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Monetary Reform!

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Geolibertarian
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« on: August 24, 2010, 05:19:42 pm »

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 and Bernard Madoff, 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.
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« Reply #1 on: August 24, 2010, 05:21:18 pm »

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:

       

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):

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

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.
 
--------------------------------------------

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

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

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.

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« Reply #2 on: August 24, 2010, 05:29:24 pm »

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/view_play_list?p=EF19DCC81D148B16

       

Assuming the person reading this has already watched the above film and, as a result, understands just how utterly fraudulent and parasitic the fractional reserve banking system truly is, the question arises: how can we structurally reform that system without creating either deflation or hyperinflation in the process?

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

Here are some key excerpts from that book (all emphasis original):

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

"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



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


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).
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« Reply #3 on: August 24, 2010, 05:30:31 pm »

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/index.php?context=va&aid=12932

The American Monetary Act

       http://www.infowars.com/?p=4174
       http://jurisvodcast.com/2008/08/30/the-american-monetary-act/   
       http://www.monetary.org/amacolorpamphlet.pdf <--- .pdf file!

The American Transportation Act

       http://www.wealthmoney.org/articles/The-American-Transportation-Act.html
       http://www.wealthmoney.org/articles/A-Solution.html
       http://www.wealthmoney.org/articles/What-Would-Happen.html
       http://www.youtube.com/user/TheByronDaleChannel

The Monetary Reform Act

       http://www.themoneymasters.com/monetary-reform-act/

       
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« Reply #4 on: August 24, 2010, 05:31:30 pm »

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

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

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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« Reply #5 on: August 24, 2010, 05:37:02 pm »

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:

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

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.
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« Reply #6 on: August 24, 2010, 05:38:05 pm »

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

--------------------------------------------
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« Reply #7 on: August 24, 2010, 05:46:13 pm »

http://monetary.org/refute.htm

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...]
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« Reply #8 on: August 24, 2010, 05:49:57 pm »

http://www.globalresearch.ca/index.php?context=va&aid=5658

Notes on a Return to the Gold Standard

by Richard C. Cook



Global Research
May 15, 2007

Within the monetary reform movement there is a raging controversy over whether we should return to the gold standard or whether an effective program of reform could be accomplished through other means.

While the author of this article does not support a return to the gold standard, he is sympathetic to those who want to do just that. When the U.S. went off the gold peg in 1971, it opened the door to the modern era of runaway inflation, dollar hegemony, and the unlimited creation of financial bubbles. Removal of gold altogether from the monetary system is certainly one of the key events which has exposed us to the danger of a major financial crash and worldwide depression.

But throughout history, a gold standard has generally acted as an artificial constriction on the ability of a currency to expand sufficiently to support economic growth. By making currency scarce, the gold standard facilitated the bankers’ control of the economy. It was the bankers who got the governments of the world to go onto the gold standard after 1870 by undermining the utilization of silver. This allowed the bankers to control the world’s monetary supply to the detriment of economic democracy until the 1930s, when gold became only a denominator of international trade, not a backing of domestic currencies.

One of the most destructive periods of U.S. economic history took place during the currency contractions, monetary deflations, and financial ruination of farmers and workers during the late 1800s, when the bankers ruled through gold. It was what led to the founding of the Greenback and Progressive parties and to William Jennings Bryan’s famous speech at the 1900 Democratic national convention where he declared that we should not “crucify mankind on a cross of gold.”

The situation was relieved by the discovery of gold in South Africa and the Yukon and by improved methods for the extraction of gold from ore. But these circumstances also showed that a gold standard favored those nations which controlled gold. A gold standard leads to hoarding, market manipulations, and ultimately warfare over its possession and control.

Also, gold may or may not prevent inflation, because there are many things bankers can do to inflate the currency if they wish to. This happened with the inflation during and after World War I. This was a financial crime by which the bankers deliberately destroyed the value of the remaining paper greenbacks and silver certificates from post-Civil War days.

During the 1920s and 30s, the U.S., acquired much of the world’s gold through having lent bank-generated credit to the European allies so they could pay for having fought World War I. This policy impoverished much of Europe, including Germany, which had to pay war reparations, and contributed to the conditions leading to World War II.

It was the gold standard that led to the bankers wrecking the U.S. economy in 1932 by shipping Treasury gold as a bail-out to England, at the same time the U.S. was trying to recover from the crash of 1929. The 1932 gold and currency contraction was the real cause of the Great Depression. President Franklin Delano Roosevelt removed this danger by eliminating the domestic gold standard in 1933.

But even when paper currency was supposedly convertible to gold, or even gold and silver, the metallic standard always was a fiction. There never was and never could be enough for banks to hand over the requisite quantity to the “bearer on demand” if more than a fraction of the currency in circulation was presented for redemption at the same time.

In fact, during the state banking era prior to the Civil War, banks would destroy their rivals by showing up on their doorstep with quantities of the paper notes of the bank under attack and asking with a smirk for metallic reimbursement. The same thing happened during runs on the banks, resulting in frequent financial panics and bankruptcies.

Actually, those who favor a return to the gold standard tend to confuse the shaky redemption policy with the days when a miner or broker could walk into a U.S. Mint and have the government stamp his gold or silver into coins free of charge. Those really were the “good old days,” but that time is gone forever.

Should we return to the time of a banker-controlled gold standard? Probably not. What should really control the monetary supply is the sovereign power of representative government which must be equipped with the knowledge and authority to balance purchasing power with economic production.

This could be done by a National Dividend system combined with reduced taxation and direct government spending of money into the economy. The system would be overseen by a Monetary Control Board as advocated by the American Monetary Institute in its draft monetary reform legislation. The author describes such a system in his recent article, “Monetary Reform and How A Nation’s Monetary System Should Work.”

At the same time, lending for speculation should be outlawed, as should fractional reserve banking. There would then be no reason why money could not be paper, coinage, or electronic ledger entries. The monetary supply could expand or contract according to the real needs of the producing economy, not a more or less accidental quantity of precious metal.

For this to work, control of money must be removed entirely from the banks and restored to the people, acting through Congress as the U.S. Constitution requires. And under such a system where the money supply served real human needs instead of bank profiteering, promise of gold redemption would be unnecessary.

Having said all this, the author certainly has no objection to the buying and selling of gold as a commodity. Under certain conditions it might serve as a store of value and a hedge against inflation. But you can’t wear it, eat it, or live in it. What gives value to an economy is its ability to produce goods and services. That ability derives from the skills, education, and spirit of a nation’s population. In the end, money really derives its value from the character of the people and the honesty of government. That is why we should not even try to go back to an era where the monetary system failed in large part because of the gold standard.


© Copyright Richard C. Cook, Global Research, 2007

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

Byron Dale on why the gold standard is not the panacea that so many Austrian Schoolers blindly insist it is:

       

       

       
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« Reply #9 on: August 24, 2010, 05:57:30 pm »

http://www.globalresearch.ca/index.php?context=va&aid=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.


© Copyright Richard C. Cook, Global Research, 2009
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« Reply #10 on: August 25, 2010, 11:44:31 am »

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.
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« Reply #11 on: August 25, 2010, 11:48:13 am »

  • 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 and Bernard Madoff, and use the resultant proceeds to help replenish whatever retirement funds they raided;

http://www.prisonplanet.com/the-horrific-derivatives-bubble-that-could-one-day-destroy-the-entire-world-financial-system.html

The Horrific Derivatives Bubble That Could One Day Destroy The Entire World Financial System

The Economic Collapse
Aug 9, 2010

Today there is a horrific derivatives bubble that threatens to destroy not only the U.S. economy but the entire world financial system as well, but unfortunately the vast majority of people do not understand it.  When you say the word “derivatives” to most Americans, they have no idea what you are talking about.  In fact, even most members of the U.S. Congress don’t really seem to understand them.  But you don’t have to get into all the technicalities to understand the bigger picture.  Basically, derivatives are financial instruments whose value depends upon or is derived from the price of something else.  A derivative has no underlying value of its own.  It is essentially a side bet.  Originally, derivatives were mostly used to hedge risk and to offset the possibility of taking losses.  But today it has gone way, way beyond that.  Today the world financial system has become a gigantic casino where insanely large bets are made on anything and everything that you can possibly imagine.

The derivatives market is almost entirely unregulated and in recent years it has ballooned to such enormous proportions that it is almost hard to believe.  Today, the worldwide derivatives market is approximately 20 times the size of the entire global economy.

Because derivatives are so unregulated, nobody knows for certain exactly what the total value of all the derivatives worldwide is, but low estimates put it around 600 trillion dollars and high estimates put it at around 1.5 quadrillion dollars.

Do you know how large one quadrillion is?

Counting at one dollar per second, it would take 32 million years to count to one quadrillion.

If you want to attempt it, you might want to get started right now.

To put that in perspective, the gross domestic product of the United States is only about 14 trillion dollars.

In fact, the total market cap of all major global stock markets is only about 30 trillion dollars.

So when you are talking about 1.5 quadrillion dollars, you are talking about an amount of money that is almost inconceivable.

So what is going to happen when this insanely large derivatives bubble pops?

Well, the truth is that the danger that we face from derivatives is so great that Warren Buffet has called them “financial weapons of mass destruction”.

Unfortunately, he is not exaggerating.

It would be hard to understate the financial devastation that we could potentially be facing.

A number of years back, French President Jacques Chirac referred to derivatives as “financial AIDS”.

The reality is that when this bubble pops there won’t be enough money in the entire world to fix it.

But ignorance is bliss, and most people simply do not understand these complex financial instruments enough to be worried about them.

Unfortunately, just because most of us do not understand the danger does not mean that the danger has been eliminated.

In a recent column, Dr. Jerome Corsi of WorldNetDaily noted that even many institutional investors have gotten sucked into investing in derivatives without even understanding the incredible risk they were facing….

A key problem with derivatives is that in the attempt to reduce costs or prevent losses, institutional investors typically accepted complex risks that carried little-understood liabilities widely disproportionate to any potential savings the derivatives contract may have initially obtained.

The hedge-fund and derivatives markets are so highly complex and technical that even many top economists and investment-banking professionals don’t fully understand them.

Moreover, both the hedge-fund and the derivatives markets are almost totally unregulated, either by the U.S. government or by any other government worldwide.


Most Americans don’t realize it, but derivatives played a major role in the financial crisis of 2007 and 2008.

Do you remember how AIG was constantly in the news for a while there?

Well, they weren’t in financial trouble because they had written a bunch of bad insurance policies.

What had happened is that a subsidiary of AIG had lost more than $18 billion on Credit Default Swaps (derivatives) it had written, and additional losses from derivatives were on the way which could have caused the complete collapse of the insurance giant.

So the U.S. government stepped in and bailed them out – all at U.S. taxpayer expense of course.

But the AIG incident was actually quite small compared to what could be coming. The derivatives market has become so monolithic that even a relatively minor imbalance in the global economy could set off a chain reaction that would have devastating consequences.

In his recent article on derivatives, Webster Tarpley described the central role that derivatives now play in our financial system….

Far from being some arcane or marginal activity, financial derivatives have come to represent the principal business of the financier oligarchy in Wall Street, the City of London, Frankfurt, and other money centers. A concerted effort has been made by politicians and the news media to hide and camouflage the central role played by derivative speculation in the economic disasters of recent years. Journalists and public relations types have done everything possible to avoid even mentioning derivatives, coining phrases like “toxic assets,” “exotic instruments,” and – most notably – “troubled assets,” as in Troubled Assets Relief Program or TARP, aka the monstrous $800 billion bailout of Wall Street speculators which was enacted in October 2008 with the support of Bush, Henry Paulson, John McCain, Sarah Palin, and the Obama Democrats.

But wasn’t the financial reform law that Congress just passed supposed to fix all this?

Well, the truth is that you simply cannot “fix” a 1.5 quadrillion dollar problem, but yes, the financial reform law was supposed to put some new restrictions on derivatives.

And initially, there were some somewhat significant reforms contained in the bill. But after the vast horde of Wall Street lobbyists in Washington got done doing their thing, the derivatives reforms were almost completely and totally neutered.

So the rampant casino gambling continues and everybody on Wall Street is happy.

For now.

One day some event will happen which will cause a sudden shift in world financial markets and trillions of dollars of losses in derivatives will create a tsunami that will bring the entire house of cards down.

All of the money in the world will not be enough to bail out the financial system when that day arrives.

The truth is that we should have never allowed world financial markets to become a giant casino.

But we did.

Soon enough we will all pay the price, and when that disastrous day comes, most Americans will still not understand what is happening.
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« Reply #12 on: August 25, 2010, 11:51:58 am »

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) 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):

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

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://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...]

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

Thus, contrary to what the monetary flat-earthers and economic snake-oil salesmen from 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 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 land speculation and the consequent delinking of money creation from wealth production.
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« Reply #13 on: August 25, 2010, 11:56:20 am »

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.

-- Stephen Zarlenga, The Lost Science of Money

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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« Reply #14 on: August 25, 2010, 11:57:12 am »

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 **** 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


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« Reply #15 on: August 26, 2010, 10:22:19 am »

http://web.archive.org/web/20061116031731/landru.i-link-2.net/monques/moneyeats.html

WHEN MONEY EATS THE WORLD

by John McMurtry, Professor of Philosophy
University of Guelph.

As the wheels come off the global market juggernaut, we need to understand that the unfolding collapse has been programmed into the machine. Stay the course of capital deregulation long enough and a truly momentous wreck is guaranteed. The fact is that our political and market leaderships have ensured no intelligent thought relating to the actual life needs of societies has been listened to for 15 years. "No alternative," they incanted without a break since the Reagan revolution of mindless govenment first began stripping social infrastructures by ever lower tax rates for the rich and 20% compound interest rates on public debt. Even now as the government of France pulls out of the MAI declaration of rights for unaccountable borderless capital, Ottawa is still prating about "sticking to its commitments" to the meltdown program.

The problem is a generalized mind-seizure. As money-to-more-money circuits have become increasingly autonomous, public consciousness has fetishized money demand as the sovereign authority of the world. The lifeblood of societies has been circulated away as fast as possible to "pay off deficits as a national emergency," "reduce social costs to attract investors," "cool down the employment rate to ward off currency devaluation," "deregulate the labour and resource markets economy for greater efficiencies," and so on. The litany for expropriation of societies' common heritage and infrastructure has been recited every hour for almost twenty years, and it has always and everywhere been the disguise for highly leveraged money sequences to feed on the social life substance across the planet.

But even as the meltdown progresses across continents, the unseen seat of the disease is not yet whispered—that money sequences are overloaded far beyond the capacity of social and environmental capacities to feed them, and that they increasingly attack life-serving functions to continue their decoupled cycles.

Because these money sequences are increasingly without productive outcome of any kind, redistribute more and more wealth to the economically parasitic while stripping the civil commons and the poor, and progressively demand ever more revenue extraction from social and environmental hosts, their reproduction has become increasingly incompatible with civil and planetary life.

