, not bankers - a truly equitable, sustainable, efficient and democratic system freed from parasitic financiers.
 
Beating the Robber Barons at Their Own Game
 
Using accepted business practices, the Rockefellers, Morgans, Carnegies, and Vanderbilts et al "deprived their competitors of property" by buying it on the open market through takeovers. Their "slight of hand" was how they funded them - through their own affiliated banks able to create money out of thin air, the same way it's done today for even larger stakes.
 
What banking cartels can do, so can governments - but through a much smaller, fairer and more efficient nationalized banking system operating as a public utility. Private financial institutions could still recycle loans but in the way described above.
 
Another choice would be for government to buy out all banks - a more equitable but unnecessary choice even though it would be quite affordable with the power to create money. What better time than now given the gravity of today's economic crisis leaving world economies close to collapse.
 
According to Murray Rothbard, the entire commercial banking system is bankrupt. It belongs in receivership and their managements jailed for embezzlement. Taxpayers would save a lot of money, and nations would be on the road to recovery and prosperity.
 
One observer says too-big-to-fail banks are already stealth nationalized since taxpayer bailouts stand ready whenever they get in trouble - the idea being that costs are socialized and profits privatized, a process begging to be halted. Taxpayer-supported banks "can and should be made public institutions operated for the benefit of" everyone. Given that major banks today are corrupted and bankrupt, now is the time to do it - not as a temporary measure but irrevocably under a totally restructured system.
 
The Quick Fix - Government that Pays for Itself
 
How much newly created government money would be inflation free? Could income and other taxes be eliminated? Would it "avoid the 'impossible contract' problem by furnishing the money necessary to cover the interest (not) advanced in commercial loans?"
 
If government and not banks created money, the amount needed would be less - "without cutting government programs or adding to a burgeoning federal debt." Inflation would be avoided and income taxes eliminated without sacrificing growth and prosperity in proportion to a larger population. More people would be employed as well compared to over 20% out of work today according to economist John Williams when all excluded and distorted categories are included.
 
Imagine an inflation-tax-free economy with enough government-created money for health care, education, infrastructure development, other productive growth, environmental cleanup, scientific research, development of alternative energy sources, and much more. It would be utopian compared to today's unsustainable system devouring people for profits and heading world economies for ruin.
 
Under today's "impossible contract" system, 99% of the money supply is borrowed, all at interest to lenders. It means more of it is owed back in principle and interest than was borrowed. The money supply must continue to expand to keep up and prices along with it. The latter could be avoided if a proportional amount of goods and services are created, not at all the case in America with growing amounts of manufacturing offshored under a financialized economy paying tribute to bankers - "for lending money they never had to lend" in the first place.
 
Roger Langrick solves the "impossible contract" this way: let government "issue enough new money to match the outstanding collective interest bill of the nation" even though it's prohibitive at around $500 billion annually for government debt service alone. Today's public and private debt comes to many tens of trillions so servicing that burden is staggering, yet innovative solutions may handle it, and once done, a brighter tomorrow awaits.

Ending Third World Debt
 
Today most of it is held by giant US-based banks like Citigroup and JP Morgan Chase. If they're placed in receivership, the "US government could declare a 'Day of Jubilee' " of debt forgiveness, and if done, it "would not be an entirely selfless act." For America to pay off its international debt, it needs all the goodwill it can get. Forgiving other debts would encourage our creditors to forgive ours as world nations have no interest in seeing major economies collapse. What affects one, harms others.
 
"Our shiny new monetary scheme, rather than appearing to be a slight of hand, could unveil itself as a millennial model for showering abundance everywhere" for the mutual benefit of everyone. It's simple to do - just void out debts on banks' books with a click of a mouse. "No depositors or creditors would lose money, because (none) advanced their own money in the original loans." They were created out of thin air through accounting entries. On banking financial statements, they're liabilities because accounting rules say books must balance.
 
Once old debts are gone, new ones can be avoided by stabilizing national currencies to prevent devaluation by speculators. Bretton Woods protected against this. A new system is now needed, one that "retains the virtues of the gold standard while overcoming its limitations."
 
One now in use is to peg currencies to the dollar but with it comes loss of flexibility to compete in international markets or be able to budget enough for domestic needs - with a fixed money supply. Argentina's "currency board" in the 1990s forced its eventual bankruptcy in 1995 and again in 2001 as earlier mentioned.
 
A global currency is another proposal - one that creates more problems than it solves. The world "is not one nation or one region," and who's to be boss and in charge. Further, if all governments issued the same currency, "the global money supply (would be) vulnerable to irresponsible governments (issuing) too much." Strong ones would end up dominating the weak, and national sovereignty would be weakened, perhaps ended. A "fully dollarized" world is a prescription for trouble enough to make scarcity "the order of the day."
 
Rather than one currency, "a single global yardstick" is needed "against which governments can value their currencies - some independent measure (by) which merchants can negotiate their contracts and be sure of getting what they bargained for." How to do it is the question.
 
A New Bretton Woods
 
Michael Rowbotham picked up on John Maynard Keynes idea of pegging currencies to a basket of commodities, calling it "a profoundly democratic idea." He states:
 
"Today, wheat grown in one country may, due to a devalued currency, cost a fraction of wheat grown in another. This leads to (cheap wheat producers) becoming (heavy exporters) regardless of need, or the capacity to produce better quality wheat in other locations. In addition, currency values can change dramatically and the situation can reverse. Critically, such wheat 'prices' bear no relation to genuine comparative advantage of climate, soil type, geography and even less to indigenous/local/regional needs." Nor does it stabilize production in relation to need. By "imputing value to a nation's produce, and allowing this to determine the value of (its) currency, one is imputing value to its resources, its labourers and acknowledging its own needs."
 
An international trade unit could be established based on a basket of commodities representative enough to fend off speculators - just a "yardstick for pegging currencies and negotiating contracts." Exchange rates would be fixed everywhere but not forever. Changes would "reflect the national market for real goods and services," not currencies. They'd be "no room for speculation or hedging."
 
Various proposals involve "private international currency exchanges, but the same (type) reference unit (could) stabilize exchange rates among official national currencies." One calls for:
 
 -- a new fixed exchange rate system;
 
 -- a treaty banning speculation in derivatives;
 
 -- canceling or reorganizing international debt; and
 
 -- having governments issue enough "credit" to create full employment, then used for technical innovation and infrastructure development.
 
The plan is for exchange rates to be "based on an international unit of account pegged against the price of an agreed-upon basket of hard commodities."
 
Other plans are around as well, all stressing the same idea - "the urgent need for change" because the current system is corrupted and broken.
 
How then to stabilize national currencies? "The simplest and most comprehensive....internationa l currency yardstick (measure) seems to be the Consumer Price Index....modified to reflect" real consumer expenditures, not the quantity of currencies traded in international markets by speculators. Henceforth, currencies "would just be coupons for units of value recognized globally" - stable enough for "commercial traders (to) 'bank' on them."
 
National currencies "would become what (they) should have been all along - (contracts) or promise(s) to return value in goods and services of a certain worth, as measured against a universally recognized yardstick for determining value."

Government without Taxes or Debt
 
Only a "radical shift in our concepts of money and banking will save us from the cement wall looming ahead" - an abyss otherwise named. Letting bankers hold "an illusory sum of gold," to be multiplied many times over by fractional reserve alchemy, entraps everyone in debt bondage. "The result was a (giant) Ponzi scheme that has pumped the global money supply into a gigantic credit bubble" now imploding.
 
Everything of value is at risk, including our futures and that of our loved ones - unless we can reverse the corrupted system entrapping us, and think of the benefits: expanded government services and prosperity, inflation and tax free.
 
Today's "web of debt" is based on fraud, deceit, and manipulative sleights of hand, including:
 
 -- fractional reserve alchemy - pure hocus-pocus witchcraft hokum;
 
 -- the gold standard of an earlier time letting bankers dangerously inflate the money supply "on the same gold reserves;"
 
 -- the private banking cartel Federal Reserve owned by major banks in each of 12 Fed districts empowered to create money and charge the government, business, and individuals interest on it - the result being everyone put in permanent debt bondage to world-class predators;
 
 -- the federal debt and money supply; both continually expand under a highly inflationary scheme;
 
 -- the federal income tax to pay interest to bankers;
 
 -- the FDIC and IMF to ensure mega-banks get bailed out no matter what unwarranted risks they take; the IMF is also a sort of knee-cap breaking enforcer for the monied interests - extracting multiple pounds of flesh in as part of a giant extortion racket;
 
 -- a "free market" for those who own it under a corrupted, manipulated system of socialized risks and privatized profits, enforced by the Pentagon's long arm;
 
 -- the Plunge Protection Team (PPT) and Counterparty Risk Management Policy Group (CRMPG) - created to rig and manipulate markets along with colluding Wall Street bankers bailed out whenever they get in trouble; the notion that markets move randomly is rubbish - about as real as the tooth fairy or Mother Goose;
 
 -- "floating" exchange rates - for more manipulation and collusion in international currency markets;
 
 -- short selling - for speculators in all type assets; when used against currencies, it can artificially force them down enough to cause economic havoc the way it was done to Asian Tiger countries in 1997 and many others as well;
 
 -- "globalization" and "free trade" - a predatory system benefitting America and the West under WTO rules; countries also become vulnerable to speculative assaults when their currencies are convertible and economies opened to "free trade;"
 
 -- inflation myths - money creation isn't the problem; speculative currency attacks force destructive devaluations, meaning prices rise as a result; American inflation is "caused by private banks inflating the money supply with debt," not by printing money; also by productive growth not keeping up;
 
 -- the "business cycle" - responsible financial managements produce stable prosperity; when irresponsibly done by a private banking cartel, booms and busts result; it's an unnatural "monetary scheme in which money comes into existence as a debt to private banks for 'reserves' of something lent many times over;"
 
 -- the home mortgage boondoggle - monetizing home mortgages today creates most money; borrowers think they're using "pre-existing funds, when the bank is just turning one's promise to pay into an 'asset' secured by real property;" when paid off, the interest usually exceeds the original loan, and in cases of default, banks seize the homes;
 
 -- the housing bubble - it was caused by easy credit in the 1990s and post-2000 by an irresponsible Fed and Wall Street bankers' plan, including massive fraud like issuing up to 10 mortgages on a single home when its owner had only one;
 
 -- adjustable rate mortgages (ARMs) - affecting about half of all US ones, it was a scam through subprime lending and low "teaser" rates, later ratcheted to unaffordable levels and catching buyers unawares;
 
 -- the secret bankruptcy of banks - they gambled hugely on risky derivatives and housing loans, far afield from traditional banking of borrowing low and lending higher for modest, stable profits; the result - all major banks are insolvent with only government bailouts keeping them afloat;
 
 -- "vulture capitalism" and derivatives - the former amounts to predatory banks and hedge funds "buying out shareholders and bleeding businesses of profits, using loans of 'phantom money' created on a computer screen" out of thin air; the latter turned banks into casinos making huge bets that went sour; and
 
 -- moral hazard, once called the "Greenspan put;" substitute Bernanke and Geithner now for the maestro of misery; it lets banking giants take outsized risks knowing bailout backups await any that go sour.
 
Conclusion - private commercial banking practices are corrupted, destructive and obsolete, and vulture capitalist investment banks are parasites on productivity, serving their interests at public expense. Congress should and must either close down insolvent banks or put them in receivership as step one. Then "claim them as public assets, and operate them as agencies serving" public depository and credit needs.
 
The federal debt is another problem - at "its mathematical limits, (it's) forcing another paradigm shift if the economy is to survive." We have a choice: let a debt-based house of cards collapse or have it be a wake-up call for radical change. Again, imagine the possibilities:
 
 -- ending personal income taxes and stimulating stable economic growth at the same time;
 
 -- eliminating the federal debt entrapping us and future generations in permanent bondage;
 
 -- returning money creation power to the government as the Constitution mandates with a cornucopia of benefits to follow;
 
 -- strengthening universal Social Security for everyone in place of disappearing private pensions;
 
 -- fostering stable, inflation-free prosperity with no booms and busts;
 
 -- keeping borrowing costs fair and affordable, not subject to private bank manipulation; and
 
 -- ending destructive currency devaluations and economic warfare for private gain; with stable exchange rates, the "dollar becomes self-sustaining, and the United States and other countries become self-reliant," free from foreign creditors and one-way market rules benefitting the strong over the weak.
 
Impossible? Only for non-believers, but it won't happen magically. It's for organized people to challenge organized money enough for government to reclaim its money creation power.
 
Nothing short of a populist revolution for radical change is needed - bubbling up from the grassroots to an unstoppable force. "Reviving the 'American system' of government-issued money" would return us to our colonial roots, and like Dorothy in the Wizard of Oz, "we the people would finally have come home."
 
More on that topic in a follow-up article.
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #17 on: Dec 07, 2013, 10:34:09 am »
 

Geolibertarian

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Schacht is telling us that the excessive speculation against the mark -- the short selling of the mark -- was financed by lavish loans from the private Reichsbank. The margin requirements that the anti-mark speculators needed and without which they could not have attacked the mark was provided by the private Reichsbank!

[...]

Thus it was a privately owned and privately controlled central bank, that made loans to private speculators, enabling them to speculate against the nation's currency. Whatever other pressures the currency faced (and they were substantial), such speculation helped create a one way market down for the Reichsmark. Soon a continuous panic set in, and not just speculators, but everyone else had to do what they could to get out of their marks, further fueling the disaster. This private factor has been largely unknown in America.

In the interest of preventing history from repeating itself at our expense, I offer the following two excerpts from Ellen Brown's Web of Debt -- the first from Chapter 21, the second from Chapter 46.

(Note: So that relative newcomers don't get confused, it should be stressed that, in the context of international trade, the "gold standard" refers merely to an agreed-upon unit of account, whereas, in the context of domestic monetary policy, it refers to a gold-"backed" currency, whereby a nation's currency is "redeemable" in gold, and whereby a nation's entire money supply is hence limited to the physical supply of gold. The U.S. rightfully abandoned the domestic gold standard in 1933, but it was not until 1971 that it was forced to abandon the international gold standard. The latter is often referred to as the gold "exchange" standard to distinguish it from both the gold specie and gold bullion standards.)

-----------------------------------

Chapter 21
GOODBYE YELLOW BRICK ROAD: FROM GOLD RESERVES TO PETRODOLLARS


”Once,” began the leader, “we were a free people, living happily in the great forest, flying from tree to tree, eating nuts and fruit, and doing just as we pleased without calling anybody master. . . .[Now] we are three times the slaves of the owner of the Golden Cap, whosoever he may be.”

-- The Wonderful Wizard of Oz,
“The Winged Monkeys”


The Golden Cap suggested the gold that was used by international financiers to colonize indigenous populations in the nineteenth century. The gold standard was a necessary step in giving the bankers’ “fractional reserve” lending scheme legitimacy, but the ruse could not be sustained indefinitely. Eleazar Lord put his finger on the problem in the 1860s. When gold left the country to pay foreign debts, the multiples of banknotes ostensibly “backed” by it had to be withdrawn from circulation as well. The result was money contraction and depression. “The currency for the time is annihilated,” said Lord, “prices fall, business is suspended, debts remain unpaid, panic and distress ensue, men in active business fail, bankruptcy, ruin, and disgrace reign.” Roosevelt was faced with this sort of implosion of the money supply in the Great Depression, forcing him to take the dollar off the gold standard to keep the economy from collapsing. In 1971, President Nixon had to do the same thing internationally, when foreign creditors threatened to exhaust U.S. gold reserves by cashing in their paper dollars for gold.

Between those two paradigm-changing events came John F. Kennedy, who evidently had has own ideas about free trade, the Third World, and the Wall Street debt game.

Kennedy’s Last Stand

In Battling Wall Street: The Kennedy Presidency, Donald Gibson contends that Kennedy was the last President to take a real stand against the entrenched Wall Street business interests. Kennedy was a Hamiltonian, who opposed the forces of “free trade” and felt that industry should be harnessed to serve the Commonwealth. He felt strongly that the country should maintain its independence by developing cheap sources of energy. The stand pitted him against the oil/banking cartel, which was bent on raising oil prices to prohibitive levels in order to entangle the world in debt.

Kennedy has been accused of “reckless militarism” and “obsessive anti-communism,” but Gibson says his plan for neutralizing the appeal of Communism was more benign: he would have replaced colonialist and imperialist economic policies with a development program that included low-interest loans, foreign aid, nation-to-nation cooperation, and some measure of government planning. The Wall Street bankers evidently had other ideas. Gibson quotes George Moore, president of First National City Bank (now Citibank), who said:

    With the dollar leading international currency and the United States the world’s largest exporter and importer of goods, services and capital, it is only natural that U.S. banks should gird themselves to play the same relative role in international finance that the great British financial institutions played in the nineteenth century.

The great British financial institutions played the role of subjugating underdeveloped countries to the position of backward exporters of raw materials. It was the sort of exploitation Kennedy’s foreign policy aimed to eliminate. He crossed the banking community and the International Monetary Fund when he continued to give foreign aid to Latin American countries that failed to adopt the bankers’ policies. Gibson writes:

    Kennedy’s support for economic development and Third World nationalism and his tolerance for government economic planning, even when it involved expropriation of property owned by interests in the U.S., all led to conflicts between Kennedy and elites within both the U.S. and foreign nations.

There is also evidence that Kennedy crossed the bankers by seeking to revive a silver-backed currency that would be independent of the banks and their privately-owned Federal Reserve. The matter remains in doubt, since his Presidency came to an untimely end before he could play his hand; but he did authorize the Secretary of the Treasury to issue U.S. Treasury silver certificates, and he was the last President to issue freely-circulating United States Notes (Greenbacks). When Vice President Lyndon Johnson stepped into the Presidential shoes, his first official acts included replacing government-issued United States Notes with Federal Reserve Notes, and declaring that Federal Reserve Notes could no longer be redeemed in silver. New Federal Reserve Notes were released that omitted the former promise to pay in “lawful money.” In 1968, Johnson issued a proclamation that even Federal Reserve Silver Certificates could not be redeemed in silver. The one dollar bill, which until then had been a silver certificate, was made a Federal Reserve Note, not redeemable in any form of hard currency. United States Notes in $100 denominations were printed in 1966 to satisfy the 1878 Greenback Law requiring their issuance, but most were kept in a separate room at the Treasury and were not circulated. In the 1990s, the Greenback Law was revoked altogether, eliminating even that token issuance.

Barbarians Inside the Gates

Although the puppeteers behind Kennedy’s assassination have never been officially exposed, some investigators have concluded that he was another victim of the invisible hand of the international corporate/banking/military cartel. President Eisenhower warned in his 1961 Farewell Address of the encroaching powers of the military-industrial complex. To that mix Gibson would add the oil cartel and the Morgan-Rockefeller banking sector, which were closely aligned. Kennedy took a bold stand against them all.

How he stood up to the CIA and the military was revealed by James Bamford in a book called Body of Secrets, which was featured by ABC News in November 2001, two months after the World Trade Center disaster. The book discussed Kennedy’s threat to abolish the CIA’s right to conduct covert operations, after he was presented with the secret military plans code-named “Operation Northwoods” in 1962. Drafted by America’s top military leaders, these bizarre plans included proposals to kill innocent people and commit acts of terrorism in U.S. cities, in order to create public support for a war against Cuba. Actions contemplated included hijacking planes, assassinating Cuban emigres, sinking boats of Cuban refugees on the high seas, blowing up a U.S. ship, orchestrating violent terrorism in U.S. cities, and causing U.S. military casualties, all for the purpose of tricking the American public and the international community into supporting a war to oust Cuba’s then-new Communist leader Fidel Castro. The proposal stated, “We could blow up a U.S. ship in Guantanamo Bay and blame Cuba,” and that “casualty lists in U.S. newspapers would cause a helpful wave of national indignation."

Needless to say, Kennedy was shocked and flatly vetoed the plans. The head of the Joint Chiefs of Staff was promptly transferred to another job. The country’s youngest President was assassinated the following year. Whether or not Operation Northwoods played a role, it was further evidence of an “invisible government” acting behind the scenes. His disturbing murder was a wake-up call for a whole generation of activists. Things in Emerald City were not as green as they seemed. The Witch and her minions had gotten inside the gate.

Bretton Woods: The Rise and Fall of an International Gold Standard

Lyndon Johnson was followed in the White House by Richard Nixon, the candidate Kennedy defeated in 1960. In 1971, President Nixon took the dollar off the gold standard internationally, leaving currencies to “float” in the market so that they had to compete with each other as if they were commodities. Currency markets were turned into giant casinos that could be manipulated by powerful hedge funds, multinational banks and other currency speculators. William Engdahl, author of A Century of War, writes:

    In this new phase, control over monetary policy was, in effect, privatized, with large international banks such as Citibank, Chase Manhattan or Barclays Bank assuming the role that central banks had in a gold system, but entirely without gold. “Market forces” now could determine the dollar. And they did with a vengeance.”

It was not the first time floating exchange rates had been tried. An earlier experiment had ended in disaster, when the British pound and the U.S. dollar had both been taken off the gold standard in the 1930s. The result was a series of competitive devaluations that only served to make the global depression worse. The Bretton Woods Accords were entered into at the end of World War II to correct this problem. Foreign exchange markets were stabilized with an international gold standard, in which each country fixed its currency’s global price against the price of gold. Currencies were allowed to fluctuate from this “peg” only within a very narrow band of plus or minus one percent. The International Monetary Fund (IMF) was set up to establish exchange rates, and the International Bank for Reconstruction and Development (the World Bank) was founded to provide credit to war-ravaged and Third World countries.

The principal architects of the Bretton Woods Accords were British economist John Maynard Keynes and Assistant U.S. Treasury Secretary Harry Dexter White. Keynes envisioned an international central bank that had the power to create its own reserves by issuing its own currency, which he called the “bancor.” But the United States had just become the world’s only financial superpower and was not ready for that step in 1944. The IMF system was formulated mainly by White, and it reflected the power of the American dollar. The gold standard had failed earlier because Great Britain and the United States, the global bankers, had run out of gold. Under the White Plan, gold would be backed by U.S. dollars, which were considered “as good as gold” because the United States had agreed to maintain their convertibility into gold at $35 per ounce. As long as people had faith in the dollar, there was little fear of running out of gold, because gold would not actually be used. Hans Schicht notes that the Bretton Woods Accords were convened by the “master spider” David Rockefeller. They played right into the hands of the global bankers, who needed the ostensible backing of gold to justify a massive expansion of U.S. dollar debt around the world.

The Bretton Woods gold standard worked for a while, but it was mainly because few countries actually converted their dollars into gold. Trade balances were usually cleared in U.S. dollars, due to their unique strength after World War II. Things fell apart, however, when foreign investors began to doubt the solvency of the United States. By 1965, the Vietnam War had driven the country heavily into debt. French President Charles DeGaulle, seeing that the United States was spending far more than it had in gold reserves, demanded that it convert 300 million of France’s U.S. dollar holdings into gold. That request was honored, but it was followed by one that would have “broken the bank.” Great Britain, having incurred the largest monthly trade deficit in its history, had been turned down by the IMF for a $300 billion loan and had tried to cash in its gold-backed dollars for the gold they supposedly represented. The sum amounted to fully one-third the gold reserves of the United States. The problem might have been alleviated in the short term by raising the price of gold, but that was not the agenda that prevailed. The gold price was kept at $35 per ounce, forcing President Nixon to renege on the gold deal and close the “gold window” permanently. To his credit, Nixon did not take this step until he was forced into it, although it had been urged by economist Milton Friedman in 1968.