The overloading of the life-system by ever more ravenous money sequences is, in truth, behind every crisis people face today in the global market—behind the stressing and breaking of the planetary environment's carrying capacities, behind government debt and deficit loads and crises across the world, behind the ceaseless mergers, acquisitions and job-sheddings by corporate finance departments, behind the speed-ups of every process of work and resource extraction, behind the privatization and enclosure of evolved civil commons in every culture, and behind now the Asian meltdown and the great slump of Japan.

We need not summarize all the symptoms. But consider some figures of money-demand aggregates increasing exponentially on life systems at every level, every new unit of the escalating load requiring "more competitive performance" or "more competitive cost cutting" from individual, social and environmental life-hosts, with no limit set to what will be demanded next.

Bear in mind that the meaning of "discounted cash flow," which is the moving line and reference body of global market value, means that what is today $100 in real terms is the same as $100 + compound interest in one year ($110), two years ($121), or 20 years from now as the starting base from which every "worthwhile enterprise" is calculated. The system is a horizonlessly expanding money-demand machine engineering all that lives to extract more money value from it.

If the victim societies melt under the "free circulation" of the hot money flows, then this is because they did not "adapt effectively." If the atmosphere itself can no longer hold the pollutants dumped into it, then this is the occasion for issuing "pollution credits" to make more business out of the earth's collapse.

Canada's Pension Plan itself is now being fed to the hungry money circuits. The reason is simple. Since money grows money, why not put our national pension funds into the global market to make it pay for future pensions. Consider the rate of multiplication. An input of $10,614 in 1955 yields an output of compound-interest-plus multification to $5,309,000 in 1998. That is, an over 500-times increase in what goes to "the investor" who performs no function in the increase, nor in the productive economy to receive this increase, nor in serving the life of any life organization to be entitled to all further exponential multiplication of this money demand seeking to be still more. This is called "market freedom."

In 1998, the combined money-demand value of US pension and mutual funds to whom this multiplication is promised was $9 trillion, or 30 times the net money worth of the US's 60 richest market agents, with more new money-demand then going into these funds every quarter than all the US super-rich own together. These were predicted to grow at a sustained or rising rate. At the same time, both British and Canadian national pension funds planned to redistribute all of their public funds into the global market of transnational money sequences as well, instead of as in the past lending to governments, investing in jobs for the young, or committing to any defence or growth of life at all. Meanwhile the poverty of children, dead-end youth prospects and the slips in environmental carrying capacity in both societies continued to climb.

During this collapse of life-system bearings and money-sequence metastasis, even the once mighty machine shop of the world, Japan, came to the end of the line. It reached the surplus money wall in the early 1990's, performing as a harbinger of the disorder few saw. When the speculatively driven prices or real estate and Nikkei stocks plunged, and the richest banks in the world could not find productive enterprises to invest in and steward as their successful automobile and electronic industries had done since 1950 by long-term, careful financial ministry planning, Japan's money sequences had no way out. When the hundreds of billions of uncommitted money demand first invaded and then exited Asian stocks and currencies in 1997-98, leaving societies there on average halved in their money access to means of existence, Japan was left with hundreds of billions of debt that could not be paid by the lenders, and with no advances behind the armed force of land clearances and forced borderless markets favoured by the US corporate axis.

Japan controlled $12 trillion in loose money with no real function to perform except to become more. But with its unmoored banks loaded with $1000 billions in bad loans, Japan's government naturally had to pump over $200 billion more in public funds to back up the decoupled financial circuits.

Robotically lock-stepping to the unhinged market paradigm, the IMF and the US government demanded still more borderless financial deregulation from Japan, just as they had prescribed for all the economies of Asia that had already been melted down by such financial deregulation. Japan's government, not recognizing the gallows wit and still locked in the paradigm themselves, promised "a big bang" of more deregulation in financial markets.

We've been getting the big bang now for a long time, and it only gets bigger.

When a long-dominant paradigm fails in its prescriptions, and it calls for more of its failed prescriptions to solve its failures, its circularity becomes terminal. What is not recognized is the underlying principle of the escalating failures: that financial crises always follow from money-value delinked from real value, which has many names but no understanding of what it is. Value is what serves life itself, and the global market paradigm has no place in its metric for the life factor at any level.
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« Reply #16 on: August 31, 2010, 09:05:56 am »

If you attend a Tea Party rally and bring up the issue of monetary reform to the people you meet there, then regardless of whether it's a "Republican-hijacked" Tea Party rally or not, you'll probably discover that nearly everyone in attendance has been literally indoctrinated (if not outright brainwashed) by Austrian School propagandists, and that their minds and intellects are consequently enslaved within the ridiculously narrow confines of the false Austrian School-vs-Keynesian School paradigm -- and hence within the equally false gold money-vs-debt money paradigm.

If there's one thing these propagandists all have in common, it's that they continually obsess over the "fiat" and "paper" aspects of the current money system. And the reason they do so is obvious: because deep down they know full well that if they openly acknowledged the fact that it's actually the debt aspect that is doing all the damage, then many if not most of the people to whom they're attempting to peddle their economic snake-oil would naturally gravitate towards the "Greenback" alternative.

One of the Austrian School's absolute worst nightmares is hundreds of millions of people awakening to the fact that -- contrary to Austrian School dogma -- there is a fundamental difference between (a) debt-based fiat paper money that, as such, is loaned into circulation at interest, and (b) debt-free fiat paper money that is spent in at no interest, because they want desperately for everyone to blindly assume that the only alternative to the current debt-based system is a deflationary gold-based system.

So, in effect, what they're essentially exclaiming to anyone foolish enough to listen is:

     "Pay no attention to that usury behind the curtain! Paper is the source of all monetary evils!"

Thus, whenever I see an Austrian Schooler wrap himself in the American flag and mindlessly insist that "unbacked paper money" (regardless of whether it's issued free of debt or not) is an assault on the principles of the Founding Fathers and thus an affront to "liberty," I always correct him by explaining that, if the Founders had taken the Goldbugs' advice and not employed the use of such money, then there would never have been a United States to begin with!

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

http://www.monetary.org/briefusmonetaryhistory.htm

CONTINENTAL CURRENCY - LIFEBLOOD OF THE REVOLUTION

The skirmishes at Lexington and Concord are considered the start of the Revolt, but the point of no return was probably May 10, 1775 when the Continental Congress assumed the power of sovereignty by issuing its own money.

Congress authorized a total of $200 million; and though at first, they had no legal power to do so, had no courts or police, or power to levy taxes; the Continental currency functioned well in the early years and became a crucial part of the revolution. In 1776, it was only at a 5% discount to coinage, when General Howe took over New York city and made it a center for British counterfeiting. Newspaper ads openly offered the forgeries:

    "Persons going into other colonies may be supplied with any number of counterfeit Congress notes for the price of the paper per ream. They are so neatly executed that there is no risque in getting them off. ... Enquire for Q.E.D. at the Coffee House from 11 PM to 4 AM."

Congress did not exceed its authorized issue of $200 million (except to replace worn out notes), but the British certainly did. We don’t know how much they counterfeited, but it could have been billions; and yet the Continental currency continued to function! In March 1778 after 3 years of war, it was at $2.01 Continental for $1 of coinage.

General Henry Clinton complained to Lord George Germaine that "The experiments suggested by your lordships have been tried, no assistance that could be drawn from the power of gold or the arts of counterfeiting have been left untried but still the currency ... has not failed."

Finally it did fail, but not before providing the foundation for delivering the nation, carrying the revolution over 5 years to within 6 months of its victory. Thomas Paine wrote:

    "Every stone in the bridge that has carried us over, seems to have a claim upon our esteem. But this was a corner stone, and its usefulness cannot be forgotten." (p. 116)

CONSTITUTIONAL CONVENTION DOWNPLAYED US EXPERIENCE

Yet by the time of the Convention, the great benefits of the Continentals was nearly ignored; along with much of the rest of our hard won monetary experiences. Many wanted to emphasize that the Continentals became worthless; placed all abstract money under that cloud, and rejected the idea of paper money altogether.

They ignored the fact that paper money was crucial in giving us a nation; that abstract money usually requires an advanced legal system in place; that the normal method of assuring its acceptability is to allow the taxes to be paid in it. And then there was the little matter of a War against the world’s strongest power!

Tom Paine would say it best:

    "But to suppose as some did, that, at the end of the war, it was to grow into gold or silver or become equal thereto was to suppose that we were to get $200 millions of dollars by going to war, instead of paying the cost of carrying it on." (p. 117)

CONVENTION SKIRTS THE MONEY ISSUE

The Convention met from May to September, 1787, but the money question was not taken up in earnest until August 16! When we think of the "Founders" at the Convention, we should remember that Jefferson and Paine were not there; and Franklin was so advanced in age that someone else had to deliver his closing speech for him. Van Buren was 6 years old.

In addition to ignoring the nations rich practical experience with money, the convention paid little heed to the brilliant writings of John Locke and Benjamin Franklin on money. The delegates didn't bother to find out why Locke in 1718 wrote:

    "Observe well these rules: It is a very common mistake to say that money is a commodity ... Bullion is valued by its weight ... money is valued by its stamp."

Locke viewed money as a pledge for wealth, rather than wealth itself:

    "For mankind having consented to put an imaginary value upon gold and silver by reason of their durableness, scarcity and not being liable to be counterfeited; have made them by general consent, the common pledges ... they having as money, no other value, but as pledges ... and they procure what we want or desire only by their quantity, it is evident that the intrinsic value of silver and gold, used in commerce is nothing but their quantity."

They didn't consider the reasons Ben Franklin gave in his 1729 "Modest Inquiry Into The Nature And Necessity Of A Paper Currency, for agreeing with Locke’s view: "Silver and gold...(are) of no certain permanent value..." and "We must distinguish between money as it is bullion, which is merchandise, and as by being coined it is made a currency; for its value as merchandize and its value as a currency are two distinct things ..."

THE ABUSE OF MONETARY THEORY

Unfortunately the delegates were more influenced by a crude and primitive theory which heavily supported the Bank of England, and contained several crucial monetary errors, which tended to "legitimize" the Bank’s system of finance. This theory of money was part of Adam Smith’s WEALTH OF NATIONS, published in 1776, and quoted by delegates to the Convention. Smith wrote very little about money, but his monetary mistakes and inconsistencies have had such a bad effect on mankind’s money systems, that we’ll devote a full chapter to him later. His book promoted the idea that only gold and silver are money, and never mentions the legal concept of money, as put forward by the philosophers and jurists Bishop Berkeley, John Locke, Julius Paulus, Plato, Aristotle, and others.

In 1786, anticipating the Convention, a very curious book, "ESSAYS ON MONEY" was published anonymously in the US Its entire thrust was to "theoretically" attack the idea of government paper money:

    "State bills are an absurd form of money and not money at all."

Why? - no answer. It turned out to be written by the Clergyman, John Witherspoon. Referring to Locke and Franklin’s views, he misrepresented their point on money, saying:

    "They seem to deny the intrinsic value of gold and silver."

Discussion? - none.

Then, using a rhetorical device, he stated some arguments for government paper money, and stonewalled them, pretending they didn't matter. Concerning those with personal knowledge of some of the colonies paper money systems:

    "We are told by persons of good understanding that (paper money) contributed to (the colonies) growth and improvement."

Rebuttal? - none.

Concerning the fall of the Continental Currency:

    "(Some say it was due to the) Counterfeiting ... of our enemies".

Disagreement? No germane discussion.

[Continued...]

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

I then explain that the problem is not that our paper currency isn't "backed" by a commodity or precious metal, but that it's issued as an evidence of interest-bearing debt expansion instead of as an evidence of interest-free wealth expansion; that it vanishes from the money supply whenever bank loans are repaid; and that the money needed to pay the usurious interest on these inherently fraudulent loans is never created in the first place (the consequence of which is that there's always a built-in shortage of money).

William Jennings Bryan said it best:

    "Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold."

         

Those who value humanity more than a piece of metal must stop letting monetary flat-earthers from the Austrian School fool people into believing that the only "alternative" to enslaving mankind within a prison of debt is to crucify mankind upon a cross of gold. It is a lie and a fraud, and must be exposed as such.
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« Reply #17 on: September 02, 2010, 05:35:12 pm »

Those who value humanity more than a piece of metal must stop letting monetary flat-earthers from the Austrian School fool people into believing that the only "alternative" to enslaving mankind within a prison of debt is to crucify mankind upon a cross of gold. It is a lie and a fraud, and must be exposed as such.

Thanks to the educational efforts of monetary reformers such as Ellen Brown, Richard C. Cook, Byron Dale, Bill Still and Stephen Zarlenga, millions of people are now aware of just how disastrous the gold standard in all its variants has consistently proven to be in the past, and about how finance oligarchs have historically promoted this system while demonizing debt-free Greenbacks.

As an apparent consequence of this, it has in recent years become fashionable among many public relations-savvy Austrian Schoolers to avoid even mentioning the discredited gold standard, and to instead peddle the notion that if we simply turned money creation entirely over to the (euphemism alert!) "free market," then we would finally have a “sound” money system, and, as a result, all of our monetarily-caused economic problems would magically "correct" themselves.

Yet there's a fatal flaw with this idea that its advocates either can't or won't see: once the government declares commodity-backed currencies A, B & C good for the payment of taxes and commodity-backed currencies X, Y & Z not good for such payment (or not as good), then automatically the value that the former three have relative to the latter will be based in large measure on the very government "fiat" Austrian Schoolers profess to oppose, at which point they will cease to be “free market” currencies.

Of course, many if not most Austrian Schoolers are -- despite the obligatory lip service they pay to the Constitution -- anarcho-capitalists, and so their likely response to this would be that there shouldn't even be a government.

The "no government" fantasy is particularly delusional, because they simultaneously advocate the very sort of land tenure system that invariably and inevitably gives rise to oppressive "governments" in the first place:

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

http://lysanderspooner.org/node/59

In process of time, the robber, or slaveholding, class -- who had seized all the lands, and held all the means of creating wealth -- began to discover that the easiest mode of managing their slaves, and making them profitable, was not for each slaveholder to hold his specified number of slaves, as he had done before, and as he would hold so many cattle, but to give them so much liberty as would throw upon themselves (the slaves) the responsibility of their own subsistence, and yet compel them to sell their labor to the land-holding class -- their former owners -- for just what the latter might choose to give them.

Of course, these liberated slaves, as some have erroneously called them, having no lands, or other property, and no means of obtaining an independent subsistence, had no alternative -- to save themselves from starvation -- but to sell their labor to the landholders, in exchange only for the coarsest necessaries of life; not always for so much even as that.