The result of taking the dollar off the gold standard was to finally take the brakes off the printing presses. Fiat dollars could now be generated and circulated to whatever extent the world would take them. The Witches of Wall Street proceeded to build a worldwide financial empire based on a “fractional reserve” banking system that used bank-created paper dollars in place of the time-honored gold. Dollars became the reserve currency for a global net of debt to an international banking cartel. It all worked out so well for the bankers that skeptical commentators suspected it had been planned that way. Professor Antal Fekete wrote in an article in the May 2005 Asia Times that the removal of the dollar from the gold standard was “the biggest act of bad faith in history.” He charged:

    It is disingenuous to say that in 1971 the US made the dollar “free floating.” What the US did was nothing less than throwing away the yardstick measuring value. It is truly unbelievable that in our scientific day and age when the material and therapeutic well-being of billions of people depends on the increasing accuracy of measurement in physics and chemistry, dismal monetary science has been allowed to push the world into the Dark Ages by abolishing the possibility of accurate measurement of value. We no longer have a reliable yardstick to measure value. There was no open debate of the wisdom, or the lack of it, to run the economy without such a yardstick.

Whether unpegging the dollar from gold was a deliberate act of bad faith might be debated, but the fact remains that gold was inadequate as a global yardstick for measuring value. The price of gold fluctuated widely, and it was subject to manipulation by speculators. Gold also failed as a global reserve currency, because there was not enough gold available to do the job. If one country had an outstanding balance of payments because it had not exported enough goods to match its imports, that imbalance was corrected by transferring reserves of gold between countries; and to come up with the gold, the debtor country would cash in its U.S. dollars for the metal, draining U.S. gold reserves. It was inevitable that the U.S. government (the global banker) would eventually run out of gold. Some proposals for pegging currency exchange rates that would retain the benefits of the gold standard without its shortcomings are explored in Chapter 46.

The International Currency Casino

If the gold standard was flawed, the system of “floating” exchange rates that replaced it was much worse, particularly for Third World countries. Currencies were now valued merely by their relative exchange rates in the “free” market. Foreign exchange markets became giant casinos, in which the investors were just betting on the relative positions of different currencies. Smaller countries were left at the mercy of major players -- whether other countries, multinational corporations or multinational banks -- which could radically devalue national currencies just by selling them short on the international market in large quantities. These currency manipulations could be so devastating that they could be used to strong-arm concessions from target economies. That happened, for example, during the Asian Crisis of 1997-98, when they were used to “encourage” Thailand, Malaysia, Korea and Japan to come into conformance with World Trade Organization rules and regulations….

The foreign exchange market became so unstable that crises could result just from rumors of economic news and changes in perception. Commercial risks from sudden changes in the value of foreign currencies are now considered greater even than political or market risks for conducting foreign trade. Huge derivative markets have developed to provide hedges to counter these risks. The hedgers typically place bets both ways, in order to be covered whichever way the market goes. But derivatives themselves can be very risky and expensive, and they can further compound market instability.

The system of floating exchange rates was the same system that had been tried briefly in the 1930s and had proven disastrous; but there seemed no viable alternative after the dollar went off the gold standard, so most countries agreed to it. Nations that resisted could usually be coerced into accepting the system as a condition of debt relief; and many nations needed debt relief, after the price of oil suddenly quadrupled in 1974. That highly suspicious rise occurred soon after an oil deal was engineered by U.S. interests with the royal family of Saudi Arabia, the largest oil producer in OPEC (the Organization of the Petroleum Exporting Countries). The deal was evidently brokered by U.S. Secretary of State Henry Kissinger. It involved an agreement by OPEC to sell oil only for dollars in return for a secret U.S. agreement to arm Saudi Arabia and keep the House of Saud in power. According to John Perkins in his eye-opening book Confessions of an Economic Hit Man, the arrangement basically amounted to protection money, insuring that the House of Saud would not go the way of Iran’s Prime Minister Mossadegh, who was overthrown by a CIA-engineered coup in 1954.

The U.S. dollar had formerly been backed by gold. It was now “backed” by oil. Every country had to acquire Federal Reserve Notes to purchase this essential commodity. Oil-importing countries around the world suddenly had to export goods to get the dollars to pay their expensive new oil import bills, diverting their productive capacity away from feeding and clothing their own people. Countries that had a “negative trade balance” because they failed to export more goods than they imported were advised by the World Bank and the IMF to unpeg their currencies from the dollar and let them “float” in the currency market. The theory was that an “overvalued” currency would then become devalued naturally until it found its “true” level. Devaluation would make exports cheaper and imports more expensive, allowing the country to build up a positive trade balance by selling more goods than it bought. That was the theory, but as Michael Rowbotham observes, it has not worked well in practice:

    There is the obvious, but frequently ignored point that, whilst lowering the value of a currency may promote exports, it will also raise the cost of imports. This of course is intended to deter imports. But if the demand for imports is “inelastic,” reflecting essential goods and services, contracts and preferences, then the net cost of imports may not fall, and may actually rise. Also, whilst the volume of exports may rise, appearing to promise greater earnings, the financial return per unit of exports will fall. . .Time and time again, nations devaluing their currencies have seen volumes of exports and imports alter slightly, but with little overall impact on the financial balance of trade.

If the benefits of letting the currency float were minor, the downsides were major: the currency was now subject to rampant manipulation by speculators. The result was a disastrous roller coaster ride, particularly for Third World economies. Today, most currency trades are done purely for speculative profit. Currencies rise or fall depending on the quantities traded each day. Bernard Lietaer writes in The Future of Money:

    Your money’s value is determined by a global casino of unprecedented proportions: $2 trillion are traded per day in foreign exchange markets, 100 times more than the trading volume of all stock markets of the world combined. Only 2% of these foreign exchange transactions relate to the “real” economy reflecting movements of real goods and services in the world, and 98% are purely speculative. This global casino is triggering the foreign exchange crises which shook Mexico in 1994-5, Asia in 1997 and Russia in 1998.

The alternative to letting the currency float is for a national government to keep its currency tightly pegged to the U.S. dollar, but governments that have taken that course have faced other hazards. The currency becomes vulnerable to the monetary policies of the United States; and if the country does not set its peg right, it can still be the target of currency raids. In the interest of “free trade,” the government usually agrees to keep its currency freely convertible into dollars. That means it has to stand ready to absorb any surpluses or fill any shortages in the exchange market; and to do this, it has to have enough dollars in reserve to buy back the local currency of anyone wanting to sell. If the government guesses wrong and sets the peg too high (so that its currency will not really buy as much as the equivalent in dollars), there were be “capital flight” out of the local currency into the more valuable dollars. (Indeed, speculators can induce capital flight even when the peg isn’t set too high, as we’ll see shortly.) Capital flight can force the government to spend its dollar reserves to “defend” its currency peg; and when the reserves are exhausted, the government will either have to default on its obligations or let its currency be devalued. When the value of the currency drops, so does everything valued in it. National assets can then be snatched up by circling “vulture capitalists” for pennies on the dollar.

Following all this can be a bit tricky, but the bottom line is that there is no really safe course at present for most small Third World nations. Whether their currencies are left to float or are kept tightly pegged to the dollar, they can still be attacked by speculators. There is a third alternative, but few countries have been in a position to take it: the government can peg its currency to the dollar and not support its free conversion into other currencies. Professor Henry C. K. Liu, the Chinese American economist quoted earlier, says that China escaped the 1998 “Asian Crisis” in this way. He writes:

    China was saved from such a dilemma because the yuan was not freely convertible. In a fundamental way, the Chinese miracle of the past half a decade has been made possible by its fixed exchange rate and currency control . . . .

But China too has been under pressure to let its currency float. Liu warns the country of his ancestors:

    The record of the past three decades shows that neo-liberal ideology brought devastation to every economy it invaded. . . .China will not be exempt from such a fate when it makes the yuan fully convertible at floating rates.

There is no real solution to this problem short of global monetary reform….

Setting the Debt Trap:  “Emerging Markets” for Petrodollar Loans

When the price of oil quadrupled in the 1970s, OPEC countries were suddenly flooded with U.S. currency; and these “petrodollars” were usually deposited in London and New York banks. They were an enormous windfall for the banks, which recycled them as low-interest loans to Third World countries that were desperate to borrow dollars to finance their oil imports. Like other loans made by commercial banks, these loans did not actually consist of money deposited by their clients. The deposits merely served as “reserves” for loans created by the “multiplier effect” out of thin air. Through the magic of fractional-reserve lending, dollars belonging to Arab sheiks were multiplied many times over as accounting-entry loans. The “emerging nations” were discovered as “emerging markets” for this new international financial capital. Hundreds of billions of dollars in loan money were generated in this way.

Before 1973, Third World debt was manageable and contained. It was financed mainly through public agencies including the World bank, which invested in projects promising solid economic success. But things changed when private commercial banks got into the game. The banks were not in the business of “development.” They were in the business of loan brokering. Some called it “loan sharking.” The banks preferred “stable” governments for clients. Generally, that meant governments controlled by dictators. How these dictators had come to power, and what they did with the money, were not of immediate concern to the banks. The Philippines, Chile, Brazil, Argentina, and Uruguay were all prime loan targets. In many cases, the dictators used the money for their own ends, without significantly bettering the condition of the people; but the people were saddled with the bill.

The screws were tightened in 1979, when the U.S. Federal Reserve under Chairman Paul Volcker unilaterally hiked interest rates to crippling levels. Engdahl notes that this was done after foreign dollar-holders began dumping their dollars in protest over the foreign policies of the Carter administration. Within weeks, Volcker allowed U.S. interest rates to triple. They rose to over 20 percent, forcing global interest rates through the roof, triggering a global recession and mass unemployment. By 1982, the dollar’s status as global reserve currency had been saved, but the entire Third World was on the brink of bankruptcy, choking from usurious interest charges on their petrodollar loans.

That was when the IMF got in the game, brought in by the London and New York banks to enforce debt repayment and act as “debt policeman.” Public spending for health, education and welfare in debtor countries was slashed, following IMF orders to ensure that the banks got timely debt service on their petrodollars. The banks also brought pressure on the U.S. government to bail them out from the consequences of their imprudent loans, using taxpayer money and U.S. assets to do it. The results were austerity measures for Third World countries and taxation for American workers to provide welfare for the banks. The banks were emboldened to keep aggressively lending, confident that they would again be bailed out if the debtors’ loans went into default.

Worse for American citizens, the United States itself ended up a major debtor nation. Because oil is an essential commodity for every country, the petrodollar system requires other countries to build up huge trade surpluses in order to accumulate the dollar surpluses they need to buy oil. These countries have to sell more goods in dollars than they buy, to give them a positive dollar balance. That is true for every country except the United States, which controls the dollar and issues it at will. More accurately, the Federal Reserve and the private commercial banking system it represents control the dollar and issue it at will. Since U.S. economic dominance depends on the dollar recycling process, the United States has acquiesced in becoming “importer of last resort.” The result has been to saddle it with a growing negative trade balance or “current account deficit.” By 2000, U.S. trade deficits and net liabilities to foreign accounts were well over 22 percent of gross domestic product. In 2001, the U.S. stock market collapsed; and tax cuts and increased federal spending turned the federal budget surplus into massive budget deficits. In the three years after 2000, the net U.S. debt position almost doubled. The United States had to bring in $1.4 billion in foreign capital daily, just to fund this debt and keep the dollar recycling game going. By 2006, the figure was up to $2.5 billion daily. The people of the United States, like those of the Third World, have become hopelessly mired in debt to support the banking system of a private international cartel.

-- Ellen Brown, Web of Debt, pp. 205-216

-----------------------------------
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Re: Monetary Reform!
« Reply #18 on: Dec 07, 2013, 10:34:45 am »
 

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Chapter 46
BUILDING A BRIDGE: TOWARD A NEW BRETTON WOODS


Suddenly they came to another gulf across the road. . . .[T]hey sat down to consider what they should do, and after serious thought the Scarecrow said, “here is a great tree, standing close to the ditch. If the Tin Woodman can chop it down, so that it will fall to the other side, we can walk across it easily.”
      “That is a first-rate idea,” said the Lion. “One would almost suspect you had brains in your head, instead of straw.”


-- The Wonderful Wizard of Oz,
“The Journey to the Great Oz”


John Maynard Keynes had an idea. Instead of pegging currencies to the price of a single commodity -- gold -- they could be pegged to a “basket” of commodities: wheat, oil, copper, and so forth. He did not elaborate much on this idea, perhaps because the world economy was not then troubled by wild devaluations from speculative currency trading, and the statistical calculations for such a standard would have been hard to make on a daily basis in the 1940s. But Michael Rowbotham has elaborated on the proposal, calling it “a profound and democratic idea” that is “vital to any future sustainable and just world economy.” He writes:

    Today, wheat grown in one country may, due to a devalued currency, cost a fraction of wheat grown in another. This leads to the country in which wheat is cheaper becoming a heavy exporter -- regardless of need, or the capacity to produce better quality wheat in other locations. In addition, currency values can change dramatically and the situation can reverse. Critically, such wheat “prices” bear no relation to genuine comparative advantage of climate, soil type, geography and even less to indigenous/local/regional needs. Neither does it have any stabilising element that would promote a long-term stability of production with relation to need. . . .By imputing value to a nation’s produce, and allowing this to determine the value of a nation’s currency, one is imputing value to its resources, its labourers and acknowledging its own needs.

An international trade unit could be established that consisted of the value of a basket of commodities broad enough to be representative of national products and prices and to withstand the manipulations of speculators. “With today’s sophisticated trading data,” says Rowbotham, “we could, literally, have a register of all globally traded commodities used to determine currency values.” Although this unit for measuring value would include the price of gold and other commodities, it would not actually be gold or any other commodity, and it would not be a currency. It would just be a yardstick for pegging currencies and negotiating contracts. A global unit for pegging value would allow currencies to be exchanged across national borders at exact conversion rates, just as miles can be exactly converted into kilometers, and watches can be precisely set when crossing date lines. Exchange rates would not be fixed forever, but they would be fixed everywhere. Changes in exchange rates would reflect the national market for real goods and services, not the international market for currencies. Like in the Bretton Woods system, in which currencies were pegged to gold, there would be no room for speculation or hedging. But the peg would be more stable than in the Bretton Woods system; and because it would not trade as a currency itself, it would not be in danger of becoming scarce.

Private Basket-of-Commodities Models

To implement such a standard globally would take another round of Bretton Woods negotiations, which might not happen any time soon. In the meantime, private exchange systems have been devised on the same model, which are instructive in the meantime for understanding how such a system might work.

Community currency advocate Tom Greco has designed a “credit clearing exchange” that expands on the LETS system. It involves an exchange of credits tallied on a computer, without resorting to physical money at all. Values are computed using a market basket standard. The system is designed to provide merchants with a means of negotiating contracts privately in international trade units, which are measured against a basket of commodities rather than in particular currencies. Greco writes:

    The use of a market basket standard rather than a single commodity standard has two major advantages. First, it provides a more stable measure of value since fluctuation in the market price of any single commodity is likely to be greater than the fluctuation in the average price of a group of commodities. The transitory effects of weather and other factors affecting production and prices of individual commodities tend to average out. Secondly, the use of many commodities makes it more difficult for any trader or political entity to manipulate the value standard for his or her own advantage.

In determining what commodities should be included in the basket, Greco suggests the following criteria. They should be (1) traded in several relatively free markets, (2) traded in relatively high volume, (3) important in satisfying basic human needs, (4) relatively stable in price over time, and (5) uniform in quality or subject to quality standards. Merchants using the credit clearing exchange could agree to accept payment in a national currency, but the amount due would depend on the currency’s value in relation to this commodity-based unit of account. Once the unit had been established, the value of any circulating currency could be determined in relation to it, and exchange rates could be regularly computed and published for the benefit of traders….

Valuing Currencies Against the Consumer Price Index

Money reform advocate Frederick Mann, author of The Economic Rape of America, had another novel idea. Writing in 1998, he suggested that a private unit of exchange could be valued against either a designated basket of commodities, or the Commodity Research Bureau Index (CRB), or the Consumer Price Index (CPI). Using standardized price indices would make the unit particularly easy to calculate, since the figures for those indices are regularly reported around the world.

Mann called his currency unit the “Riegel,” after E.C. Riegel, who wrote on the subject in the first half of the twentieth century. For the “basket” option, Mann proposed using cattle, cocoa, coffee, copper, corn, cotton, heating oil, hogs, lumber, natural gas, crude oil, orange juice, palladium, rough rice, silver, soybeans, soybean meal, soybean oil, sugar, unleaded gas, and wheat, in proportions that worked out to about $1 million in American money. This figure would be divided by $1 million to get 1 Riegel, making the Riegel worth about $1 in American money.

Another option would be to use the Commodity Research Bureau Index, which includes gold along with other commodities. But Mann noted that the CRB would give an unrealistic picture of typical prices, because individuals don’t buy those commodities on a daily basis. A better alternative, he said, was the Consumer Price Index, which tallies the prices of things routinely bought by a typical family. In the United States, CPI figures are prepared monthly by the U.S. Bureau of Labor Statistics. Prices used to calculate the index are collected in 87 urban areas throughout the country and include price data from approximately 23,000 retail and service establishments, and data on rents from about 50,000 landlords and tenants.

When Mann was writing in 1998, the CPI was about $160. He suggested designating 1 Riegel as the CPI divided by 160, which would have again made it about $1 in 1998 prices. Converting the cost of one Riegel’s worth of goods in American dollars to the cost of those goods in other currencies would then be a simple mathematical proposition. The CPI’s “core rate,” which is used to track inflation, currently excludes goods with high price volatility, including food, energy, and the costs of owning rather than renting a home. But to be a fair representation of the consumer value of a currency at any particular time, those essential costs would probably need to be factored in as well.

A New Bretton Woods?

These proposals involve private international currency exchanges, but the same sort of reference unit could be used to stabilize exchange rates among official national currencies. Several innovators have proposed solutions to the exchange rate problem along these lines. Besides Michael Rowbotham in England, they include Lyndon LaRouche in the United States and Dr. Mahathir Mohamad in Malaysia, two political figures who are controversial in the West but have large followings and substantial influence internationally.

LaRouche shares the label of “perennial candidate” with Jacob Coxey, having run for U.S. President eight times. He also shares a number of ideas with Coxey, including the proposal to make cheap national credit available for putting the unemployed to work developing national infrastructure. LaRouche has launched an appeal for a new Bretton Woods Conference to reorganize the world’s financial system, a plan he says is endorsed by many international leaders. It would call for:

1.  A new system of fixed exchange rates,

2.  A treaty between governments to ban speculation in derivatives,

3. The cancellation or reorganization of international debt, and

4. The issuance of “credit” by national governments in sufficient quantity to bring their economies up to full employment, to be used for technical innovation and to develop critical infrastructure.

LaRouche’s proposed system of exchange rates would be based on an international unit of account pegged against the price of an agreed-upon basket of hard commodities. With such a system, he says, it would be “the currencies, not the commodities, [which are] given implicitly adjusted values, as based upon the basket of commodities used to define the unit.”

Dr. Mahathir is the outspoken Malaysian prime minister credited with sidestepping the “Asian crisis” that brought down the economies of his country’s neighbors....The Middle Eastern news outlet Al Jazeera describes him as a visionary in the Islamic world, who has proven to be ahead of his time. As noted earlier, Islamic movements for monetary reform are of particular interest today because oil-rich Islamic countries are actively seeking alternatives for maintaining their currency reserves, and they may be the first to break away from the global bankers’ private money scheme. In international conferences and forums, Islamic scholars have been vigorously debating monetary alternatives.

In 2002, Dr. Mahathir hosted a two-day seminar called “The Gold Dinar in Multilateral Trade,” in which he expounded on the Gold Dinar as an alternative to the U.S. dollar for clearing trade balances. Islamic proposals for monetary reform have generally involved a return to gold as the only “sound” currency, but Dr. Mahathir stressed that he was not advocating a return to the “gold standard,” in which paper money could be exchanged for its equivalent in gold on demand. Rather, he was proposing a system in which only trade deficits would be settled in gold. A British website called “Tax Free Gold” explains the proposed Gold Dinar system like this:

    It is not intended that there should be an actual gold dinar coin, or that it should be used in everyday transactions; the gold dinar would be an international unit of account for international settlements between national banks. If for example the balance of trade between Malaysia and Iran during one settlement period, probably three months, was such that Iran had made purchases of 100 million Malaysian Ringgits, and sales of 90 million Ryals, the difference in the value of these two amounts would be paid in gold dinars. . . .From the reports of the Malaysian conferences, we deduce that the gold dinar would be one ounce of gold or its equivalent value.

At the 2002 seminar, Dr. Mahathir conceded that gold’s market value is an unsound basis for valuing the national currency or the prices of national goods, because the value of gold is quite volatile and is subject to manipulation by speculators just as the U.S. dollar is. He said he was thinking instead along the lines of a basket-of-commodities standard for fixing the Gold Dinar’s value. Pegging the Dinar to the value of an entire basket of commodities would make it more stable than if it were just tied to the whims of the gold market. The Gold Dinar has been called a direct challenge to the IMF, which forbids gold-based currencies; but that charge might be circumvented if the Dinar were actually valued against a basket of commodities, as Dr. Mahathir has proposed. It would then not be a gold “currency” but would be merely an international unit of account.

The Urgent Need for Change

Other Islamic scholars have been debating how to escape the debt trap of the global bankers. Tarek El Diwany is a British expert in Islamic finance and the author of The Problem with Interest (2003). In a presentation at Cambridge University in 2002, he quoted a 1997 United Nations Human Develop Report underscoring the massive death tolls from the debt burden to the international bankers. The report stated:

    Relieved of their annual debt repayments, the severely indebted countries could use the funds for investments that in Africa alone would save the lives of about 21 million children by 2000 and provide 90 million girls and women with access to basic education.

El Diwany commented, “The UNDP does not say that the bankers are killing the children, it says that the debt is. But who is creating the debt? The bankers of course. And they are creating the debt by lending money that they have manufactured out of nothing. In return the developing world pays the developed world USD 700 million per day net in debt payments.” He concluded his Cambridge presentation:

    But there is hope. The developing nations should not think that they are powerless in the face of their oppressors. Their best weapon now is the very scale of the debt crisis itself. A coordinated and simultaneous large scale default on international debt obligations could quite easily damage the Western monetary system, and the West knows it. There might be a war of course, or the threat of it, accompanied perhaps by lectures on financial morality from Washington, but would it matter when there is so little left to lose? In due course, every oppressed people comes to know that it is better to die with dignity than to live in slavery. Lenders everywhere should remember that lesson well.

We the people of the West can sit back and wait for the revolt, or we can be proactive and work to solve the problem at its source. We can start by designing legislation that would disempower the private international banking spider and empower the people worldwide. To be effective, this legislation would need to be negotiated internationally, and it would need to include an agreement for pegging or stabilizing national currencies on global markets.

A Proposal for an International Currency Yardstick That Is Not Currency

That brings us back to the question of how best to stabilize national currencies. The simplest and most comprehensive measure for calibrating an international currency yardstick seems to be the Consumer Price Index proposed by Mann, modified to reflect the real daily expenditures of consumers. To show how such a system might work, here is a hypothetical example. Assume that one International Currency Unit (ICU) equals the Consumer Price Index or some modified version of it, multiplied by some agreed-upon fraction.