These liberated slaves, as they were called, were now scarcely less slaves than they were before. Their means of subsistence were perhaps even more precarious than when each had his own owner, who had an interest to preserve his life. They were liable, at the caprice or interest of the landholders, to be thrown out of home, employment, and the opportunity of even earning a subsistence by their labor. They were, therefore, in large numbers, driven to the necessity of begging, stealing, or starving; and became, of course, dangerous to the property and quiet of their late masters.

The consequence was, that these late owners found it necessary, for their own safety and the safety of their property, to organize themselves more perfectly as a government and make laws for keeping these dangerous people in subjection; that is, laws fixing the prices at which they should be compelled to labor, and also prescribing fearful punishments, even death itself, for such thefts and tresspasses as they were driven to commit, as their only means of saving themselves from starvation.

These laws have continued in force for hundreds, and, in some countries, for thousands of years; and are in force today, in greater or less severity, in nearly all the countries on the globe.

The purpose and effect of these laws have been to maintain, in the hands of the robber, or slave holding class, a monopoly of all lands, and, as far as possible, of all other means of creating wealth; and thus to keep the great body of laborers in such a state of poverty and dependence, as would compel them to sell their labor to their tyrants for the lowest prices at which life could be sustained.

The result of all this is, that the little wealth there is in the world is all in the hands of a few -- that is, in the hands of the law-making, slave-holding class; who are now as much slaveholders in spirit as they ever were, but who accomplish their purposes by means of the laws they make for keeping the laborers in subjection and dependence, instead of each one's owning his individual slaves as so many chattels.

[Continued...]

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

The key point here is that a group of private individuals presuming to "own" all the land comes first, and the "government" (or, more accurately, the State) into which they organize out of common interest comes second. (Whether they actually call it such is irrelevant.) That's the inevitable result of allowing the concept of "private property" to be applied to the Earth on which all must live yet which none produced in the same unlimited, unconditional sense that it's applied to the products of human labor.

       http://geolib.com/sullivan.dan/commonrights.html

It's also the inevitable result of turning the power of money creation (as the Austrian School would have us do) entirely over to private interests:

    “Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money."

-- attributed to Sir Josiah Stamp, Director of the Bank of England (appointed 1928)

The typical Austrian School reaction to this is to shamelessly engage in hysterical fearmongering about the presumed evils of government-issued currency. Yet one could just as easily posit all sorts of ridiculous fearmongering scenarios concerning government-controlled police and government-controlled armies as a way of scaring well-meaning yet gullible readers into embracing the stateless utopian fantasy world of the Austrian School, wherein -- according to those who promote this quasi-religious fairy tale -- a mystical, God-like entity euphemistically called the "free market" magically keeps privately controlled police and privately controlled armies from terrorizing, oppressing and enslaving the masses.

Fortunately, most readers aren't quite so gullible. They know that keeping the police and military in public rather than private hands is, if nothing else, the far lesser of two evils; and that the reason certain public institutions have become so corrupt and oppressive is that they've been, in effect, "privatized" to one extent or another (case in point: the "Federal" Reserve), and that the solution, therefore, is not to mindlessly throw the baby out with the bathwater, but to reclaim from these private interests our rightful control over our own government.

I, for one, say "no" to the privatized tyranny that anarcho-capitalists would have us all living under if they had their way, and "yes" to the liberty and freedom that can only be experienced in a truly Democratic Constitutional Republic:

       

I'm sure I'm far from alone in that regard.
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« Reply #18 on: September 02, 2010, 05:55:51 pm »

In the following clip, documentary filmmaker, Bill Still, tells Alex Jones that the "Wizard of Oz" theme for his recently-released sequel to The Money Masters was inspired by something he had heard the last time he was on Alex's show:

       


To hear what that something was, listen to the 56:50-1:05:25 portion of the following:

       


"Todd in Ohio" is yours truly.  Cool

(As you can probably see, I write better than I speak.)
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« Reply #19 on: October 13, 2010, 04:31:33 pm »

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...]
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« Reply #20 on: November 08, 2010, 03:44:03 pm »

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.

It is curious to realize, when studying Hitler, how close he came to the truth in his analysis (which was, no doubt, inspired by exactly the enemies he was purported to attack). It is mind boggling to realize how much the bankers were willing to give away and how they entrenched their supremacy by totally destroying him and his credibility.

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.
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« Reply #21 on: November 10, 2010, 12:41:57 pm »

http://www.infowars.com/the-after-the-fed-solutions-debate-begins-greenbackers-vs-goldbugs/

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...]

Toward the end of The Money Masters (released in 1996), Bill Still makes the following prophetic warning:

    ''Our country needs a solid group who really understand how our money is manipulated and what the solutions really are, because if a depression comes there will be those who call themselves conservatives who will come forward advancing solutions framed by the international bankers.

    "Beware of calls to return to a gold standard.

    "Why?

    "Simple. Because never before has so much gold been so concentrated outside of American hands, and never before has so much gold been in the hands of international governmental bodies such as the World Bank and International Monetary Fund.

    "A gold-backed currency usually brings despair to a nation, and to return to it would certainly be a false solution in our case. Remember: we had a gold-backed currency in 1929 and during the first four years of the Great Depression.

    "Likewise, beware of any plans advanced for a regional or world currency. This is the international bankers' Trojan Horse.''

       

Keep the above in mind as you read the following:

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

http://www.marketwatch.com/story/world-bank-chief-calls-for-new-gold-standard-2010-11-07

World Bank chief calls for new gold standard

By Chris Oliver
MarketWatch
Nov. 7, 2010

HONG KONG (MarketWatch) –- The president of the World Bank said in a newspaper editorial Monday that the Group of 20 leading economies should consider adopting a global reserve currency based on gold as part of structural reforms to the world’s foreign-exchange regime.

World Bank chief Robert Zoellick said in an article the Financial Times that leading economies should consider “employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

Zoellick made the proposal as part of reforms to be considered at this week’s G-20 meeting in Seoul.

[Continued...]

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

I've said it before and I'll say it again: with "opponents" like the Austrian School, the international bankers don't need any allies!
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« Reply #22 on: March 08, 2011, 01:44:55 pm »

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 and Bernard Madoff, and use the resultant proceeds to help replenish whatever retirement funds they raided;

http://www.prisonplanet.com/derivatives-the-real-reason-bernanke-funnels-trillions-into-wall-street-banks.html

Derivatives: The Real Reason Bernanke Funnels Trillions Into Wall Street Banks

Seeking Alpha
Feb 9, 2011

We’ve been over the numerous BS excuses that US Dollar destroyer extraordinaire Ben Bernanke has made for QE enough times that today I’d rather simply focus on the REAL reason he continues to funnel TRILLIONS of Dollars into the Wall Street Banks.

I’ve written this analysis before. But given the enormity of what it entails, it’s worth repeating. The following paragraphs are the REAL reason Bernanke does what he does no matter what any other media outlet, book, investment expert, or guru tell you.

Bernanke is printing money and funneling it into the Wall Street banks for one reason and one reason only. That reason is: DERIVATIVES.

According to the Office of the Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.

Five banks account for 95% of this. Can you guess which five?



[Continued...]
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« Reply #23 on: March 09, 2011, 01:06:26 pm »

WISCONSIN: BROKE UNLESS YOU COUNT THE $67 BILLION . . .

Ellen Brown
March 7th, 2011
www.webofdebt.com/articles/wiconsin.php

       Public sector man sitting in a bar: “They’re trying to take away our pensions.”
       Private sector man: “What’s a pension?”
              -- Cartoon in the Houston Chronicle

As states struggle to meet their budgets, public pensions are on the chopping block, but they needn’t be. States can keep their pension funds intact while leveraging them into many times their worth in loans, just as Wall Street banks do. They can do this by forming their own public banks, following the lead of North Dakota—a state that currently has a budget surplus.

Wisconsin Governor Scott Walker, whose recently proposed bill to gut benefits, wages, and bargaining rights for unionized public workers inspired weeks of protests in Madison, has justified the move as necessary for balancing the state's budget. But is it?

After three weeks of demonstrations in Wisconsin, protesters report no plans to back down. Fourteen Wisconsin Democratic lawmakers—who left the state so that a quorum to vote on the bill could not be reached—said Friday that they are not deterred by threats of possible arrest and of 1,500 layoffs if they don't return to work. President Obama has charged Wisconsin’s Governor Scott Walker with attempting to bust the unions. But Walker’s defense is:

    “We're broke. Like nearly every state across the country, we don't have any more money."

Among other concessions, Governor Walker wants to require public employees to pay a portion of the cost of their own pensions. Bemoaning a budget deficit of $3.6 billion, he says the state is too broke to afford all these benefits.

Broke Unless You Count the $67 Billion Pension Fund . . .

That’s what he says, but according to Wisconsin’s 2010 CAFR [.pdf] (Comprehensive Annual Financial Report), the state has $67 billion in pension and other employee benefit trust funds, invested mainly in stocks and debt securities drawing a modest return.

A recent study by the PEW Center for the States showed that Wisconsin’s pension fund is almost fully funded, meaning it can meet its commitments for years to come without drawing on outside sources. It requires a contribution of only $645 million annually to meet pension payouts. Zach Carter, writing in the Huffington Post, notes that the pension program could save another $195 million annually just by cutting out its Wall Street investment managers and managing the funds in-house.

The governor is evidently eying the state’s lucrative pension fund, not because the state cannot afford the pension program, but as a source of revenue for programs that are not fully funded. This tactic, however, is not going down well with state employees.

Fortunately, there is another alternative. Wisconsin could draw down the fund by the small amount needed to meet pension obligations, and put the bulk of the money to work creating jobs, helping local businesses, and increasing tax revenues for the state. It could do this by forming its own bank, following the lead of North Dakota, the only state to have its own bank -- and the only state to escape the credit crisis.

This could be done without spending the pension fund money or lending it. The funds would just be shifted from one form of investment to another (equity in a bank). When a bank makes a loan, neither the bank’s own capital nor its customers’ demand deposits are actually lent to borrowers. As observed on the Dallas Federal Reserve’s website, “Banks actually create money when they lend it.” They simply extend accounting-entry bank credit, which is extinguished when the loan is repaid. Creating this sort of credit-money is a privilege available only to banks, but states can tap into that privilege by owning a bank.

How North Dakota Escaped the Credit Crunch

Ironically, the only state to have one of these socialist-sounding credit machines is a conservative Republican state. The state-owned Bank of North Dakota (BND) has allowed North Dakota to maintain its economic sovereignty, a conservative states-rights sort of ideal. The BND was established in 1919 in response to a wave of farm foreclosures at the hands of out-of-state Wall Street banks. Today the state not only has no debt, but it recently boastedits largest-ever budget surplus. The BND helps to fund not only local government but local businesses and local banks, by partnering with the banks to provide the funds to support small business lending.

The BND is also a boon to the state treasury. It has a return on equity of 25-26%, and it has contributed over $300 million to the state (its only shareholder) in the past decade -- a notable achievement for a state with a population less than one-tenth the size of Los Angeles County. In comparison, California’s public pension funds are down more than $100 billion—that’s billion with a “b”—or close to half the funds’ holdings, following the Wall Street debacle of 2008. It was, in fact, the 2008 bank collapse rather than overpaid public employees that caused the crisis that shrank state revenues and prompted the budget cuts in the first place.

Seven States Are Now Considering Setting Up Public Banks

Faced with federal inaction and growing local budget crises, an increasing number of states are exploring the possibility of setting up their own state-owned banks, following the North Dakota model. On January 11, 2011, a bill to establish a state-owned bank was introduced in the Oregon State legislature; on January 13, a similar bill was introduced in Washington State; on January 20, a bill for a state bank was filed in Massachusetts (following a 2010 bill that had lapsed); and on February 4, a bill was introduced in the Maryland legislature for a feasibility study looking into the possibilities. They join Illinois, Virginia, and Hawaii, which introduced similar bills in 2010, bringing the total number of states with such bills to seven.

If Governor Walker wanted to explore this possibility for his state, he could drop in on the Center for State Innovation (CSI), which is located down the street in his capitol city of Madison, Wisconsin. The CSI has done detailed cost/benefit analyses of the Oregon and Washington state bank initiatives, which show substantial projected benefits based on the BND precedent. See reports here and here.

For Washington State, with an economy not much larger than Wisconsin’s, the CSI report estimates that after an initial startup period, establishing a state-owned bank would create new or retained jobs of between 7,400 and 10,700 a year at small businesses alone, while at the same time returning a profit to the state.

A Bank of Wisconsin Could Generate “Bank Credit” Many Times the Size of the Budget Deficit

Economists looking at the CSI reports have called their conclusions conservative. The CSI made its projections without relying on state pension funds for bank capital, although it acknowledged that this could be a potential source of capitalization.

If the Bank of Wisconsin were to use state pension funds, it could have a capitalization of more than $57 billion – nearly as large as that of Goldman Sachs. At an 8% capital requirement, $8 in capital can support $100 in loans, or a potential lending capacity of over $500 billion. The bank would need deposits to clear the checks, but the credit-generating potential could still be huge.

Banks can create all the bank credit they want, limited only by (a) the availability of creditworthy borrowers, (b) the lending limits imposed by bank capital requirements, and (c) the availability of “liquidity” to clear outgoing checks. Liquidity can be acquired either from the deposits of the bank’s own customers or by borrowing from other banks or the money market. If borrowed, the cost of funds is a factor; but at today’s very low Fed funds rate of 0.2%, that cost is minimal. Again, however, only banks can tap into these very low rates. States are reduced to borrowing at about 5% -- unless they own their own banks; or, better yet, unless they are banks. The BND is set up as “North Dakota doing business as the Bank of North Dakota.”

That means that technically, all of North Dakota’s assets are the assets of the bank. The BND also has its deposit needs covered. It has a massive, captive deposit base, since all of the state’s revenues are deposited in the bank by law. The bank also takes other deposits, but the bulk of its deposits are government funds. The BND is careful not to compete with local banks for consumer deposits, which account for less than 2% of the total. The BND reports that it has deposits of $2.7 billion and outstanding loans of $2.6 billion. With a population of 647,000, that works out to about $4,000 per capita in deposits, backing roughly the same amount in loans.

Wisconsin has a population that is nine times the size of North Dakota’s. Other factors being equal, Wisconsin might be able to amass over $24 billion in deposits and generate an equivalent sum in loans – over six times the deficit complained of by the state’s governor. That lending capacity could be used for many purposes, depending on the will of the legislature and state law. Possibilities include (a) partnering with local banks, on the North Dakota model, strengthening their capital bases to allow credit to flow to small businesses and homeowners, where it is sorely needed today; (b) funding infrastructure virtually interest-free (since the state would own the bank and would get back any interest paid out); and (c) refinancing state deficits nearly interest-free.

Why Give Wisconsin’s Enormous Credit-generating Power Away?

The budget woes of Wisconsin and other states were caused, not by overspending on employee benefits, but by a credit crisis on Wall Street. The “cure” is to get credit flowing again in the local economy, and this can be done by using state assets to capitalize state-owned banks.

Against the modest cost of establishing a publicly-owned bank, state legislators need to weigh the much greater costs of the alternatives – slashing essential public services, laying off workers, raising taxes on constituents who are already over-taxed, and selling off public assets. Given the cost of continuing business as usual, states can hardly afford not to consider the public bank option. When state and local governments invest their capital in out-of-state money center banks and deposit their revenues there, they are giving their enormous credit-generating power away to Wall Street.
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« Reply #24 on: April 20, 2011, 03:18:10 pm »

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
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« Reply #25 on: April 20, 2011, 03:21:21 pm »

A few years ago Ellen Brown wrote the following:

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

The story has been widely circulated that when Albert Einstein was asked what the most powerful force in the universe was, he replied, "compound interest." The story is probably apocryphal, but it underscores the force of the concept. Compound interest has allowed a private global banking cartel to control most of the resources of the world. The debt trap was set in 1974, when OPEC was induced to trade its oil only in U.S. dollars. The price of oil then suddenly quadrupled, and countries with insufficient dollars for their oil needs had to borrow them. In 1980, international interest rates shot up to 20 percent. At 20 percent interest compounded annually, $100 doubles in under 4 years; and in 20 years, it becomes a breathtaking $3,834. The impact on Third World debtors was devastating. President Obasanjo of Nigeria complained in 2000:

    All that we had borrowed up to 1985 was around $5 billion, and we have paid about $16 billion; yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors' interest rates. If you ask me what is the worst thing in the world, I will say it is compound interest.

Could the "viable economic alternative" that threatens the Western economic model be one that declares the collecting of interest to be illegal? That is the model Iran is now holding out to the world. In 1979, Iran was established as an "Islamic Republic," designed to enforce the principles of the Koran not just morally or religiously but as a matter of state government policy. Afghanistan, which is also in the cross-hairs of the U.S. war machine, and Pakistan, which the U.S. is trying hard to control, are also Islamic Republics. The economic principles of the Koran include Sharia banking, which forbids "usury." In the Koran, usury is defined as charging not just excess interest but any interest.

That is also how the term was defined under Old English law until Protestant scholars redefined it in the seventeenth century, opening the Christian world to a form of economic advantage formerly available only to Jewish money lenders. In Jewish scriptures, charging interest was forbidden between "brothers" but was allowed in dealings with "foreigners." (See, for example, Deuteronomy 23:19, "You must not make your brother pay interest," and 23:20, "You may make a foreigner pay interest, but your brother you must not make pay interest.") This point is raised here not to indict the Jewish people (who are not the "global bankers") but for its historical relevance in tracking the divergence of two religious systems. Charging interest on loans has been accepted banking practice throughout the Judao-Christian world for so long that we don't think there is anything wrong with it today, but that hasn't always been true. The history of interest is detailed in an article in The World Guide Encyclopedia, which is published in Uruguay and has a Third World/Islamic slant. It states:

    The practice of usury – lending money and accumulating interest on the loan – can be traced back 4,000 years. But it has always been despised, condemned, restricted or banned by moral, ethical, legal or religious entities. . . .

    During the prophet Muhammad's lifetime, criticism of usury became established. This stance was reinforced by his teachings in the Qur'an, around 600 AD. . . .

    Judaism's criticisms of usury are rooted in several passages of the Old Testament in which charging interest is scorned, discouraged and prohibited. . . . In Deuteronomy, the ban extends to all loans, excluding trade with foreigners. The word "foreigner" is interpreted in general as "enemy" and, armed with this text, Jews employed usury as a weapon, as other people's needs could be transformed into submission. . . .

    The prohibition of usury was adopted as a major campaign by the earliest Christian Church, following on from Jesus' expulsion of the money-lenders from the temple. . . . The Catholic Church of the 4th century AD banned the clergy from charging interest, a rule that was later extended in the 5th century to the laity. . . .

    Around 1620, according to the theologian Ruston, "usury passed from being an offense against public morality, which a Christian government was expected to suppress, to being a matter of private conscience, and a new generation of Christian moralists redefined usury as excessive interest". . . . It is interesting to contrast the clear moral mandate expressed through Pope Leo XIII's Rerum Novarum (634-644 AD) about "ravenous usury" as "a demon condemned by the Church but practiced in a deceitful way by avaricious men," with Pope John Paul II's encyclical Solicitude Rei Socialis (1987) which omits any explicit mention of usury, except for a vague reference to recognizing the Third World debt crisis.

    This "demon" governs current global relations, condemning most of the world population to living under the sign of debt: i.e., each person born in Latin America owes already $1,600 in foreign debt; each individual being conceived in Sub-Saharan Africa carries the burden of a $336 debt, for something that its ancestors have long ago paid-off. In 1980 the Southern countries' debt amounted to $567 billion; since then, they have paid $3,450 billion in interest and write-offs, six times the original amount. In spite of this, that debt had quadrupled by the year 2000, reaching $2,070 billion.

Islamic scholars have been seeking to devise a global banking system that would serve as an alternative to the interest-based scheme that is in control of the world economy, and Iran has led the way in devising that model. Iran was able to escape the debt trap that captured other developing countries because it had its own oil. Few Islamic banks existed before Iran became an Islamic Republic in 1979, but the concept is now spreading globally. With the fall of the Iron Curtain in 1989, the viable economic model that threatens the global dominance of the Western banking clique may no longer be Communism. It may be the specter of an Islamic banking system that would strip a private banking cartel of the compound interest scheme that is its most powerful economic weapon.


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

Keep the above in mind as you read the following:

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

http://www.prisonplanet.com/globalist-target-central-bank-of-libya-is-100-state-owned.html

GLOBALIST TARGET: Central Bank of Libya is 100% State Owned

By Eric V. Encina
21st Century Wire
March 28, 2011

One seldom mentioned fact by western politicians and media pundits: the Central Bank of Libya is 100% State Owned. The world’s globalist financiers and market manipulators do not like it and would continue to their on-going effort to dethrone Muammar Muhammad al-Gaddafi, bringing an end to Libya as independent nation.

Currently, the Libyan government creates its own money, the Libyan Dinar, through the facilities of its own central bank. Few can argue that Libya is a sovereign nation with its own great resources, able to sustain its own economic destiny. One major problem for globalist banking cartels is that in order to do business with Libya, they must go through the Libyan Central Bank and its national currency, a place where they have absolutely zero dominion or power-broking ability.  Hence, taking down the Central Bank of Libya (CBL) may not appear in the speeches of Obama, Cameron and Sarkozy but this is certainly at the top of the globalist agenda for absorbing Libya into its hive of compliant nations.

When the smoke eventually clears from all the cruise missiles and cluster bombs, you will see the Allied reformers move in to reform Libya’s monetary system, pumping it full of worthless dollars, priming it for a series of chaotic inflationary cycles.

[Continued...]


http://www.prisonplanet.com/wow-that-was-fast-libyan-rebels-have-already-established-a-new-central-bank-of-libya.html

Wow That Was Fast! Libyan Rebels Have Already Established A New Central Bank Of Libya

The Economic Collapse
March 29, 2011

The rebels in Libya are in the middle of a life or death civil war and Moammar Gadhafi is still in power and yet somehow the Libyan rebels have had enough time to establish a new Central Bank of Libya and form a new national oil company.  Perhaps when this conflict is over those rebels can become time management consultants.  They sure do get a lot done.  What a skilled bunch of rebels – they can fight a war during the day and draw up a new central bank and a new national oil company at night without any outside help whatsoever.  If only the rest of us were so versatile!  But isn’t forming a central bank something that could be done after the civil war is over?  According to Bloomberg, the Transitional National Council has “designated the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya and the appointment of a governor to the Central Bank of Libya, with a temporary headquarters in Benghazi.”  Apparently someone felt that it was very important to get pesky matters such as control of the banks and control of the money supply out of the way even before a new government is formed.

[Continued...]

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

Does this mean the banker-owned Obama administration will next be dropping bombs on North Dakota in the name of "humanitarianism"? 
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« Reply #26 on: April 27, 2011, 05:18:08 pm »

At the risk of sounding off here.

The main reason for interest at all is because 8 out of 10 businesses fail within 2 years.

When the 8 do all that money is still in the economy and is not coming back to the banks directly.

Interest keeps down inflation when the other 8 businesses fail.

Now these adjustable rate mortgages is just banker-speak for loan-sharking.  Instead of just keeping down inflation these banksters are just trying to give themselves bigger bonuses.

After the whole adjustable rate mortgage debacle, it would be like having only 2 pints of blood left when 8 is needed.  Right now thanks to bailout Barry we have like 10 pints of blood and the body cannot keep up.  No more cells or organs are being produced but more blood is being pumped in.

Hence inflation in both cases.
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« Reply #27 on: April 28, 2011, 11:22:45 am »

At the risk of sounding off here.

The main reason for interest at all is because 8 out of 10 businesses fail within 2 years.

You've got it backwards: unpayable interest debt is one of the primary reasons why so many businsses fail in the first place.

So you're confusing cause and effect.

Quote
When the 8 do all that money is still in the economy and is not coming back to the banks directly.

That doesn't change

(a) the fact that bankrupties have a deflationary impact on our debt-based money supply since they reduce in value the collateral-backing of that money supply;

(b) the fact that when the principal of a bank loan is repaid, the money initially created by that loan is not "still in the economy," but in fact vanishes back into the nothing out of which the bank created it; nor

(c) the fact that the money needed to pay the usurious interest on all these money supply-expanding "loans" is never created to begin with, which means there's always a built-in shortage of money.

You can try to explain it away all you want, the fact remains that it's a musical chairs system.

Quote
Interest keeps down inflation when the other 8 businesses fail.

You've got it backwards again: unpayable interest debt is one of the primary causes of inflation, because it's only by raising prices that indebted business owners are able to "capture" -- through the process and production-and-exchange -- the necessary portion of other people's loan principal to pay the interest they owe.

As I explained earlier in this thread, what keeps cost-push inflation from spiraling out of control is

* 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 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.
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« Reply #28 on: May 14, 2011, 10:39:40 am »

"Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold." -- William Jennings Bryan

"Ron Paul has been the leading champion of sound money in the Congress. Here he explains why sound money means a new gold standard." -- http://mises.org/resources/3150

In 1929 the M2 money supply was approximately $46.6 billion; four years later it was roughly $32.2 billion. This 31% decrease was all it took to bring on a depression so severe and so devastating that it was called the "Great Depression."

Thus, when Austrian Schoolers insist on instituting a new gold standard under the euphemistic guise of "sound money," we would be well advised to consider what effect this would have on the M2 money supply, and hence on the economy -- and hence on our very lives.

Let's assume that a 100% reserve gold-based money system is instituted (since that's what Austrian School icon Murray Rothbard advocated); and -- since gold standard apologists are fond of waxing nostalgic about pre-1913 America (particularly the Gilded Age) -- let's also assume that, in accordance with the Gold Standard Act of 1900, each paper dollar is made "redeemable" in 23.22 grains of gold.

To determine what effect this will have on the M2 money supply -- which is $8.9137 trillion at present -- let's further assume that the U.S. has all the gold that's ever been mined (even though it doesn't) -- 165,000 metric tonnes, or 2.546336 trillion grains, according to the World Gold Council. If we divide that figure by 23.22 grains, we have a maximum M2 money supply of $109.66 billion.

That's a minimum 98.8% decrease!

This would make the 1/3 money supply contraction that occurred between 1929-1933 -- and the magnitude of the resultant depression -- both look miniscule by comparison. The effect of such a severe contraction would be beyond devastating -- it would be GENOCIDAL!

Realizing this, what if we instead made each paper dollar redeemable in merely two grains of gold? The result would be a maximum money supply of $1.273168 trillion, and hence a M2 money supply contraction of at least 85.7%, which, although not quite as bad as the previous figure (98.8%), is still far worse than the contraction that caused the Great Depression.

And if all this wasn't bad enough, there's also the issue of how the current trade deficit would (under the system in question) cause whatever gold we had to be quickly drained from our economy, thereby contracting the money supply even further.

As Byron Dale explains it here:

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

“Ok, so now we get that, which makes the total money supply for the United States roughly $1.6 trillion. Ok, if the United States has a trade deficit, like we do right now, of $40.4 billion per month (and it goes up and down a little), it would only take 3.29 years for the total money supply -- or all the gold -- to leave the country just to pay for the trade deficit. And they’re not bringing that money back -- or they’re not buying things from us -- or we wouldn’t have that trade deficit. They’re bringing this stuff over in big ships, and then the ships are going back empty. So the money flows over and doesn’t comes back, that’s why you have a trade deficit. Ok, so now, if we just went to that, with all the gold in the world, in a little over 3 1/4 years we wouldn’t have any gold in the country left -- and no money.

“Now what are we going to do?

“Now, if you borrow the gold back at interest, so you can have it back in your country, you’ve turned the whole thing into a debt money system again."

[Continued...]

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

This is why deflation-worshipping Austrian Schoolers never want to talk about specifics. They figure that, if they simply parrot the euphemism "sound money" over and over again, everyone will just blindly assume that it's a good idea, and consequently refrain from determining for themselves what the actual effect of such a system would be.

Conclusion? Although Ron Paul is by far the most honorable politician in Washington, and although he's right on many issues, he is (with all due respect) sadly wrong on the question of what we should replace our current debt-based money system with.

This is why the "end the Fed" mantra is so misleading. It causes people to falsely assume that, if we simply "end" the Federal Reserve System, a much better system will magically and automatically take its place. Yet as we now see, that's not necessarily the case. Not by a long shot.

The solution? Instead of merely "ending" the Fed, we must replace it with the debt-free money system called for on page one of this thread -- a system that avoids both currency-destroying, compound interest-driven hyperinflation AND economy-destroying deflation.

Anything short of this will prove to be, at best, the equivalent of rearranging deck chairs on the Titanic, and, at worst, the equivalent of burning down the house to roast the pig.

Must we find that out the hard way?
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« Reply #29 on: May 14, 2011, 10:44:07 am »

Realizing this, what if we instead made each paper dollar redeemable in merely two grains of gold? The result would be a maximum money supply of $1.273168 trillion, and hence a M2 money supply contraction of at least 85.7%, which, although not quite as bad as the previous figure (98.8%), is still far worse than the contraction that caused the Great Depression.

There are undoubtedly many who believe that the preemptive solution to the deflationary nightmare referred to above is to institute a gold and silver backing of the dollar.

Is this belief based on an actual study of the matter, or is it the mere product of wishful thinking? Let's find out.

According to the Silver Institute, the total supply of silver is 1,056.8 million ounces, or 507.263 billion grains.

If we add that to the total supply of gold -- 2,546.336 billion grains at present -- we have a combined gold-silver supply of 3,053.599 billion grains (or just over 3 trillion grains).