On January 1 of our hypothetical year, a computer sampling of all national markets indicates that the value of one ICU in the United States is one dollar. The same goods that one dollar would purchase in the United States can be purchased in Mexico for 20 Mexican pesos and in England for half a British pound. These are the actual prices of the selected goods in each country’s currency within its own borders, as determined by supply and demand. When you cross the Mexican border, you can trade a dollar bill for 10 pesos or a British pound for 20 pesos. On either side of the border, one ICU worth of goods can be bought with those sums of money in their respective denominations.

Carlos, who has a business in Mexico, buys 10,000 ICUs worth of goods from Sam, who has a business in the United States. Carlos pays for the goods with 2,000,000 Mexican pesos. Sam takes the pesos to his local branch of the now-federalized Federal Reserve and exchanges them at the prevailing exchange rate for 10,000 U.S. dollars. The Fed sells the pesos at the prevailing rate to other people interested in conducting trade with Mexico. When the Fed accumulates excess pesos (or a positive trade balance), they are sold to the Mexican government for U.S. dollars at the prevailing exchange rate. If the Mexican government runs out of U.S. dollars, the U.S. government can either keep the excess pesos in reserve or it can buy anything it wants that Mexico has for sale, including but not limited to gold and other commodities.

The following year, Mexico has an election and a change of governments. The new government decides to fund many new social programs with newly-printed currency, expanding the supply of pesos by 10 percent. Under the classical quantity theory of money, this increase in demand (money) will inflate prices, pushing the price of one ICU in Mexico to around 22 Mexican pesos. That is the conventional theory, but Keynes maintained that if the new pesos were used to produce new goods and services, supply would increase along with demand, leaving prices unaffected….Whichever theory proves to be correct, the point here is that the value of the peso would be determined by the actual price on the Mexican market of the goods in the modified Consumer Price Index, not by the quantity of Mexican currency traded on international currency markets by speculators.

Currencies would no longer be traded as commodities fetching what the market would bear, and they would no longer be vulnerable to speculative attack. They would just be coupons for units of value recognized globally, units stable enough that commercial traders could “bank” on them. If labor and materials were cheaper in one country than another, it would be because they were more plentiful or accessible there, not because the country’s currency had been devalued by speculators. The national currency would become what it should have been all along -- a contract or promise to return value in goods in services of a certain worth, as measured against a universally recognized yardstick for determining value.

-- Ellen Brown, Web of Debt, pp. 443-451


"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #19 on: Dec 07, 2013, 10:35:52 am »
 

Geolibertarian

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http://www.infowars.com/greeces-financial-crisis-and-the-myth-of-modern-america/

Greece’s Financial Crisis and the Myth of Modern America

Damon Vrabel
Canada Free Press
February 20, 2010

I have been hearing a lot of chatter recently in coffee shops and lunch restaurants about the financial crisis in Greece. As I eavesdrop, the impression I get is that people are trying to convince themselves the problem is “over there.”  They discuss how Greece could have avoided the situation and debate what they should do now.  So naturally it is an isolated, country-specific problem “over there,” right?

But isn’t this déjà vu?  Haven’t we seen this before?

Indeed.  It is the same situation that has occurred in Iceland, Ukraine, Argentina, Indonesia, Malaysia, Mexico, England, and countless other countries.  It is not a problem of individual countries, but rather the global monetary system that is built on debt and rules most countries.  So the problem is very much “over here.”  Most of the world, especially the United States, is just as vulnerable as Greece.  It is only a matter of time.

Debt-Based Money and Financial Predators

Countries are vulnerable to attack because their currencies are nothing but floating debt instruments controlled by bankers.  This means they are not countries as much as administrative districts for the banks that rule them.  This is why Thomas Jefferson said “banking institutions are more dangerous than standing armies.”  Bankers and their Ivy League servants can overthrow a country more completely than an army can.

Financial predator George Soros has demonstrated this repeatedly.  He is lauded in the Financial Times of London and the Wall Street Journal as free market jihadis from the Chicago School and Harvard Business say he is just playing on a rational, fair, free market playing field.  Really?  So the Asian currency crisis of 1997 that impoverished many countries was a fair market transaction between several million poor peasants in rice fields and this billionaire predator working in conjunction with even more powerful debt lords behind the IMF?  That’s a “free market?”  Absolutely, and you are Batman.

Ivy League theory can spin any fiction into fact.  These economists are lost in their abstruse academic journals, insanely detached from real life.  They would no doubt think that a neighborhood kid stealing a pair of jeans from the local store is wrong, but a billionaire participating in a transaction that “steals” much more from millions of people and loots their country is just a shrewd free market investor.  They are advocating the equivalent of letting your kids sleep in a tent in your backyard just after a serial killer who has murdered twenty other kids moves into the neighborhood.  Why would we leave ourselves open to such a threat?  The United States is in this situation.  Literally, the door is unlocked and it is just a matter of time before the financial predators decide to enter.  Will we wakeup before it is too late?

The Myth of Modern America

We must recognize that our monetary system is nothing but bank credit, i.e. debt, so it is entirely open to attack.  Even if you are not personally in debt, any savings you have is just a measure of how much another person, business, or government is in debt.  In our current system, no money gets into circulation except by borrowing from banks.  There is no other source!  The United States issues no sovereign money! That is not freedom ladies and gentlemen. We are hostage to the “illuminated” debt lords who enrich themselves by putting everyone else in debt servitude, which makes us vulnerable to predators like Soros.

The United States government has failed to do its job as dictated in Article 1 Section 8 of the Constitution for 100 years—control and defend the value of our money.  Therefore, the United States is not a sovereign country, and the American people are not free.  It is time to admit the truth and either do something about it, or stop blowing up stuff on the 4th of July believing a myth.  If your Democrat and Republican politicians do not talk about this issue, they are either too ignorant to have the job, or they are getting banker kickbacks and staying quiet on purpose.  Either way, kick them out, stop voting for corporate puppets, and demand real leaders who will do their job...No other issue matters at this point.  Most of politics is a ruse to distract you from the fact that your country and your economy are hostage to banks and financial predators.

The Unstable Mathematical Flaw of Our Economic Model

The only way for this system to keep running is for us to collectively go deeper in debt to the bankers.  That is why the US government continues increasing the debt ceiling.  They have no choice as long as they refuse to do their constitutional job and provide sovereign money that is not an interest-bearing debt to banks. Why must we go deeper in debt?  Our economic model is built upon fundamentally unstable math: P < P+I.  P is all the money in the economy at any given time (principal). I is the interest that compounds on top of P that must be paid back. So the economy is constantly running faster and faster to generate more P in order to payback P+I. That creates perpetual exponential growth, perpetual increasing velocity, and deeper servitude over time. I grows faster than P, and since production has been sent offshore, there is no way out of the black hole without borrowing more. This is precisely what people like George Soros prey upon—currencies stuck with an impossible debt load. This system guarantees an eventual attack. To repeat: we have no money unless we borrow. We have no way to pay it back unless we borrow more. Borrowing more is precisely what eventually kills the economy and allows predators to become billionaires while the rest of the population loses their life savings. What can be done about this?

Austerity:  What the Oligarchs Want to do

Typically when countries get attacked in these ways, they leave it up to the financial powers to tell them what to do.  The IMF comes in and protects capital holders by requiring the government to shutdown social services, thereby cutting off the lifeline of the lower classes.  This is class warfare in its most vicious form.  It literally results in starvation just to protect the cashflow of rich financiers who hold the country’s debt.  We also see Greece being required to outlaw cash for some transactions.  This is a strategic goal the financial powers have for the world.  A cashless society makes people completely hostage to electronic debit/credit cards controlled by the banks. Austerity is a bad plan for everyone except the upper class.

Premature Move:  End the Fed

Some say the solution is to end the Federal Reserve, thereby cutting off the financial powers at the top.  While it is the head of the monopolistic banking cartel which has no place in a free republic, eliminating it before any real monetary reform might only be the opening for the IMF to takeover.  It could also give the top predatory institutions like JP Morgan Chase more power over the people than they already have.  The Fed is to some degree a brake on these firms.  As long as Wall Street has a money monopoly, thanks to the government’s unbelievable response to the crash of 2008 shutting down smaller banks and consolidating Wall Street into a far more powerful group, I think we want a pseudo governmental organization providing some form of control.  At a minimum, we need real money first from a source other than this monopoly.

False Solution:  The Gold Standard

Many people say the gold standard would solve this problem.  But it only lasted 33 years and resulted in the banking system vacuuming up much of the gold into its own vaults!  The gold standard was a ruse.  It just required bank reserves to be gold, which demonetized silver and made people completely dependent on interest-bearing loans from the rich people who had the gold.  This is not a solution.  Gold held in our own hands is indeed debt-free money, which is why everyone reading this article should acquire some, but there is not enough gold to make it a useful medium of exchange in the current economy.  It would create a massively constrained money supply, which means we would be as dependent as ever on bank debt.  At this point the gold standard would be a step backward.

Real Solution:  Asset or Wealth Money

The solution is to create money that is not debt.  This would reduce the servitude relationship to bankers and the exponential growth of compound interest—the P < P+I problem. We the people need to make this happen. Expose the fraud of national elections by not voting until you find a leader willing to address this issue. But find such a leader!

The ultimate fix must come at the federal level, but until real leaders replace the corrupt ones there now, efforts can be made at the state and local level....Turnoff the TV news dominated by zombie candidates and their political ads full of irrelevant talking points pumped out by the central PR machine in DC. Push your state legislatures to spend money into circulation, rather than borrowing from banks, for infrastructure projects approved by the people (see the Minnesota Transportation Act). Call your legislators, call them again, and have others call them. Take action on this issue! States would then be able to recover some of their constitutional autonomy rather than being unconstitutional hostages to the debt lords. You can also start local community networks that are based simply on serving others (see themoneyfix.org). In such a system, providing a good or service for your neighbor earns you a credit and your neighbor an equal debit, which gives her the incentive to do something for you or someone else in the community ledger.  This is not a macro solution, but it is at least a step toward recovering our humanity and bringing our communities together again instead of pitting everyone against each other fighting for limited bank credit.

We do not need to be in debt to mega international banks to have an economy and create value!  Debt extracts value.  It is just a claim on someone else’s labor.  We would be far better off without much of the elite financial industry that enriches itself off our debt (though some deeply flawed economic statistics, e.g. GDP, would drop). The notion that we cannot work together without an oligarchy of banker middlemen is pure propaganda that has been pounded into our heads for years.  We must rise above it and start the process of eliminating debt and moving on a trajectory toward a more holistic life as sovereign communities and free individuals once again.  This is the only hope to begin the process of restoring the American Republic before a crisis far worse than Greece hits home.
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #20 on: Dec 07, 2013, 10:36:41 am »
 

Geolibertarian

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To the relative newcomers reading this, if you ever hear a self-appointed know-it-all from either the controlled "Left" or controlled "Right" arrogantly dismiss out of hand the claim that the bulk of our money supply is created by private banks via fractional reserve lending, show him or her the following quotes:

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"The Wahoo bank has acquired an interest-earning asset (the promissory note which it files under 'Loans') and has created demand deposits (a liability) to 'pay' for this asset. Grisley has swapped an IOU for the right to draw an additional $50,000 worth of checks against its demand deposit in the Wahoo bank....All this looks simple enough. But a close examination of the Wahoo bank's balance statement will reveal a startling fact: When a bank makes loans, it creates money. The president of Grisley went to the bank with something which is not money--her IOU--and walked out with something that is money--a demand deposit....By extending credit the Wahoo bank has 'monetized' an IOU....If commercial banks create demand deposits--money--when they make loans, is money destroyed when loans are repaid? Yes." [Emphasis original]

--  Campbell R. McConnell & Stanley L. Brue, Economics, 14th ed., pp. 294-5


"The bulk of the money in the U.S. economy is checkable deposits of commercial banks and thrifts, not currency." [Emphasis original]

-- Ibid., p. 287


"Banks are unique among financial intermediaries in that only they can create money. When banks make loans, they put the proceeds of such loans in the borrowers' checking accounts. Insofar as demand deposits are part of the money supply, these newly created deposits constitute 'new money' that did not exist before."