Now, even though it took a lot more silver (371.25 grains) to make a dollar under the 1792 Coinage Act than it did gold (24.75 grains), let's assume that the newly-instituted gold/silver standard makes each paper dollar "redeemable" in either one grain of gold or one grain of silver.

Note: To understand how small a "grain" is, in the following pic the small golden disk close to the 5cm marker is a piece of pure gold weighing one troy grain:



With that sort of "backing" under a 100% reserve system, the maximum M2 money supply is $3.053599 trillion, which (surprise!) is a mere 34.26 percent of the current M2 money supply ($8.9137 trillion), and hence a minimum decrease of 65.74 percent -- more than twice the money supply contraction that caused the Great Depression. And that's assuming we have the total supply of gold and silver (we don't) and that we don't have a trade deficit that would drain however much gold and silver we actually do have out of the country within a few years (we do).

Do all of you precious metal-obsessed right-wingers finally get it now?

The very thing that makes gold and silver a great private investment is what makes them a disastrous thing on which to base an entire nation's money supply.
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« Reply #30 on: May 16, 2011, 11:19:57 am »




Note: The following excerpts from The Money Masters can be viewed in the two youtube clips above.

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

A truly incredible editorial in the London Times explained the central bankers' attitude towards Lincoln's Greenbacks:

    "If this mischievous financial policy, which has its origin in North America, shall become endurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without debt. It will have all the money necessary to carry on its commerce. It will become prosperous without precedent in the history of the world. The brains, and wealth of all countries will go to North America. That country must be destroyed or it will destroy every monarchy on the globe." -- Times of London

[...]

Allegations that international bankers were responsible for Lincoln's assassination surfaced in Canada 70 years later in 1934. Gerald G. McGeer, a popular and well-respected Canadian attorney, revealed this stunning charge in a five hour speech before the Canadian House of Commons blasting Canada's debt-based money system. Remember: it was 1934, the height of the Great Depression, which was ravaging Canada as well. McGeer had obtained evidence -- deleted from the public record -- provided to him by Secret Service agents at the trial of John Wilks Booth, after Booth's death. McGeer said it showed that Booth was a mercenary working for the international bankers. According to an article in the Vancouver Sun of May 2, 1934:

    "Abraham Lincoln, the martyred Emancipator of the Slaves, was assassinated through the machinations of a group representative of the international bankers who feared the United States President's national credit ambitions....

    "'There was only one group in the world at that time who...had any reason to desire the death of Lincoln.

    "'They were the men opposed to his national currency program, and who had fought him throughout the whole of the Civil War on his policy of greenback currency.'"

Interestingly, McGeer claimed that Lincoln was assassinated not only because international bankers wanted to reestablish a central bank in America, but because they also wanted to base America's currency on gold -- gold they controlled. In other words: put America on a gold standard. Lincoln had done just the opposite by issuing U.S. notes -- Greenbacks -- which were based purely on the good faith and credit of the United States. The article quoted McGeer as saying:

    "'They were the men interested in the establishment of the Gold Standard...and the right of the bankers to manage the currency and credit of every nation in the world.

    "'With Lincoln out of the way they were able to proceed with that plan, and did proceed with it in the United States. Within eight years after Lincoln's assassination silver was demonetized and the Gold Standard money system set up in the United States.'"

Not since Lincoln has the U.S. issued debt-free United States notes.

[...]

With Lincoln out of the way, the money changers' next objective was to gain complete control over America's money. This was no easy task. With the opening of the American west, silver had been discovered in huge quantities. On top of that, Lincoln's Greenbacks were generally popular. Despite the European central bankers' deliberate attacks on Greenbacks, they continued to circulate in the United States -- in fact until a few years ago. According to historian W. Cleon Skousen:

    "Right after the Civil War there was considerable talk about reviving Lincoln's brief experiment with the Constitutional monetary system. Had not the European money-trust intervened, it would have no doubt become an established institution." -- W. Cleon Skousen

It is clear that the concept of America printing her own debt-free money sent shock waves throughout the European central banking elite. They watched with horror as Americans clamored for more Greenbacks. They may have killed Lincoln, but support for his monetary ideas grew.

On April 12, 1866, nearly one year to the day of Lincoln's assassination, Congress went to work at the bidding of the European central banking interests. It passed the Contraction Act, authorizing the Secretary of the Treasury to begin to retire some of the Greenbacks in circulation, and thereby contract the money supply. Authors Theodore R. Thoren and Richard F. Warner explained the results of the money contraction in their classic book on the subject, The Truth In Money Book:

    "The hard times which occurred after the Civil War could have been avoided if the Greenback legislation had continued as President Lincoln had intended. Instead, there were a series of money panics -- what we call 'recessions' -- which put pressure on Congress to enact legislation to place the banking system under centralized control. Eventually, the Federal Reserve Act was passed on December 23, 1913."

In other words, the money changers wanted two things: (1) the reinstitution of a central bank under their exclusive control, and (2) an American currency backed by gold. Their strategy was two-fold.

First of all, cause a series of panics to try to convince the American people that only centralized control of the money supply could provide economic stability.

And secondly, remove so much money from the system, that most Americans would be so desperately poor that they either wouldn't care or would be too weak to oppose the bankers.

In 1866, there was $1.8 billion in currency in circulation in the United States -- about $50.46 per capita. In 1867 alone, half a billion dollars...was removed from the U.S. money supply. Ten years later, in 1876, America's money supply was reduced to only $600 million. In other words, 2/3 of America's money had been called in by the bankers. Only $14.60 per capita remained in circulation. Ten years later [in 1886], the money supply had been reduced to only $400 million, even though the population had boomed. The result was that only $6.67 per capita remained in circulation -- a 760% loss in buying power over 20 years.

Today, economists try to sell the idea that recessions and depressions are a natural part of something they call the "business cycle." The truth is, our money supply is manipulated now just as it was before and after the Civil War.

How did this happen? How did money become so scarce? Simple. Bank loans were called in, and no new ones were given. In addition, silver coins were melted down. In 1872, a man named Ernest Seyd was given a hundred thousand pounds -- about $500 thousand -- by the Bank of England and sent to America to bribe necessary Congressmen to get silver demonetized. He was told that if that was not sufficient, to draw an additional hundred thousand pounds, or as much more as was necessary.

The next year Congress passed the Coinage Act of 1873, and the minting of silver dollars abruptly stopped. In fact, Representative Samuel Hooper, who introduced the bill in the House, acknowledged that Mr. Seyd actually drafted the legislation. But it gets even worse than that. In 1874, Seyd himself admitted who was behind the scheme:

    "I went to America in the winter of 1872-73, authorized to secure, if I could, the passage of a bill demonetizing silver. It was in the interest of those I represented -- the governors of the Bank of England -- to have it done. By 1873, gold coins were the only form of coin money." -- Ernest Seyd

But the contest over control of America's money was not yet over. Only three years later, in 1876, with one-third of America's workforce unemployed, the population was growing restless. People were clamoring for a return to the Greenback money system of President Lincoln, or a return to silver money -- anything that would make money more plentiful. That year, Congress created the United States Silver Commission to study the problem. Their report clearly blamed the monetary contraction on the national bankers. The report is interesting, because it compares the deliberate money contraction by the national bankers after the Civil War to the fall of the Roman Empire:

    "The disaster of the Dark Ages was caused by decreasing money and falling prices.... Without money, civilization could not have had a beginning, and with a diminishing supply, it must languish and unless relieved, finally perish.

    "At the Christian era the metallic money of the Roman Empire amounted to $1,800,000,000. By the end of the Fifteenth century it had shrunk to less than $200,000,000.... History records no other such disastrous transition as that from the Roman Empire to the Dark Ages." -- United States Silver Commission

Despite this report by the Silver Commission, Congress took no action. The next year, 1877, riots broke out from Pittsburgh to Chicago. The torches of starving vandals lit up the sky. The bankers huddled to decide what to do. They decided to hang on. Now that they were back in control (to a certain extent), they were not about to give it up.

At the meeting of the American Bankers Association that year, they urged their membership to do everything in their power to put down the notion of a return to Greenbacks. The ABA secretary, James Buel, authored a letter to the members which blatantly called on the banks to subvert not only Congress but the press:

    "It is advisable to do all in your power to sustain such prominent daily and weekly newspapers, especially the Agricultural and Religious Press, as will oppose the Greenback issue of paper money and that you will also withhold patronage from all applicants who are not willing to oppose the government issue of money.

    "....To repeal the Act creating bank notes, or to restore to circulation the government issue of money will be to provide the people with money and will therefore seriously affect our individual profits as bankers and lenders.

    "See your Congressman at once and engage him to support our interests that we may control legislation." -- James Buel, American Bankers Association

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

Keep the above in mind as you read the following goldbug propaganda piece:

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

http://www.thegoldstandardnow.org/key-blogs/235-not-dollar-depreciation-gold-standard

Not Dollar Depreciation but the Gold Standard

by Christopher K. Potter
May 03, 2011

Recently a New York Times article screamed “Prices Surge as Investors Rush to Safety of Gold.”  In reality there was no rush and the gold price did not surge.  Gold was up less than 0.5% on the day in question and is up only 6% in 2011, less than the increase in the S&P 500.  For 10 years, the gold price has edged quietly higher, rarely moving more than 1% up or down on any given day.  Along the way, the media argued that each new high was driven by panicked investors who were fleeing from equities.  I would argue just the opposite.  Individuals and institutions, reacting rationally to expansionary monetary policy, are merely exchanging cash balances for gold. This has little to do with geopolitical turmoil or perceived troubles in the economy and stock market.  It is a currency trade, pure and simple.

The basic mechanics of monetary policy and money creation remain a mystery to most people.  Few are aware that most new treasury debt is purchased by the Federal Reserve with brand new dollars; that China buys large quantities of dollars every day with newly minted Yuan or that Japan created 39 trillion ($481 billion) new Yen in the two weeks following the earthquake.  As James Grant points out in his March 25th Interest Rate Observer, “when the materialization of nearly a half-trillion dollars in a fortnight’s time stops astounding reporters, it’s past time for a monetary reappraisal.”  Perhaps reporters are more unaware than unimpressed.  With everyone printing at once, the value of one currency relative to another (the exchange rate) never reflects the magnitude of the new supply of money.  All currencies decline together while appearing to not decline at all.  While this provides ample cover for our central bankers to perpetuate the print-off, it results in inflation, progressively severe boom and bust cycles, perpetual deficits and an increasing inequality of wealth.

Under a gold standard, in which paper money is convertible into a fixed weight of gold, the threat of dollar to gold conversion compels monetary restraint on all central banks.  In our present unreserved monetary system, that threat has become reality and the qualities that define our money as sound have been transferred, at the margin, from paper to gold.  We have seen the creation of gold denominated shares by hedge fund manager John Paulson and others; the passage of a bill in the Utah legislature allowing gold and silver coins to be used as legal tender; and the conversion of cash balances into gold bullion by major investment and endowment funds.  Even the manufacturers of our money have been exchanging paper for gold - witness the buying of bullion by the central banks of India, Bangladesh, Sri Lanka, China and Thailand over the last year.

Economic stimulation through currency depreciation is the unwritten, unspoken policy of today’s monetary leaders.  While our Federal Reserve receives a disproportionate amount of the blame for this dangerous game, all central banks are active participants.  In response, gold is predictably performing its role as the only supply constrained currency – its price is adjusting upward.  Despite the headlines, it has done so in an orderly, methodical way for over a decade.  Other commodity prices have risen as well, but only the gold price has risen with a consistently tight correlation to the growth in world money.  This has won converts to the idea that gold must be the centerpiece of monetary reform.   It has also shortened the road forward to a modernized gold standard.

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« Reply #31 on: May 16, 2011, 11:24:47 am »

Toward the end of The Money Masters (released in 1996), Bill Still makes the following prophetic warning:

    ''Our country needs a solid group who really understand how our money is manipulated and what the solutions really are, because if a depression comes there will be those who call themselves conservatives who will come forward advancing solutions framed by the international bankers.

    "Beware of calls to return to a gold standard.

    "Why?

    "Simple. Because never before has so much gold been so concentrated outside of American hands, and never before has so much gold been in the hands of international governmental bodies such as the World Bank and International Monetary Fund.

    "A gold-backed currency usually brings despair to a nation, and to return to it would certainly be a false solution in our case. Remember: we had a gold-backed currency in 1929 and during the first four years of the Great Depression.

    "Likewise, beware of any plans advanced for a regional or world currency. This is the international bankers' Trojan Horse.''

http://www.humanevents.com/article.php?id=43439

Forbes Predicts U.S. Gold Standard Within 5 Years

by Paul Dykewicz
Human Events
05/11/2011

A return to the gold standard by the United States within the next five years now seems likely, because that move would help the nation solve a variety of economic, fiscal, and monetary ills, Steve Forbes predicted during an exclusive interview this week with HUMAN EVENTS.

“What seems astonishing today could become conventional wisdom in a short period of time,” Forbes said.

Such a move would help to stabilize the value of the dollar, restore confidence among foreign investors in U.S. government bonds, and discourage reckless federal spending, the media mogul and former presidential candidate said.  The United States used gold as the basis for valuing the U.S. dollar successfully for roughly 180 years before President Richard Nixon embarked upon an experiment to end the practice in the 1970s that has contributed to a number of woes that the country is suffering from now, Forbes added.

If the gold standard had been in place in recent years, the value of the U.S. dollar would not have weakened as it has and excessive federal spending would have been curbed, Forbes told HUMAN EVENTS.  The constantly changing value of the U.S. dollar leads to marketplace uncertainty and consequently spurs speculation in commodity investing as a hedge against inflation.

The only probable 2012 U.S. presidential candidate who has championed a return to the gold standard so far is Rep. Ron Paul (R.-Tex.).  But the idea “makes too much sense” not to gain popularity as the U.S. economy struggles to create jobs, recover from a housing bubble induced by the Federal Reserve’s easy-money policies, stop rising gasoline prices, and restore fiscal responsibility to U.S. government’s budget, Forbes insisted.

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« Reply #32 on: May 16, 2011, 11:26:13 am »

http://www.huffingtonpost.com/stephen-zarlenga/reducing-us-debt-and-crea_b_857230.html

Reducing U.S. Debt and Creating Jobs Through Public Control of Our Money System

by Stephen Zarlenga
TheHuffingtonPost.com
May 3, 2011

Coauthored by Greg Coleridge

For all the boisterous talk and debate by Congressional leaders of both parties and the President about the many ways to reduce our nation's deficit and debt while maintaining vital services and programs, there continues to be a roaring silence about a solution that has nothing to do with the budget. It has to do, rather, with our nation's monetary system.

Be it for ignorance or by intention, few federal elected officials have examined how a change in the way money in our nation is created and issued could reduce our nation's deficit and debt and, in doing so, increase millions of vital jobs to transform our economy.

One of the few exceptions is Rep. Dennis Kucinich (D-OH), who during the last Congressional session introduced H.R. 6550, The National Emergency Employment Defense Act. A revised version is expected to be soon reintroduced. Americans would be wise to rally behind it.

The basis of the bill are three essential monetary measures proposed by the American Monetary Institute in their American Monetary Act (AMA). The AMA's recommendations are based on decades of research and centuries of experience; are designed to end the current fiscal crisis in a just and sustainable way, and are aimed to place the U.S. money system under our constitutional system of checks and balances.

The three essential measures include:

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« Reply #33 on: May 16, 2011, 11:27:31 am »

http://www.monetary.org/faq.html

Twenty Frequently Asked Questions on The American Monetary Act (AMA)

(August 8, 2009)

For more background, see The Lost Science of Money (LSM) by Stephen Zarlenga, available at our website.

1) Won't the government creating new money for infrastructure and other expenses cause inflation?

No. While this is an important concern, some of it is anti-governmental propaganda and it need not cause inflation, depending on where the new money goes, for example:

When new money is used to create real wealth, such as goods and services and the $2.2 trillion worth of public infrastructure building and repair the engineers tell us is needed over the next 5 years, there need not be inflation because real things of real value are being created at the same time as the money, and the existence of those real values for living, keeps prices down.

If it goes into warfare or bubbles (real estate/Wall Street/etc.) it would create inflationary bubbles with no real production of goods and services. That is the history of private control over money creation. It must end now. Government tends to direct resources more into areas of concern for the whole nation, such as infrastructure, health care, education, etc. The AMA Title 5 specifies infrastructure items including human infrastructure of health care and education to focus on.

Also remember, the American Monetary Act eliminates ‘fractional reserve banking’ which has been one of the main causes of inflation. And remember new money must be introduced into circulation as the population and economy grow or is improved, or we’d have deflation.

2) How can we trust government with the power to create money? – Won’t they go wild (and again cause inflation)? Don’t you know that government can’t do anything right?

Two Points:

A. The U.S. Constitution binds government to represent the interests of the American people – “to promote the General Welfare” and empowers our Federal Government to create, issue and regulate our money (Article I, Section 8, Clause 5). We must hold our officeholders responsible to the laws. Do you want us to deny the Constitution? In favor of who? Enron? Bear Stearns? J.P. Morgan? Goldman Sachs? Lehman Brothers? Please get real! Our choice is to let those pirates continue to control our money system or to intelligently constitute the MONEY POWER within our government.

Under the American Monetary Act, the Congress, the President and the Board of the Monetary Authority will all be responsible if any inflation or deflation takes place, and the people will know that they are responsible. They are specifically directed to avoid policies that are either inflationary or deflationary.

Do you really trust the “ENRONS” to dominate our money? Look how they have abused that power! And Yes Damn it! Enron was on the Board of the Dallas Federal Reserve Bank!

B. Finally and most importantly, an examination of history, despite the current prejudice and massive propaganda waged against government, shows that government control of money has a far superior historical record to private control over money systems. See the AMA brochure, and the LSM, Chapter 16. History shows that government has a far superior record in controlling the money system than private money creators have. And Yes, that includes the Continental Currency, The Greenbacks, and even the German hyperinflation; which by the way took place under a completely privatized German central bank! The German hyperinflation is really an example of a private money disaster.

The Lost Science of Money book, chapter 12, uncovers the beginnings of the attack on government and found it started with Adam Smith himself in an attempt to block moves to take back the monetary power from the then private Bank of England, and put it back into government, which had done a good job in monarchical management of the money system, with only one exception under Henry VIII.

3) Why should we give the government even more power?

Because our money system belongs to society as a whole. It is too important to trust to unrepresentative and unaccountable private hands, preoccupied with private gain, with little regard for the detrimental consequences of their actions on the country, and outside our system of checks and balances. Just look what they have done!

4) How can we prevent government from abusing its power once it can create money directly?

The same way we prevent it from abusing any power, by upholding the rule of law and by participating in democratic political processes; and through reasonable structural limits.

5) Should we let private banks keep some part of the money creation privilege?

Absolutely not! History shows that the private interests, if given any privileged power over money, eventually undermine the public interest, and take over the whole thing. We know this from historical case studies in at least 4 major historical situations – the U.S. “Greenbacks”, The nationalization of the Bank of England, and the Canadian and New Zealand monetary experience. Anyone who proposes allowing the banks to keep any part of the power to create money are either ignorant of monetary history or are shilling for the banks.

Under the American Monetary Act we do have the best of both worlds. We keep the benefits of having the professionalism and expertise of a competitive banking system in the private sector, but we take away the dangers of having them dominate our monetary and public policies with their narrow short term profit focus, by removing their privilege to create money. Ultimately this is a question of morality. No such special privileges can be allowed to particular groups; especially the monetary privilege, which confers power and wealth on them at the expense of the rest of society.

6) Well then, should we nationalize all the banking business?

What kind of “Kool Aid” are you drinking and who gave it to you? The banking business is obviously not a proper function of government; but providing, controlling and overseeing the monetary system is definitely a function of government. No private party can do that properly. Markets have utterly failed to do that. They have concentrated wealth, have harmed the average American and now broken down entirely, except for assistance from our government. Who would keep money in banks today, except for the FDIC guarantees?

But banks should remain privately owned, because when reasonably structured, they perform very necessary functions, and can do it professionally and conveniently. Who within government would run the banking business? Bankers however, have nothing in their training, experience or their souls that qualifies them as masters of the universe – to control our society as the money power confers upon them.

Banks should act as intermediaries for their clients who want to get a return on a deposit or similar investment; and their clients who are willing to pay for the use of that money. But banks must not create the money. The money system belongs to the Nation and our Federal Government must be the only entity with the power to issue and regulate our money as the U.S. Constitution already mandates. We nationalize the monetary system, but don’t nationalize the individual banks. That would be a dangerous step towards fascism. Private enterprise is a powerful mechanism that can produce excellent results when properly structured and regulated. That is an important American “theme!” The AMA does not throw out the baby with the bathwater! But it most certainly gets rid of the bathwater, which is private money creation. That acts like a private tax on the rest of us!

We regard such nationalization proposals (nationalize all banking) either as an inability to understand the difference between nationalizing the money system and nationalizing the private banking business, OR as possibly attempts to actually block proper monetary reform, because you’d have to change the essence of America in order to do it. So it distracts from real reform. The AMA reform that we advocate actually puts into place the system that most people think we have now! People think our money is provided by government. They erroneously believe that the Federal Reserve is already a part of our government. They think the banks are lending money which has been deposited with them, not that they are creating that money when they make loans. Under the AMA many of those things people already believe about money and banking actually become true! It’s a natural fit with already existing attitudes.

7) Doesn’t your AMA proposal merely continue with a fiat money system? Shouldn’t we be using gold and silver instead? Wouldn’t that provide a more stable money?

Our system is absolutely a fiat money system. But that’s a good thing, not a bad one. In reaction to the many problems caused by our privatized fiat money system over the decades, many Americans have blamed fiat money for our troubles, and they support using valuable commodities for money.

But Folks! The problem is not fiat money, because all advanced money is a fiat of the Law! The problem is privately issued fiat money. Then that is like a private tax on all of us imposed by those with the privilege to privately issue fiat money. Private fiat money must now stop forever!

Aristotle gave us the science of money in the 4th century B.C. which he summarized as: “Money exists not by nature but by law!” So Aristotle accurately defines money as a legal fiat.

As for gold, most systems pretending to be gold systems have been frauds which never had the gold to back up their promises. And remember if you are still in a stage of trading things (such as gold) for other things, you are still operating in some form of barter system, not a real money system, and therefore not having the potential advantages as are available through the American Monetary Act!

And finally as regards gold and silver: Please do not confuse a good investment with a good money system. From time to time gold and silver are good investments. However you want very different results from an investment than you want from a money. Obviously you want an investment to go up and keep going up. But you want money to remain fairly stable. Rising money would mean that you’d end up paying your debts in much more valuable money. For example the mortgage on your house would keep rising if the value of money kept rising.

Also, contrary to prevailing prejudice, gold and silver have both been very volatile and not stable at all. Just check out the long term gold chart.

8} How can a bank lend money if they have to keep 100% reserves?

The 100% reserve provision applies only to checking accounts. This question results from economists classifying our AMA as a “100% reserve” plan, as the Chicago Plan was known. But our plan fundamentally reforms the private credit system, replacing it with a government money system. The accounting rules are changed.

Banks will be encouraged to continue their loan activities by lending money that has been deposited with them in savings and time deposit accounts; or lending their capital that has been invested with them. It is in the checking account departments that the banks presently create money when they make loans in a fractional reserve system. This will be stopped by new bank accounting rules. Making loans from savings account is a different matter, because real money, not credit will have been transfered into such accounts, and loaning that out does not create new money or give the bank any seigniorage, that belongs to our society. Some money loaned out of a savings type account might later get redeposited into another savings account and again be reloaned, but its the same money, not any newly created money, and will reflect that way on the bank's books. This is sufficient to solve the problem of banks creating "purchasing media" by loaning their credit which then functions as money in the present system. (for details see the wording on pages 8, 9, and 14 of the American Monetary Act at http://www.monetary.org/amacolorpamphlet.pdf)

Various types of accounts will have differing requirements: e.g. matching time deposits to loan durations, lessening the “borrowing short term and lending long term” problem. Money market and mutual fund type accounts can be very flexible. The principle applied will be to encourage good intermediation of money between clients who want a return on their money and those willing to pay for using it; but will prohibit money creation. Checking accounts will become a warehousing service, for which fees are charged. Good accountancy can achieve these results. (Please see # 9 below for more info on the many sources of money for these accounts.)

9) If banks are no longer allowed to create money, where will banks get enough money to fill client’s needs for money under the American Monetary Act?

We devote substantial space to this question because economists so used to confusing credit and money have to get used to the idea of money instead of credit. Usually they want to know how the AMA creates money within the present bank accounting framework. Well it does not! The AMA will change the accounting rules to deal with money not credit.

There will be several substantial sources of money for banks to satisfy their clients money needs:

a) Title III of the AMA converts through an accounting procedure, the existing credit the banks have circulated through loans (about $6 to 7 trillion, roughly the existing “money” supply) into US money, no longer bank credit. That process will indebt the banks to the government for the amount converted over and above their capital. At present when bank loans are repaid to the banks by their customers, those credits/debts go out of circulation/out of existence and the credit money supply contracts as loans are repaid, until they make new loans. But under the American Monetary Act, since it’s now money, those monies will not go out of circulation the way the credits did. They are repaid to the government in satisfaction of the debt the banks incurred in converting them from credit to money. That goes into a pool which can be used by Congress for the items in Title V of the AMA (as described on pages 8 and 9), or it can even be re-lent to the banks at an adjusted interest rate. Note: this action de-leverages the banks, but does not reduce the money supply.

b) Probably the most important source of funds for bank lending will be the continuing government expenditures, over and above tax receipts, such as social security and other payments by government on the items in Title V of the American Monetary Act. Also the engineers tell us that $2.2 trillion is now necessary to make our infrastructure safe over the next 5 years. That’s $440 billion new money per year. Also the health care and education provisions, and grants to states in Title V can be introduced as new money. ALL these will eventually be deposited into various types of bank accounts where provisions of the Act will allow this money to be lent or invested. The banks will be lending and placing this money that has been deposited with them; not lending credit they create, masquerading as money. They will have to compete to attract such deposits from citizens and companies.

c) Title II of the AMA specifies the repayment of US instruments of indebtedness (bonds/notes/etc). Instead of being rolled over as at present, new US monies will be paid to the bondholders as they become due. Those people/institutions will be looking for places to invest that money. One place would be in bank stock, which is a source of lending funds for banks. Of the $5 to 7 trillion in US bonds and notes privately held, about 3.5 trillion is due within 1 to 5 years; .72 trillion is due in 5 to 10 years; .35 trillion is due in 10 to 20 years. All these amounts will represent newly created US money and will eventually find their way to becoming new lend-able or investable bank deposits and even investments in banks.

d) Finally the AMA does not allow the banks to decide their own leverage situations. The Act essentially eliminates most leverage from the banking system in a healthy, non deflationary way. That will be good. They will no longer be able to pretend they were “banking” when they made bad loans overextending their positions and creating bubbles, in order to grab huge bonuses on imaginary profits. In other words banks will no longer be able to make loans in a bubble creation process. That will be a big improvement!

10) How will the U.S. Treasury create the money?"

The same way the Federal Reserve does now, as simple account entries, but as income, without the accompanying debt obligations. It’s described in the AMA, Sec. 103 NEGATIVE FUND BALANCES: The Secretary of the Treasury shall directly issue United States Money to account for any differences between Government appropriations authorized by Congress under law and available Government receipts.

11) Is there any chance the AMA could eliminate the federal income tax?

It “could,” and though that’s not likely in the near future, it is the direction the AMA goes in. Thanks to the immense savings our government will experience through control over its money system, taxation should decline substantially for middle and lower income groups. It should be raised for the super rich.

In addition the AMA should directly lead to substantial reductions in interest rates, because as the US pays off its national debt in money rather than rolling it over, those receiving those payments will be looking for places to loan and invest those funds. Interest rates should drop substantially.

12) Why does the American Monetary Act have an 8% maximum interest rate, including all fees?

Because before 1980/1981, forty nine States had “anti-usury” laws which limited normal interest rates to a maximum of between 6% and 10% p.a. (one state had 12%). The American Monetary Act takes the middle of this range to represent a restoration of the interest rate limits prevailing across the country prior to 1980/1981. See page 9 of the AMA.

13) Won’t you be breaking the sanctity of contracts when you convert the existing bank credit already in circulation, into U.S. Money?
 
No. First of all a contract requires understanding of the terms by all parties to it, and that certainly did not exist. But more likely it will be viewed as very acceptable by the banks, considering the security it confers on banking, especially when the alternative is going broke. There would be no reason to extend the legal tender privilege (acceptance for taxes) to the credits of any disagreeing banks.

14) How would the ACT affect our position with China?

The ACT would have a number of positive effects on Chinese - American Trade. Particularly it would encourage the Chinese to use more of their dollar earnings to really trade with us rather than just sell to us, and then invest their earnings in US bonds as at present. More details forthcoming!

15) What about other countries, and international systems such as the IMF (International Monetary Fund) and the BIS (Bank for International Settlements)?
 
We’d expect other countries to follow quickly in our footsteps to each obtain the advantages of issuing their own national monies. The United Nations is already putting forward suggestions that member states shift now to nationally created, debt free; interest free moneys. They are way ahead of the US Congress just now. A much reformed IMF, already organized under United Nations Article 57; #3, will see a greatly expanded role for the SDR and more responsibility for international accounts clearing as well as real assistance to member states, rather than acting as a destructive collection agent for the big banks. The role and importance of the BIS should be rapidly reduced, and perhaps eliminated. Just look at the mess created under their guidance and rules. Some job they did!