-- Roy J. Ruffin & Paul R. Gregory, Principles of Economics, 7th ed., p. 549


"When a commercial bank makes a loan to a business or an individual, it credits the checking account of that business or person with the amount loaned....Banks manufacture money through this loan process because they create money by monetizing debt."

-- The Appraisal Institute, The Appraisal of Real Estate, 11th ed., p. 100


"In the course of their lending activity, banks create money." [Emphasis original]

-- Marcia Stigum, The Money Market, 3rd ed., p. 17

------------------------------
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
http://schalkenbach.org
 

Re: Monetary Reform!
« Reply #21 on: Dec 07, 2013, 10:37:21 am »
 

Geolibertarian

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We are routinely told that "inflation" is the sole source of all monetary evils. However, we had deflation between 1929 and 1933 -- see: http://www.youtube.com/watch?v=AoG8R1s59Po -- yet, contrary to what Austrian School propagandists would have everyone believe, the average American was consequently worse off in '33 than in '29.

The monetary flat-earthers from the Austrian School are often so desperate to avoid this inconvenient fact of history that they'll laughingly turn reality on its head by trying to convince anyone foolish enough to listen that the avereage American was actually better off in '33 than he was several years beforehand (or at least no worse off than before).

Whenever they do this, I'm always reminded of the following:

----------------------------------

…the Fed actually accelerated money growth so that, in one four-week period, M-1 expanded at a startling annual rate of 27 percent. The President’s men did not object. The Federal Reserve was abandoning its monetarist principles, but so was the Reagan White House.

The White House senior officials were wise to ignore the monetarists, because none of their dire warnings came true. The most visible public embarrassment was reserved for the father of modern monetarism—Milton Friedman. The acerbic little professor would announce two stark predictions for the economy in subsequent months and both would be spectacularly wrong. First, Friedman declared, a new run-up of price inflation, perhaps approaching double digits, was now inevitable in the next year or so, given the explosive money growth the Federal Reserve was allowing. (Instead, inflation would decline even further.) Next, when Friedman analyzed a slowdown that developed in M-1 growth in late 1983, he boldly predicted that a recession would unfold in the election of 1984. (That didn’t happen either.)

"Now I was wrong, absolutely wrong," Friedman said of his predicted recession. "And I have no good explanation as to why I was wrong."

William Poole offered an explanation for the gross miscalculations by himself and Milton Friedman and the other monetarists. "I think it’s fair to say," Poole suggested, "that those of us who have developed strong theories tried to fit the world into the theory rather than the other way around." [Emphasis added]

-- William Greider, Secrets of the Temple, p. 543

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With regard to inflation, have you ever seen people at a store or shopping mall with "too much money" in their pockets and "too few goods" to spend it on?

Me neither.

Yet I continually hear well-meaning people parrot the Austrian School myth that, anytime a new paper dollar is added to the money supply, the dollars already in existence automatically become worth less, resulting in inflation ("too much money chasing too few goods").

This is misleading at best. Allow me to explain why.

If, over the course of a given year, economic output increases 3%, yet the money supply increases only 1%, then that 1% increase will be deflationary, not inflationary, because there will consequently be less money in circulation relative to the amount of goods and services available for sale.

If the expansion rate of the money supply merely keeps pace with economic output, then there is neither inflation nor deflation.

It's only when money creation dramatically outpaces the production of new goods and services that one has inflation, and even then only if there isn't an offsetting decrease in money velocity (such as we've seen since 2008 due to plummeting consumer confidence).

And the above applies merely to overhyped "demand-pull" inflation.

What almost never gets talked about is cost-push inflation; and even when it is talked about, virtually no one ever mentions the primary causative roles that are played by (a) compound interest on bank loans, and (b) land speculation.

For a better understanding of what I mean, consider the following three excerpts (the first from Ellen Brown's Web of Debt, the second from The Truth In Money Book, the third from the web site henrygeorge.org):

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The gold standard and the inflation argument that was used to justify it were based on the classical "quantity theory of money."  The foundation of classical monetary theory, it held that inflation is caused by "too much money chasing too few goods." When "demand" (the money available to buy goods) increases faster than "supply" (goods and services), prices are forced up. If the government were allowed to simply issue all the Greenback dollars it needed, the money supply would increase faster than goods and services, and price inflation would result. If paper money were tied to gold, a commodity in limited and fixed supply, the money supply would remain stable and price inflation would be avoided.

A corollary to that theory was the classical maxim that the government should balance its budget at all costs. If it ran short of money, it was supposed to borrow from the bankers rather than print the money it needed, in order to keep from inflating the money supply. The argument was a "straw man" argument -- one easily knocked down because it contained a logical fallacy -- but the fallacy was not immediately obvious, because the bankers were concealing their hand. The fallacy lay in the assumption that the money the government borrowed from the banks already existed and was merely being recycled. If the bankers themselves were creating the money they lent, the argument collapsed in a heap of straw. The money supply would obviously increase just as much from bank-created money as from government-created money. In either case, it was money pulled out of an empty hat. Money created by the government had the advantage that it would not plunge the taxpayers into debt; and it provided a permanent money supply, one not dependent on higher and higher levels of borrowing to stay afloat.

The quantity theory of money contained another logical fallacy, which was pointed out later by British economist John Maynard Keynes. Adding money ("demand") to the economy would drive up prices only if the "supply" side of the equation remained fixed. If new Greenbacks were issued to create new goods and services, supply would increase along with demand, and prices would remain stable. When a shoe salesmen with many unsold shoes on his shelves suddenly got more customers, he did not raise his prices. He sold more shoes. If he ran out of shoes, he ordered more from the factory, which produced more. If he were to raise his prices, his customers would go to the shop down the street, where shoes were still being sold at the lower price. Adding more money to the economy would inflate prices only when the producers ran out of the labor and materials needed to make more goods. Before that, supply and demand would increase together, leaving prices as they were before.

-- Ellen Brown, Web of Debt, pp. 100-101


Inflation in a debt-dominant money system, such as the system administered by the Federal Reserve, is correctly defined as: debt-induced currency devaluation. In fact, it is only in a debt-dominant money system that inflation has ever occurred, from the first recorded inflation that destroyed ancient Babylonia over 4,000 years ago, to the present day.

Inflation is characterized by the loss of purchasing power of the dollar (or any other monetary unit). Steadily rising prices are a symptom of this loss of purchasing power. It is the devaluation of the dollar that forces general price increases.

The dollar's devaluation, in turn, is caused by the inherent flaw in the debt-dominant money system, namely, the creation of most money as debt. This locks the system into a vicious cycle of escalating borrowing in a futile effort to pay both interest and principal. A debt-dominant money system is naturally deflationary, due to the built-in shortage of money to pay interest. The shortage forces continually increasing borrowing, which requires continually increasing prices to cover the cost of business borrowing.

The devaluation of the dollar leads to a valid demand for growth of the money supply. More money is borrowed into existence to meet this demand, but the amounts are never enough to keep pace with the growing cost of debt which triggered the cycle in the first place.

The growth of the money supply which occurs during times of inflation is simply the result of businesses and individuals escalating their borrowing. They do this in order to pay higher interest costs, either their own or their own plus the higher interest costs reflected in the rising prices of goods, services, and overhead. The primary cause of this escalation is a chronic shortage of money. The money shortage is equal to the uncreated, unpayable interest due on the escalating debt.

This growth of the money supply is widely mistaken to be the cause of inflation, whereas in fact it is only another symptom of inflation. The mistake of calling an increase in the money supply the cause of inflation is based on the belief that money is like a commodity which becomes more valuable when it is scarce and less valuable when the quantity available increases.

If inflation really is a condition of too much money in the system, it would be reasonable to ask every citizen to burn a $20 bill daily in order to bring down the money supply.

Also, if the theory that money is like a commodity is true, money borrowed at high rates of interest ought to be very valuable and buy more goods than money borrowed at low interest. However, recent experience has shown that money borrowed at 20% interest bought far less in 1981 than money borrowed at 8% interest several years earlier.

In the debt-dominant money system, prices increase as a reflection of the escalating interest charges being incurred by producers. The term "price inflation" clearly identifies the process of rising prices. However, the term "inflation," when applied to the economy as a whole, fails to identify the phenomenon in operation which causes prices to rise, and is therefore misleading. The more accurate and descriptive term for the mis-called "inflation" phenomenon is debt-induced currency devaluation.

-- Theodore R. Thoren & Richard F. Warner, The Truth In Money Book, revised 2nd ed., pp. 204-6


http://web.archive.org/web/20090509102114/http://www.henrygeorge.org/bust.htm



A theory of economic boom and crash is one of Henry George's two great purposes in Progress and Poverty. What is the root cause of the "paroxysms of industrial depression"?

The root cause, says Henry George, is the speculative rise of land prices, which cuts into the earnings of labor and capital. Land rents and prices rise at a faster rate than general economic growth, because of two unavoidable facts:

  • Land is fixed in supply.
  • Land is needed for all production.

When sufficient numbers of workers and capitalists cannot afford to produce at the higher rents brought about by growth and speculation, production begins to stop.

Let us examine some of the implications of this fact for modern economies:

New Construction is Limited. If builders must pay too much for building sites, it takes from their profit by raising their costs. Their profit on investing in the building itself is what stimulates investing, which in turn is what makes jobs and incomes.

Business Costs Go Up. Businesses that rent their premises also get squeezed by rising rents. Here's an example: A merchant goes into a new shopping center with a long term lease. His rent is often too high, but he pays it to hold his position for the later term when he hopes the rent will be a bargain. Landlords writing long-term leases get used to this, and hold out for high rentals.

Nonproductive Investments Become More Profitable than Productive Ones. Let’s say that you own some land, which you might decide to improve. But, you have the option of selling the land to a speculator. Why improve the land if the profits on your improvements would yield little more than merely collecting the speculation-hyped value of the vacant site? Landowners will "site-sit" and wait, if they believe future development will be much more gainful than development for the current market. When the workaday facts of today begin looking dull and prosaic next to the gleaming expectations of tomorrow, look out.

Banking and Credit is Destabilized. Builders needing land borrow to buy it, even though the price is too high, gambling that future rises in rents will let them repay the loan. If these rent rises fail to happen, they go bankrupt. Their buildings are not destroyed, but the capital they used to build on them was misdirected, so much of it is economically lost: the buildings lose their market value.

Unlike items of wealth, which are priced according to their cost of reproduction at the present time, land is not produced -- so it has no cost of production. Yet it is bought and sold, like articles of wealth. The selling price of land is determined by comparing its income potential with that of an equivalent value of wealth, through a process called capitalization. Here's how that works. However, the capitalization of current rent is only the beginning. With land, there is nearly always an added premium reflecting expected price increases in the future.

Speculation raises land prices beyond the sites' current use values. Credit is extended farther in order to accommodate this. That is, banks lend on overpriced land, counting on a further rise. When the rise slows, they extend the loans, sometimes even granting new loans for paying interest on old loans. They use political pressure to get governmental agencies (e.g. the World Bank) to extend or underwrite these risky loans (e.g. in Latin America). When the bubble bursts, the loans are not repaid. This destroys capital. The Savings & Loan fiasco of the 1980s is a case in point, but the basic dynamics are there in every recession.

This is not a new phenomenon. John Stuart Mill had written (before Henry George) of a tendency of lenders, when legitimate demand for loans dries up, to "lower the quality of credit" by accepting high-risk loans they would have spurned before. Because land value is such a large part of collateral on loans, and land values fluctuate wildly in business cycles, the tendency toward these volatile, high-risk lending practices is very strong.

Why don't capitalists needing land simply join in the speculative game? Couldn't they buy land at speculative prices and use it while it continues to rise in value? Actually, that's what they all do. No one can justify buying and holding land at today's prices without counting the future advance in price or rent as part of his or her gain. Thus everyone is hooked, forced by the market to participate in the speculative game, once it gets started. All become implicated and habituated, emotionally and politically, whether they like the principle or not. Eventually people forget that there could be any other way of doing business.

How do labor and capital resist advances in land value, when they must have land in order to produce? By ceasing production. What does this mean in real life? Labor and capital decline to buy or rent land at the high asking prices. Some will rent or buy less land, and use it more intensively. Some will sleep on the street, or sell from the sidewalk. Some will retreat to little patches of marginal land. Some will buy as much land as ever, but thus use up funds they otherwise would have used to improve it, becoming withholders themselves. Some will organize and pass counterproductive rent-control laws. The economy-wide net result will be less production, more unemployment.

The question that many modern-day economists fail to ask is this: How do investors react to a set of incentives where expected changes in land value are made part of the overall return on investment -- and land price is part of the investment on which return is figured?

This has several results:

  • Many are screened out by the increased need for credit.
  • Rising land value becomes part of the incentive to build. It can't go up forever. When it levels off at a high level, it becomes a serious drag. When it starts falling, it is worse.
  • Land value becomes collateral; its wild swings destabilize credit and money.
  • A lot of land is unused, (or run down in its present use), as the holder waits for a possible higher use that never materializes. In and after a crash, bid prices for land fall, but asking prices stay high, so sales drop like a stone. This behavior is inconsistent with the premises of the "rational expectations" theorists, but is good history: it has been extensively documented, over several giant cycles of boom and crash.

Land Speculation and Inflation?



There are as many different theories of the basic cause of inflation as there are for depressions. But since today's business cycle seems to involve a constant tension between periods of inflation and periods of unemployment/recession, the two phenomena clearly are linked.

George said almost nothing in Progress and Poverty about inflation; in his day industrial depression was a much more serious problem. However, inflation was not unheard-of in those days, and a strong connection is implied in George's reasoning. Consider the following statement regarding George's remedy (which this course is soon to consider): "Taxes may be imposed upon the value of land until all rent is taken by the state, without reducing the wages of labor or the reward of capital one iota; without increasing the price of a single commodity, or making production in any way more difficult."

What has this to do with inflation? George identifies land rent as an income that does not come from production; it is, in effect, a tax on production, the burden of which increases as production increases -- due to rising demand for the fixed supply of land. The tendency of this process is, as we have seen, to raise land rents beyond the marginal ability of labor and capital to pay them -- and depression is the result.

This process can be forestalled, temporarily at least, by increasing the money supply. Remember, the income of landowners increases as overall production increases, even though landowners make no contribution to production! The buying power that landowners gain, laborers and capitalists lose. But the effect of this can be blunted by increasing the money supply. When then supply of money increases faster than the supply of actual wealth, that's called inflation. An increase in the money supply can stimulate demand for goods, for a while -- if people have a certain amount of money to spend, they will try to spend it before it loses its value. Thus, an increase in the money supply, via lowered interest rates, can keep a period of economic growth alive -- at least until after the next election.

However, even this expediency is thwarted by the process of land speculation. As we explained here, land prices are arrived at via the process of capitalization. Essentially, the annual rent of a site is divided by the current rate of interest, and this capitalized rent is the basis for the selling price (most often a speculative premium will be added). Now, if the central bank lowers interest rates to free up the money supply, this means that the divisor, the capitalization rate, is a lower figure -- and therefore land prices will increase!

Many analysts, for example, note that the persistently low interest rates maintained by Alan Greenspan's Federal Reserve in the early 2000s played a key role in the "housing boom" that followed. Of course, in the real world a great many factors influence financial markets, and particular market situations are extremely complex. However, this by no means denies the pivotal, fundamental role played by land rent and land speculation. Eventually, in a growing economy (even if the growth is only a short-term blip brought about by fiscal stimulus), increased rents will consume the extra buying power. Then, one of two things must happen: either the money supply must be increased further, risking runaway inflation -- or there must be a recession.

[Continued...]

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Thus, contrary to what the Austrian School would have everyone believe, inflation -- under the current system -- is not caused by "government printing too much money."

First of all, the bulk of our money supply isn't even paper, but mere numeric entries on the books of some bank.

Second, the government doesn't print "money," otherwise it wouldn't have to borrow it all the time. What the government "prints" is currency. But that currency does not become "money" (legal tender) until it's been issued by the private banking system, which does so by lending it at interest.

It is thus private banks who've been causing inflation all these decades, and they've done so by (a) loaning out trillions of dollars they didn't even have, and (b) never creating the money needed to pay the usurious interest on all these inherently fraudulent loans -- thereby forcing indebted business owners, as a whole, to silently incorporate the cost of this unpayable interest debt into the selling price of virtually everything we buy (a form of "cost-push" inflation one never hears about from news anchors, media pundits, or either Austrian or Keynesian ideologues); and consumers, as a whole, to continually borrow more in order to afford the usury-induced price increases.

Land speculation then makes matters worse by driving up the location values of a fixed supply of land, and hence the cost of either renting or purchasing that land (another form of cost-push inflation one never hears about). And since land isn't a product of human labor, and since the increased cost of renting or purchasing it forces the cash-strapped masses to borrow still more, this has the effect of (a) delinking money creation increasingly further from the production of new goods and services, and thus of (b) increasing the amount of money there is in circulation relative to the amount of goods and services available for sale, thereby triggering eventual demand-pull inflation as well -- though not as much as one might think, since this is offset to a significant degree by both

* the fact that money vanishes from the money supply whenever the principal of a bank loan is repaid; and

* the deflationary impact that mortage loan defaults have on the money supply, due to the fact that pledged collateral usually sells for much less than what the bankrupted homeowner or business owner owed on it, and how this in turn forces the bank to offset the unpaid principal dollar for dollar from its capital assets. The more this happens nationwide, the less banks as a whole can lend. The less banks can lend, the more the gap between (a) the overall indebtedness of the economy (principal-plus-interest) and (b) the amount of money (principal) there is in circulation to pay it off increases (since interest debt continues to increase at a compounding rate regardless of whether the money supply increases along with it). And as that gap increases, more and more people are consequently forced into bankruptcy, thus creating a vicious, self-perpetuating cycle of bankruptcies, increased money shortages, followed by still further bankruptcies.

(The above two factors, coupled with the dramatic decrease in the velocity of money brought on by record lows in consumer confidence, are why -- in mid-2010 -- we have yet to experience the runaway hyperinflation that many were insisting as far back as late 2008 was just around the corner.)

Thus, while there is undoubtedly a certain degree of inflation that may be accurately classified as "demand-pull," much if not most of it is actually cost-push inflation (for the reasons explained above). And whatever demand-pull inflation we do have is driven primarily by usury and land speculation, and the consequent delinking of money creation from wealth production.
"Abolish all taxation save that upon land values." -- Henry George

http://monetary.org
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Re: Monetary Reform!
« Reply #22 on: Dec 07, 2013, 10:38:38 am »
 

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http://www.infowars.com/the-after-the-fed-solutions-debate-begins-greenbackers-vs-goldbugs/

The After-the-Fed Solutions Debate Begins: Greenbackers vs. Goldbugs

Eric Blair
Activist Post
October 13, 2010

The battle to expose the Federal Reserve has been long and arduous. It finally appears that after nearly 100 years of absolute economic control and near complete debasement of the dollar, the Fed’s reign may be coming to an end. Its eventual demise is certain according to Black Swan author Nassim Taleb and others. With all the recent mainstream talk and speculation about the end of the Fed, it is time to debate solutions for the future of America’s currency. This may indeed be the most important discussion of our lifetime.

First, we must be aware that the Federal Reserve, along with other foreign private central banks and the IMF, have long had plans for a global currency. This is not conspiracy theory mumbo-jumbo anymore, but rather cold hard fact. Lew Rockwell wrote an excellent article summarizing the IMF’s push for a global currency — the Bancor. The recent international currency war may be the beginning of creating a false demand for something more stable for international trade. As all major currencies race to the bottom, the private banking cartel will surely offer their global solution. We know what their solution will be — continued debt slavery with more centralized control — but what will the people’s solution be?

There seems to be another currency war brewing right here in America. The debate between the two most popular proposed solutions of adopting the Greenback or the Gold Standard has just officially begun. Last week, Gary North, a Goldbug and author of Honest Money, wrote a scathing attack of Web of Debt author Ellen Brown, a Greenbacker. He took select samples from her book in an attempt to tie her public bank solution to Hitler, but failed to address the “interest-free” philosophy of her policy. Despite that, he does manage to frame the Goldbug’s argument against the Greenback, or public banking, as inferior:

    Brown is a Greenbacker. She is open about this. Most people have never heard of Greenbackism. It has been a fringe movement in American political life ever since the 1860s. The Greenback Party in the 1870s was the first American political party to come out in favor of a pure fiat money economy, a paper money system controlled by Congress with currency irredeemable in gold coins or silver coins.

    The Greenbackers are committed to paper money. They are opposed to any form of gold standard. They are opposed to fractional reserve banking. They are opposed to central banking, unless the central bank is 100% owned and controlled by Congress.

A rebuttal piece was then written by Interest-Free Currency activist Anthony Michgels in defense of Brown and the Greenbackers where he goes after North and claims interest-bearing gold can never work:

    What it is all about is the Goldbug people versus the Interest Free Money crowd. It is one of the most crucial debates around. As I have mentioned before both on this site and elsewhere, Gold is the preferred currency of the Banking Fraternity and they plan to reinstate it in their world currency, which is coming closer every day….

    …North has managed to do something profoundly dishonest and unwise. In this enormous article of his he actually does not mention the problem of interest at all.

    This is so totally unfair to Brown’s work, because this is surely one of the most important aspects of her narrative….

    Interest free money, either printed debt free by the Government or through interest free credit either by private organizations or again by the State, is simple, proven technology and centuries old.

    Yes, many systems have been abused resulting in inflation.

    No, interest bearing Gold is definitely not an acceptable solution.

Passions already seem to be running high in the opening round of this most critical debate that surely will shape the future of our economy and society. Notably, both sides of this argument are in agreement that the Fed is a corrupt organization that must be ended. North acknowledged that Ron Paul and Ellen Brown share this common ground, but says the Tea Party movement (liberty movement) has “no economic understanding” and “They cannot distinguish Ron Paul’s opposition to the FED, based on the gold coin standard, from Ellen Brown’s opposition, based on a fiat money standard. They are intellectually defenseless.”

It seems a bit arrogant of North to suggest that the liberty movement is confused about why Ron Paul and Ellen Brown support ending the Fed, and it’s also disingenuous to say that one side of the growing movement is “intellectually defenseless” because of disagreements about the solution. Especially when Brown’s public banking movement appears to be immediately workable and is gaining ground as the first pragmatic step being to establish state banks — as proven in North Dakota, which has a state-owned bank and boasts the lowest unemployment and the only budget surplus of the United States.

The public banking movement opposes the Federal Reserve, like Paul, because it is unconstitutional, but also for a variety of other intellectually defensible positions, starting with the fact that they are a private monopoly who care not for Americans or the country. There are very real concerns that this group of banksters may maintain dominance of a gold-based system since they already have possession of most of the world’s gold — including much of the mining as well. Furthermore, if they can continue to create money on a fractional basis — even if backed partially by gold — and can continue to charge and determine interest, they’ll still possess the power to enslave-by-debt people, industry, and entire nations. Finally, the private profit motive of international banksters, driven by interest, has historically proven to encourage wars as evidenced by their funding of both sides of all wars. This would also seem to give them dubious power to determine the outcome of those wars.