16) The latest craze “question” making the rounds in the organized disinformation campaign that is attacking our national psychology, is not a question at all, but a vicious assertion:

“Government is so corrupt and so much in the hands of the worst people and they won’t ever let you do this reform! Or any good thing”


This popped up simultaneously from LA to Seattle. I’ve told friends to put that stupidity out of their minds. This assertion, designed to discourage, is a variant of the Sun Tzu method of winning the battle by convincing the opposition not to fight because they can’t win. It reminds me of the cyborg "Borg Wars" line “Resistance is futile” from the Star Trek New Generation series. Don’t fall for it!

As our people suffer more deeply from the unfortunate monetary/banking system, any remaining bad elements in government can and must be cleansed. That’s what we’ll do instead of whining about it. Become a part of the solution not a cry-baby! Get up and fight for your family and nation!

“Put a stone in your stomach!” is an old phrase of Zulu warriors when summoning courage. Earlier tonight I saw an electric message on a local banks billboard:

“If you think you can, you can. If you think you can’t, you can’t!”

Yeah! We never said all bankers are evil, but there’s a very bad controlling element among them.

17) Why didn’t nationalized money systems work in the former Soviet countries?

Because their monetary systems were still controlled from within their banking systems, using the same faulty methods. The 1966 Federal Reserve publication Money, Banking, and Credit in Eastern Europe states:

    “In the communist countries, money is created in the same way as in capitalist countries – through the extension of bank credit. This fact is not generally recognized or accepted in the various countries of Eastern Europe. The result is that a good deal of confusion emerges from their economic literature with regard to the nature of money and the role of the monetary process and the function of the banking system.… Since Marx identified money with gold, the official theory holds paper money to be merely a substitute for gold and ignores deposit money.” (p. 42-43)

Sound familiar? Their politicians and economists were as dumb as ours!

18) Won’t we get hyper-inflation like Zimbabwe?

No. For governments or anyone to issue money, there has to be a functioning society with enough rule of law and physical and social infrastructure to support the creation of values for living. Zimbabwe unfortunately does not have those pre-requisites; thus their society is falling apart.

19) Should we have the individual 50 states own banks? Like North Dakota?

More Kool-Aid and distractions…Look folks the objective is to get the banks out of the Money creation field, not to get the government into banking!! A highly distracting idea that does not in any way accomplish any necessary reform! Instead it gives our fraudulent banking system a moral free pass! It is mind boggling that progressive people fall for this. (see the home page for an in depth article by Jamie Walton on this)

20) How about local currencies?

Local currency movements can help people to understand the money problem but it would be an illusion to think that local currencies would stop a mismanaged, unjust national system from unfairly concentrating wealth; from being a motivating factor for warfare; from financing harmful polluting activities even when saner alternatives exist. Understand also that a national currency properly placed under governmental control gives much greater local control than the present national currency under private control, because locally, our voting power can exert influence on national policy.

And remember the principle of subsidiarity put forward by E.F. Schumacher. His slogan was not “small is beautiful.” What E.F. Shumacher actually said is what the AMI is saying: Use an “Appropriate scale”- do things on an appropriate scale. That dominant scale in the currency area is national and will continue to be for the foreseeable future. The appropriateness of acting on the national level must be recognized.
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« Reply #34 on: May 16, 2011, 11:29:06 am »

INFLATION FEARS: REAL OR HYSTERIA?

Ellen Brown
May 10th, 2011
www.webofdebt.com/articles/inflation_fears.php

Debate continues to rage between the inflationists who say the money supply is increasing, dangerously devaluing the currency, and the deflationists who say we need more money in the economy to stimulate productivity. The debate is not just an academic one, since the Fed’s monetary policy turns on it and so does Congressional budget policy.

Inflation fears have been fueled ever since 2009, when the Fed began its policy of “quantitative easing” (effectively “money printing”). The inflationists point to commodity prices that have shot up. The deflationists, in turn, point to the housing market, which has collapsed and taken prices down with it. Prices of consumer products other than food and fuel are also down. Wages have remained stagnant, so higher food and gas prices mean people have less money to spend on consumer goods. The bubble in commodities, say the deflationists, has been triggered by the fear of inflation. Commodities are considered a safe haven, attracting a flood of “hot money” -- investment money racing from one hot investment to another.

To resolve this debate, we need the actual money supply figures. Unfortunately, the Fed quit reporting M3, the largest measure of the money supply, in 2006.

Fortunately, figures are still available for the individual components of M3. Here is a graph that is worth a thousand words. It comes from ShadowStats.com (Shadow Government Statistics or SGS) and is reconstructed from the available data on those components. The red line is the M3 money supply reported by the Fed until 2006. The blue line is M3 after 2006.


The chart shows that the overall U.S. money supply is shrinking, despite the Fed’s determination to inflate it with quantitative easing. Like Japan, which has been doing quantitative easing (QE) for a decade, the U.S. is still fighting deflation.

Here is another telling chart – the M1 Money Multiplier from the Federal Reserve Bank of St. Louis:


Barry Ritholtz comments, “All that heavy breathing about the flood of liquidity that was going to pour into the system. Hyper-inflation! Except not so much, apparently.” He quotes David Rosenberg: “Fully 100% of both QEs by the Fed merely was new money printing that ended up sitting idly on commercial bank balance sheets. Money velocity and money multiplier are stagnant at best.” If QE1 and QE2 are sitting in bank reserve accounts, they’re not driving up the price of gold, silver, oil and food; and they’re not being multiplied into loans, which are still contracting.

The part of M3 that collapsed in 2008 was the “shadow banking system,” including money market funds and repos. This is the non-bank system in which large institutional investors that have substantially more to deposit than $250,000 (the FDIC insurance limit) park their money overnight. Economist Gary Gorton explains [.pdf]:

    The financial crisis . . . was due to a banking panic in which institutional investors and firms refused to renew sale and repurchase agreements (repo) – short-term, collateralized, agreements that the Fed rightly used to count as money. Collateral for repo was, to a large extent, securitized bonds. Firms were forced to sell assets as a result of the banking panic, reducing bond prices and creating losses. There is nothing mysterious or irrational about the panic. There were genuine fears about the locations of subprime risk concentrations among counterparties. This banking system (the “shadow” or “parallel” banking system)-- repo based on securitization -- is a genuine banking system, as large as the traditional, regulated banking system. It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend, and credit, which is essential for job creation, will not be created.

Before the banking crisis, the shadow banking system composed about half the money supply; and it still hasn’t been restored. Without the shadow banking system to fund bank loans, banks will not lend; and without credit, there is insufficient money to fund businesses, buy products, or pay salaries or taxes. Neither raising taxes nor slashing services will fix the problem. It needs to be addressed at its source, which means getting more credit (or debt) flowing in the local economy.

When private debt falls off, public debt must increase to fill the void. Public debt is not the same as household debt, which debtors must pay off or face bankruptcy. The U.S. federal debt has not been paid off since 1835. Indeed, it has grown continuously since then, and the economy has grown and flourished along with it.

As explained in an earlier article, the public debt is the people’s money. The government pays for goods and services by writing a check on the national bank account. Whether this payment is called a “bond” or a “dollar,” it is simply a debit against the credit of the nation. As Thomas Edison said in the 1920s:

    If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way. . . . It is absurd to say our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people.

That is true, but Congress no longer seems to have the option of issuing dollars, a privilege it has delegated to the Federal Reserve. Congress can, however, issue debt, which as Edison says amounts to the same thing. A bond can be cashed in quickly at face value. A bond is money, just as a dollar is.

An accumulating public debt owed to the IMF or to foreign banks is to be avoided, but compounding interest charges can be eliminated by financing state and federal deficits through state- and federally-owned banks. Since the government would own the bank, the debt would effectively be interest-free. More important, it would be free of the demands of private creditors, including austerity measures and privatization of public assets.

[Continued...]
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« Reply #35 on: July 06, 2011, 01:52:34 pm »

http://globalresearch.ca/index.php?context=va&aid=25080

The Federal Reserve Cartel: The Eight Families

by Dean Henderson



Global Research
June 1, 2011

(Part one of a four-part series)

The Four Horsemen of Banking (Bank of America, JP Morgan Chase, Citigroup and Wells Fargo) own the Four Horsemen of Oil (Exxon Mobil, Royal Dutch/Shell, BP Amoco and Chevron Texaco); in tandem with Deutsche Bank, BNP, Barclays and other European old money behemoths.  But their monopoly over the global economy does not end at the edge of the oil patch.


According to company 10K filings to the SEC, the Four Horsemen of Banking are among the top ten stock holders of virtually every Fortune 500 corporation.[1]

So who then are the stockholders in these money center banks?

This information is guarded much more closely.  My queries to bank regulatory agencies regarding stock ownership in the top 25 US bank holding companies were given Freedom of Information Act status, before being denied on “national security” grounds.  This is rather ironic, since many of the bank’s stockholders reside in Europe.

One important repository for the wealth of the global oligarchy that owns these bank holding companies is US Trust Corporation - founded in 1853 and now owned by Bank of America.  A recent US Trust Corporate Director and Honorary Trustee was Walter Rothschild.  Other directors included Daniel Davison of JP Morgan Chase, Richard Tucker of Exxon Mobil, Daniel Roberts of Citigroup and Marshall Schwartz of Morgan Stanley. [2]

J. W. McCallister, an oil industry insider with House of Saud connections, wrote in The Grim Reaper that information he acquired from Saudi bankers cited 80% ownership of the New York Federal Reserve Bank- by far the most powerful Fed branch- by just eight families, four of which reside in the US.  They are the Goldman Sachs, Rockefellers, Lehmans and Kuhn Loebs of New York; the Rothschilds of Paris and London; the Warburgs of Hamburg; the Lazards of Paris; and the Israel Moses Seifs of Rome.

CPA Thomas D. Schauf corroborates McCallister’s claims, adding that ten banks control all twelve Federal Reserve Bank branches.  He names N.M. Rothschild of London, Rothschild Bank of Berlin, Warburg Bank of Hamburg, Warburg Bank of Amsterdam, Lehman Brothers of New York, Lazard Brothers of Paris, Kuhn Loeb Bank of New York, Israel Moses Seif Bank of Italy, Goldman Sachs of New York and JP Morgan Chase Bank of New York.  Schauf lists William Rockefeller, Paul Warburg, Jacob Schiff and James Stillman as individuals who own large shares of the Fed. [3]  The Schiffs are insiders at Kuhn Loeb.  The Stillmans are Citigroup insiders, who married into the Rockefeller clan at the turn of the century.

Eustace Mullins came to the same conclusions in his book The Secrets of the Federal Reserve, in which he displays charts connecting the Fed and its member banks to the families of Rothschild, Warburg, Rockefeller and the others. [4]

The control that these banking families exert over the global economy cannot be overstated and is quite intentionally shrouded in secrecy.  Their corporate media arm is quick to discredit any information exposing this private central banking cartel as “conspiracy theory”.  Yet the facts remain.

The House of Morgan
 
The Federal Reserve Bank was born in 1913, the same year US banking scion J. Pierpont Morgan died and the Rockefeller Foundation was formed.  The House of Morgan presided over American finance from the corner of Wall Street and Broad, acting as quasi-US central bank since 1838, when George Peabody founded it in London.

Peabody was a business associate of the Rothschilds.  In 1952 Fed researcher Eustace Mullins put forth the supposition that the Morgans were nothing more than Rothschild agents.  Mullins wrote that the Rothschilds, “…preferred to operate anonymously in the US behind the facade of J.P. Morgan & Company”. [5]

Author Gabriel Kolko stated, “Morgan’s activities in 1895-1896 in selling US gold bonds in Europe were based on an alliance with the House of Rothschild.” [6]

The Morgan financial octopus wrapped its tentacles quickly around the globe.  Morgan Grenfell operated in London.  Morgan et Ce ruled Paris.  The Rothschild's Lambert cousins set up Drexel & Company in Philadelphia.

The House of Morgan catered to the Astors, DuPonts, Guggenheims, Vanderbilts and Rockefellers.  It financed the launch of AT&T, General Motors, General Electric and DuPont.  Like the London-based Rothschild and Barings banks, Morgan became part of the power structure in many countries.

By 1890 the House of Morgan was lending to Egypt’s central bank, financing Russian railroads, floating Brazilian provincial government bonds and funding Argentine public works projects.  A recession in 1893 enhanced Morgan’s power.  That year Morgan saved the US government from a bank panic, forming a syndicate to prop up government reserves with a shipment of $62 million worth of Rothschild gold. [7]

Morgan was the driving force behind Western expansion in the US, financing and controlling West-bound railroads through voting trusts.  In 1879 Cornelius Vanderbilt’s Morgan-financed New York Central Railroad gave preferential shipping rates to John D. Rockefeller’s budding Standard Oil monopoly, cementing the Rockefeller/Morgan relationship.

The House of Morgan now fell under Rothschild and Rockefeller family control.  A New York Herald headline read, “Railroad Kings Form Gigantic Trust”.  J. Pierpont Morgan, who once stated, “Competition is a sin”, now opined gleefully, “Think of it.  All competing railroad traffic west of St. Louis placed in the control of about thirty men.”[8]

Morgan and Edward Harriman’s banker Kuhn Loeb held a monopoly over the railroads, while banking dynasties Lehman, Goldman Sachs and Lazard joined the Rockefellers in controlling the US industrial base. [9]

In 1903 Banker’s Trust was set up by the Eight Families.  Benjamin Strong of Banker’s Trust was the first Governor of the New York Federal Reserve Bank.  The 1913 creation of the Fed fused the power of the Eight Families to the military and diplomatic might of the US government.  If their overseas loans went unpaid, the oligarchs could now deploy US Marines to collect the debts.  Morgan, Chase and Citibank formed an international lending syndicate.

[Continued...]
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« Reply #36 on: July 06, 2011, 01:54:32 pm »

http://globalresearch.ca/index.php?context=va&aid=25179

The Federal Reserve Cartel: Freemasons and The House of Rothschild

by Dean Henderson



Global Research
June 8, 2011

(Part two of a four-part series)

In 1789 Alexander Hamilton became the first Treasury Secretary of the United States.  Hamilton was one of many Founding Fathers who were Freemasons.  He had close relations with the Rothschild family which owns the Bank of England and leads the European Freemason movement.  George Washington, Benjamin Franklin, John Jay, Ethan Allen, Samuel Adams, Patrick Henry, John Brown and Roger Sherman were all Masons.