In turn, it’s a given that the liberty movement supports the restoration of the Constitution which clearly states that the coinage of money shall be in gold and that only the elected Congress is authorized to issue and control it. However, the Constitution says nothing of allowing a fractional reserve gold standard run by private bankers which is promoted by some Goldbugs. Furthermore, some Constitutionalists still maintain the strange notion that the government should belong to the people. Therefore, if we were able to restore the Constitutional principle for a government of, by and for the people, it would seem that interest-free currency issued and controlled by our elected government would be considered more constitutional than the current system.

It is true that gold has been valued in society for thousands of years and it will likely continue to maintain its terrific investment value for the foreseeable future. Gold clearly has a physical value derived from the incredible energy it requires to mine and refine it. But gold, as a limited resource, is interest bearing and can be hoarded by those with the wherewithal to do so. This would seem to suggest that gold could then be manipulated by the few who control vast sums of it. And that sounds a lot like the economic tyranny we face today with the private Fed.

North attacks Greenbackers because they “are opposed to central banking, unless the central bank is 100% owned and controlled by Congress.” As if to say, how dare the people demand ownership of their own currency. It shows a blinding distrust for Constitutional government and obvious preference for private banking interests.  

[Continued...]
"Abolish all taxation save that upon land values." -- Henry George

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Re: Monetary Reform!
« Reply #23 on: Dec 07, 2013, 10:39:13 am »
 

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http://www.infowars.com/the-hidden-slavery-of-interest/

The Hidden Slavery of Interest

Anthony Migchels
Activist Post
October 16, 2010

Most advanced political and economic debate is dominated by the Americans. Through films like Zeitgeist Addendum, The Money Masters and Money as Debt, and books like those of Thomas Greco and Ellen Brown. They have been enormously important contributions to the awakening of the many (including myself!) towards the most pressing problem of our time, our monetary “system.”

The one notable exception is interest. Of course all the aforementioned sources have dealt with interest, but to my mind there has been no really comprehensive and satisfactory analysis of interest in the Anglo Saxon world. In fact, most analysts concentrate on the fact that money is debt. There seems to be some kind of consensus that debt is the heart of the issue. But it is not. Without interest, debt would not be a problem, as I worked out here.


Interest is being payed by people borrowing money and received
by people having loads of it. So it is per definition a wealth transfer
from poor to rich.


Interest is one of the few things that is more profoundly understood in Europe, more specifically, Germany. Throughout the 20th century interest has been analyzed by some unknown, but brilliant thinkers. Silvio Gesell comes to mind, Gottfried Feder and later Helmut Creutz and their current standard bearer Margrit Kennedy.

Feder wrote a book Breaking the Shackles of Interest, and later advised Hitler, who was to say time and again, that “the kernel of National Socialism is breaking the thralldom of interest.” Maybe that did some damage by association to the theme....

Be that as it may, it is time to make fully clear what the scale of the interest problem is. We need to get rid of any misunderstanding, let alone underestimation of this most heinous tool in the hands of our Satanist masters.

Dealing with Interest

We’ll go through this point for point. Some points will in some way overlap others, but they are still worth mentioning because they widen our perspective. I’ll be quoting Margrit Kennedy a lot and I would strongly suggest going through her classic ‘Why we need monetary innovation’.

1. To begin with, I’ll put forward my standard example: a mortgage. Let’s say you want to buy a house and go the bank and get a loan. Say 200k. The simple truth is, after thirty years you will have payed back 600k. 200k for the principal and 400k (!!) in interest. Now this might be OK, or at least somewhat understandable, if you were borrowing this money from somebody else, who has been saving it. But as we know, this is not the case. The money is produced the moment the loan is granted by the bank. In a computer program. By pressing a few buttons.

So basically you pay 400k interest for pressing a button. Granted, the bank needs to manage the loan during the time it is being repaid. But the cost for this is still only a fraction of the income they get through the interest.

Now, we could stop here, because it is clear that the bank is ripping us off, also in legal terms, although they make the laws themselves, because there is no realistic service being delivered for the money.

But there is so much more, we must continue.

2. When the bank creates some money by giving you a loan, it takes the money out of circulation when you repay. Repaying debts means a diminishing money supply. The banks only provide the principal, in our previous example 200k. But after thirty years, 600k has been repaid and only 200k was created. So how can this be? How can 600k be repaid by 200k?

It can’t. Somebody else needs to get into debt to create sufficient liquidity to pay the 400k interest. And the borrower of the original loan must start competing for this liquidity with everybody else to obtain that, intrinsically scarce, cash.

This means that because of the combination of debt and interest, the money supply must grow forever. But we know that a growing money supply is the definition of inflation and that inflation is closely linked to rising prices. So inflation is inherent in the system. This sounds strange, because Central Banks raise interest rates to lower inflation, reasoning less credit will be issued because of rising prices for it. But the higher the interest rates go, the more money must be created to pay for this interest.

Just one of the perverse side effects of interest in the current wealth transfer system we call “finance.”

3. Due to interest, money circulates slower. This is a big problem, because the slower the money circulates, the more we need of it in circulation to meet our needs. And when you have interest bearing money as debt, that is quite a problem indeed. The reason for slower circulation is that it enhances the store of value function of money, with all its detrimental implications.

This phenomenon can be best seen when thinking about paying bills. If you know you can increase your money by postponing paying your bills, you will help the money circulate slower. People will be encouraged to hoard the money instead of spending it.

It is also more likely because of this reason rather than the growing cost of money which lessens inflation (or better, price rises) in the short term when raising interest rates. Because less money is circulating slower, demand falls.

4. Now, because of the fact that the principal is created but not the money to pay the interest, money is intrinsically scarce. Because of scarce money, capital is the scarce factor of production, whereas reason has it that labor should be the scarcer than capital. How else can we say we live in abundance?

I think it was Lietaer who pointed out the natural consequence of this state of affairs: competition. Economic actors in the current system compete with each other primarily for scarce working capital. Scarce money is a major driving force in the ever more competitive marketplace. Of course, the winners of this system have their lackeys (“economists”) explain that competition leads to efficiency. But common sense dictates that humans are more effective when they can cooperate. Surely there is a place for competition in the market, but it has gotten totally out of hand and it is getting worse.

Scarce money because of interest is one of the more profound reasons for this trend.

5. So what of it you think. I was raised to be conservative in these matters and one should simply not get into debt, so you won’t pay interest.

Wrong. Not only because if nobody went into debt, there would be no money, but because companies go into debt to finance their production. They pay interest (capital costs) over these loans. And like any cost this must be calculated into the prices they ask for their goods and services.

And what percentage of prices can be related to interest? It depends on the kind of business, particularly how capital intensive it is. Going from 12% for garbage collection to 77% for renting a house. All in all about 40% of prices can be traced back to costs for capital. These figures are by Kennedy and they have been corroborated by an independent study done by Erasmus University, Rotterdam, the Netherlands under the supervision of STRO, a leading monetary think tank in the Netherlands.

So, you lose 40% (!!!!) of your disposable income to interest through prices.

6. Interest is being payed by people borrowing money and received by people having loads of it. So it is per definition a wealth transfer from poor to rich.

It transpires, that about 80% of the poorest people pay more interest than they receive to the richest 10%. The next richest 10% pay as much as they receive. This means the vast majority is losing a substantial part of their money to interest. The richest own the banks or have a lot of money there.

We must keep in mind that this is totally for nothing, since most of the money is printed at the time it is loaned out.

How much money are we talking about? I have only figures for Germany, but reason suggests it is basically the same everywhere.

In Germany the poorest 80% pay 1 billion Euros in interest to the richest 10% PER DAY. Yes, that’s right, one billion euros per day. That is a grand total of 365 billion euro’s per year. That is one seventh of German GDP and extrapolating this to America, the poorest 80% must be paying at least a trillion a year.

It conclusively explains the old adage that the rich get richer and the poor get poorer.

This is the hidden tax that nobody is talking about.

This is the yoke that we carry.

This is the worst kind of slavery, because it is slavery without even realizing it.

This is interest and let it never be forgotten.

This is our mortal enemy and let us never take our eyes of it again, until it is thrown into the fire of hell, together with the usurers enslaving us with it.
"Abolish all taxation save that upon land values." -- Henry George

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Re: Monetary Reform!
« Reply #24 on: Dec 07, 2013, 10:39:57 am »
 

Geolibertarian

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http://web.archive.org/web/20110513235103/http://www.wealthmoney.org/compound-interest-8th-world/

The 8th Wonder of the World!

Often we are told of the wonderful power of compound interest (earning interest on both principal and previous interest). We are told how compound interest can make a modest investment grow into a great amount.

For example: If you invested  $10,000 at 7% compound interest for 30 years; you’d expect your investment to grow to $76,122.52.

Sounds Great!  

Compound Interest must truly make money grow!


For a moment, let’s step out of the dream world hype of banking, financial planning and Wall Street. Just HOW DOES MONEY GROW?

Where does the interest money come from?

When you put money into an interest-bearing account, does it turn into something like rabbits that mate and quickly reproduce? What happens? The increase of money in your account had to come from someplace. To understand financial planning, economics, growing public and private debts, ever increasing taxes and prices, etc. we must learn and always remember what it is we now use for money and how ALL new money is created and put into circulation.

When the economy grows and more money is needed, always remember:  “...the actual creation of money always involves the extension of credit by private commercial banks.” -- US Treasury

If the private sector doesn’t borrow it, the government must or the money cannot exist. If you invest $10,000 and 30 years later get $76,122.56; somewhere, someone in the private sector or the government had to borrow $66,122.56 before it could get into your account! Now, you have the money. They have the debt which can never be paid because there is no way to create the interest money when money is created through the lending process. Therefore, the debt must constantly grow.

Many people claim that the interest money comes from increased production (worker productivity). But, when was the last time your personal production (goods and services) turned into money? Did you ever wave a magic wand over a shoe, shirt, bushel of corn, a new car or an hour of labor etc. and see it turn into money?

There are only 2 ways to get money from what we produce.

ONE: We can use our produce as collateral for a bank loan which creates the new money.

TWO: We can sell our production to someone in exchange for money that was created as a loan.

Production NEVER turns into money.

You can create money by using a credit card by signing the forms sent to you by the credit card company and promising to pay the credit (money) back in the future with interest. The bank turns that promise to pay into collateral to create the money as a loan the minute you use your credit card to buy something.

Let me explain another way.

The Shoe Factory

Imagine that we have $10,000 total money in circulation. We invest all of it in a compound interest-bearing account. Let’s say that the money is invested in a shoe factory.

The factory spends the $10,000 for raw resources and labor to produce shoes. It sells the shoes and gathers back the total money supply and returns it to the investor. Remember, if the total money supply is only $10,000, that is all the shoe factory could return to the investor.

If the factory is going to return the original $10,000 investment PLUS compound interest, the money supply would have to be increased by at least $66,122.52 or even more if the shoe factory is going to have a profit. To increase the money supply, under the present system, it must be borrowed by someone from a bank. By borrowing the $66,122.52 needed to pay the investor 7% compound interest, the total debt drawing interest at some bank would be $76,122.52. It’s easy to understand how we have $50+ Trillion of debt drawing interest in 2006.

These facts are not clearly seen because there are vast numbers of loans being made and extinguished daily. Banks spend a large part of the interest back into circulation. However, this ‘interest-spending’ does not increase the money supply. It simply keeps money in circulation. In addition, the total amount of interest and debts that are not repaid are repudiated through business losses, repossessions and bankruptcies.

---------------------------

For more commentary by author and monetary reformer, Byron Dale, visit: www.wealthmoney.org
"Abolish all taxation save that upon land values." -- Henry George

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