Andrew Hamilton

Roger Livingston helped Sherman and Franklin write the Declaration of Independence. He gave George Washington his oaths of office while he was Grand Master of the New York Grand Lodge of Freemasons. Washington himself was Grand Master of the Virginia Lodge. Of the General Officers in the Revolutionary Army, thirty-three were Masons. This was highly symbolic since 33rd Degree Masons become Illuminated. [1]

Populist founding fathers led by John Adams, Thomas Jefferson, James Madison and Thomas Paine- none of whom were Masons- wanted to completely severe ties with the British Crown, but were overruled by the Masonic faction led by Washington, Hamilton and Grand Master of the St. Andrews Lodge in Boston General Joseph Warren, who wanted to “defy Parliament but remain loyal to the Crown”. St. Andrews Lodge was the hub of New World Masonry and began issuing Knights Templar Degrees in 1769. [2]


General Joseph Warren

All US Masonic lodges are to this day warranted by the British Crown, whom they serve as a global intelligence and counterrevolutionary subversion network. Their most recent initiative is the Masonic Child Identification Program (CHIP). According to Wikipedia, the CHIP programs allow parents the opportunity to create a kit of identifying materials for their child, free of charge. The kit contains a fingerprint card, a physical description, a video, computer disk, or DVD of the child, a dental imprint, and a DNA sample.

The First Continental Congress convened in Philadelphia in 1774 under the Presidency of Peyton Randolph, who succeeded Washington as Grand Master of the Virginia Lodge. The Second Continental Congress convened in 1775 under the Presidency of Freemason John Hancock. Peyton’s brother William succeeded him as Virginia Lodge Grand Master and became the leading proponent of centralization and federalism at the First Constitutional Convention in 1787. The federalism at the heart of the US Constitution is identical to the federalism laid out in the Freemason’s Anderson’s Constitutions of 1723. William Randolph became the nation’s first Attorney General and Secretary of State under George Washington. His family returned to England loyal to the Crown. John Marshall, the nation’s first Supreme Court Justice, was also a Mason. [3]

When Benjamin Franklin journeyed to France to seek financial help for American revolutionaries, his meetings took place at Rothschild banks. He brokered arms sales via German Mason Baron von Steuben. His Committees of Correspondence operated through Freemason channels and paralleled a British spy network. In 1776 Franklin became de facto Ambassador to France. In 1779 he became Grand Master of the French Neuf Soeurs (Nine Sisters) Lodge, to which John Paul Jones and Voltaire belonged. Franklin was also a member of the more secretive Royal Lodge of Commanders of the Temple West of Carcasonne, whose members included Frederick Prince of Whales. While Franklin preached temperance in the US, he cavorted wildly with his Lodge brothers in Europe. Franklin served as Postmaster General from the 1750’s to 1775 - a role traditionally relegated to British spies. [4]

With Rothschild financing Alexander Hamilton founded two New York banks, including Bank of New York. [5] He died in a gun battle with Aaron Burr, who founded Bank of Manhattan with Kuhn Loeb financing. Hamilton exemplified the contempt which the Eight Families hold towards common people, once stating, “All communities divide themselves into the few and the many. The first are the rich and the well born, the others the mass of the people...The people are turbulent and changing; they seldom judge and determine right. Give therefore to the first class a distinct, permanent share of government. They will check the unsteadiness of the second.”[6]

Hamilton was only the first in a series of Eight Families cronies to hold the key position of Treasury Secretary. In recent times Kennedy Treasury Secretary Douglas Dillon came from Dillon Read (now part of UBS Warburg). Nixon Treasury Secretaries David Kennedy and William Simon came from Continental Illinois Bank (now part of Bank of America) and Salomon Brothers (now part of Citigroup), respectively. Carter Treasury Secretary Michael Blumenthal came from Goldman Sachs, Reagan Treasury Secretary Donald Regan came from Merrill Lynch (now part of Bank of America), Bush Sr. Treasury Secretary Nicholas Brady came from Dillon Read (UBS Warburg) and both Clinton Treasury Secretary Robert Rubin and Bush Jr. Treasury Secretary Henry Paulson came from Goldman Sachs. Obama Treasury Secretary Tim Geithner worked at Kissinger Associates and the New York Fed.

Thomas Jefferson argued that the United States needed a publicly-owned central bank so that European monarchs and aristocrats could not use the printing of money to control the affairs of the new nation. Jefferson extolled, “A country which expects to remain ignorant and free...expects that which has never been and that which will never be. There is scarcely a King in a hundred who would not, if he could, follow the example of Pharaoh – get first all the people’s money, then all their lands and then make them and their children servants forever...banking establishments are more dangerous than standing armies. Already they have raised up a money aristocracy.” Jefferson watched as the Euro-banking conspiracy to control the United States unfolded, weighing in, “Single acts of tyranny may be ascribed to the accidental opinion of the day, but a series of oppressions begun at a distinguished period, unalterable through every change of ministers, too plainly prove a deliberate, systematic plan of reducing us to slavery”. [7]

But the Rothschild-sponsored Hamilton’s arguments for a private US central bank carried the day. In 1791 the Bank of the United States (BUS) was founded, with the Rothschilds as main owners. The bank’s charter was to run out in 1811. Public opinion ran in favor of revoking the charter and replacing it with a Jeffersonian public central bank. The debate was postponed as the nation was plunged by the Euro-bankers into the War of 1812. Amidst a climate of fear and economic hardship, Hamilton’s bank got its charter renewed in 1816.

Old Hickory, Honest Abe & Camelot

In 1828 Andrew Jackson took a run at the US Presidency. Throughout his campaign he railed against the international bankers who controlled the BUS. Jackson ranted, “You are a den of vipers. I intend to expose you and by Eternal God I will rout you out. If the people understood the rank injustices of our money and banking system there would be a revolution before morning.”

Jackson won the election and revoked the bank’s charter stating, “The Act seems to be predicated on an erroneous idea that the present shareholders have a prescriptive right to not only the favor, but the bounty of the government...for their benefit does this Act exclude the whole American people from competition in the purchase of this monopoly. Present stockholders and those inheriting their rights as successors be established a privileged order, clothed both with great political power and enjoying immense pecuniary advantages from their connection with government. Should its influence be concentrated under the operation of such an Act as this, in the hands of a self-elected directory whose interests are identified with those of the foreign stockholders, will there not be cause to tremble for the independence of our country in war...controlling our currency, receiving our public monies and holding thousands of our citizens independence, it would be more formidable and dangerous than the naval and military power of the enemy. It is to be regretted that the rich and powerful too often bend the acts of government for selfish purposes...to make the rich richer and more powerful. Many of our rich men have not been content with equal protection and equal benefits, but have besought us to make them richer by acts of Congress. I have done my duty to this country.”[8]

Populism prevailed and Jackson was re-elected. In 1835 he was the target of an assassination attempt. The gunman was Richard Lawrence, who confessed that he was, “in touch with the powers in Europe”. [9]

Still, in 1836 Jackson refused to renew the BUS charter. Under his watch the US national debt went to zero for the first and last time in our nation’s history. This angered the international bankers, whose primary income is derived from interest payments on debt. BUS President Nicholas Biddle cut off funding to the US government in 1842, plunging the US into a depression. Biddle was an agent for the Paris-based Jacob Rothschild. [10]

The Mexican War was simultaneously sprung on Jackson. A few years later the Civil War was unleashed, with London bankers backing the Union and French bankers backing the South. The Lehman family made a fortune smuggling arms to the south and cotton to the north. By 1861 the US was $100 million in debt. New President Abraham Lincoln snubbed the Euro-bankers again, issuing Lincoln Greenbacks to pay Union Army bills.

The Rothschild-controlled Times of London wrote, “If that mischievous policy, which had its origins in the North American Republic, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed, or it will destroy every monarchy on the globe.” [11]

The Euro-banker-written Hazard Circular was exposed and circulated throughout the country by angry populists. It stated, “The great debt that capitalists will see is made out of the war and must be used to control the valve of money. To accomplish this government bonds must be used as a banking basis. We are now awaiting Secretary of Treasury Salmon Chase to make that recommendation. It will not allow Greenbacks to circulate as money as we cannot control that. We control bonds and through them banking issues”.

The 1863 National Banking Act reinstated a private US central bank and Chase’s war bonds were issued. Lincoln was re-elected the next year, vowing to repeal the act after he took his January 1865 oaths of office. Before he could act, he was assassinated at the Ford Theatre by John Wilkes Booth. Booth had major connections to the international bankers. His granddaughter wrote This One Mad Act, which details Booth’s contact with “mysterious Europeans” just before the Lincoln assassination.

Following the Lincoln hit, Booth was whisked away by members of a secret society known as Knights of the Golden Circle (KGC). KGC had close ties to the French Society of Seasons, which produced Karl Marx. KGC had fomented much of the tension that caused the Civil War and President Lincoln had specifically targeted the group. Booth was a KGC member and was connected through Confederate Secretary of State Judah Benjamin to the House of Rothschild. Benjamin fled to England after the Civil War. [12]

Nearly a century after Lincoln was assassinated for issuing Greenbacks, President John F. Kennedy found himself in the Eight Families’ crosshairs. Kennedy had announced a crackdown on off-shore tax havens and proposed increases in tax rates on large oil and mining companies. He supported eliminating tax loopholes which benefit the super-rich. His economic policies were publicly attacked by Fortune magazine, the Wall Street Journal and both David and Nelson Rockefeller. Even Kennedy’s own Treasury Secretary Douglas Dillon, who came from the UBS Warburg-controlled Dillon Read investment bank, voiced opposition to the JFK proposals. [13]

Kennedy’s fate was sealed in June 1963 when he authorized the issuance of more than $4 billion in United States Notes by his Treasury Department in an attempt to circumvent the high interest rate usury of the private Federal Reserve international banker crowd. The wife of Lee Harvey Oswald, who was conveniently gunned down by Jack Ruby before Ruby himself was shot, told author A. J. Weberman in 1994, “The answer to the Kennedy assassination is with the Federal Reserve Bank. Don’t underestimate that. It’s wrong to blame it on Angleton and the CIA per se only. This is only one finger on the same hand. The people who supply the money are above the CIA”. [14]

Fueled by incoming President Lyndon Johnson’s immediate escalation of the Vietnam War, the US sank further into debt. Its citizens were terrorized into silence. If they could kill the President they could kill anyone.

The House of Rothschild

The Dutch House of Orange founded the Bank of Amsterdam in 1609 as the world’s first central bank. Prince William of Orange married into the English House of Windsor, taking King James II’s daughter Mary as his bride. The Orange Order Brotherhood, which recently fomented Northern Ireland Protestant violence, put William III on the English throne where he ruled both Holland and Britain. In 1694 William III teamed up with the UK aristocracy to launch the private Bank of England.

The Old Lady of Threadneedle Street- as the Bank of England is known- is surrounded by thirty foot walls. Three floors beneath it the third largest stock of gold bullion in the world is stored. [15]

The Rothschilds and their inbred Eight Families partners gradually came to control the Bank of England. The daily London gold “fixing” occurred at the N. M. Rothschild Bank until 2004. As Bank of England Deputy Governor George Blunden put it, “Fear is what makes the bank’s powers so acceptable. The bank is able to exert its influence when people are dependent on us and fear losing their privileges or when they are frightened.”[16]

Mayer Amschel Rothschild sold the British government German Hessian mercenaries to fight against American Revolutionaries, diverting the proceeds to his brother Nathan in London, where N.M. (Nathan and Mayer) Rothschild & Sons was established. Mayer was a serious student of Cabala and launched his fortune on money embezzled from William IX- royal administrator of the Hesse-Kassel region and a prominent Freemason.

Rothschild-controlled Barings bankrolled the Chinese opium and African slave trades. It financed the Louisiana Purchase. When several states defaulted on its loans, Barings bribed Daniel Webster to make speeches stressing the virtues of loan repayment. The states held their ground, so the House of Rothschild cut off the money spigot in 1842, plunging the US into a deep depression. It was often said that the wealth of the Rothschilds depended on the bankruptcy of nations. Mayer Amschel Rothschild once said, “I care not who controls a nation’s political affairs, so long as I control her currency”.

[Continued...]
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« Reply #37 on: September 26, 2011, 03:29:16 pm »

http://www.prisonplanet.com/the-money-masters-behind-the-global-debt-crisis.html

The Money Masters: Behind the Global Debt Crisis

Adrian Salbuchi
Global Research
Sept 26, 2011

In the US, we see untold millions suffering from the impact of mass foreclosures and unemployment; in Greece, Spain, Portugal, Ireland, and Italy, stringent austerity measures are imposed upon the whole population; all coupled with major banking collapses in Iceland, the UK and the US, and indecent bail-outs of “too-big-to-fail” bankers (Newspeak for too powerful to fail).

No doubt, the bulk of the responsibility for these debacles falls squarely on the shoulders of caretaker governments in these countries that are subordinated to Money Power interests and objectives. In country after country, that comes together with embedded corruption, particularly evident today in the UK, Italy and the US.

As we assess some of the key components of today’s Global Financial, Currency and Banking Model in this article, readers will hopefully get a better understanding as to why we are all in such a crisis, and that it will tend to get much worse in the months and years to come.

Foundations of a Failed and False Model

Hiding behind the mask of false “laws” allegedly governing “globalised markets and economies,” this Financial Model has allowed a small group of people to amass and wield huge and overwhelming power over markets, corporations, industries, governments and the global media. The irresponsible and criminal consequences of their actions are now clear for all to see.

The “Model” we will briefly describe, falls within the framework of a much vaster Global Power System that is grossly unjust and was conceived and designed from the lofty heights of private geopolitical and geo-economic[1] planning centres that function to promote the Global Power Elite’s agenda as they prepare their “New World Order” – again, Newspeak for a Coming World Government.[2]

Specifically, we are talking about key think tanks like the Council on Foreign Relations, the Trilateral Commission, the Bilderberg Group, and other similar entities such as the Cato Institute (Monetary Issues), American Enterprise Institute and the Project for a New American Century that conform an intricate, solid, tight and very powerful network, engineering and managing New World Order interests, goals and objectives.

Writing from the stance of an Argentine citizen, I admit we have some “advantages” over the citizens of industrialised countries as the US, UK, European Union, Japan or Australia, in that over the last few decades we have had direct experience of successive catastrophic national crises emanating from inflation, hyper-inflation, systemic banking collapse, currency revamps, sovereign debt bond mega-swaps, military coups and lost wars…

Finance vs the Economy

The Financial system (i.e., a basically unreal Virtual, symbolic and parasitic world), increasingly functions in a direction that is contrary to the interest of the Real Economy (i.e., the Real and concrete world of work, production, manufacturing, creativity, toil, effort and sacrifice done by real people). Over the past decades, Finance and the Economy have gone their totally separate and antagonistic ways, and no longer function in a healthy and balanced relationship that prioritises the Common Good of We the People. This huge conflict between the two can be seen, amongst other places, in today’s Financial and Economic System, whose main support lies in the Debt Paradigm, i.e., that nothing can be done unless you first have credit, financing and loans to do it. Thus, the Real Economy becomes dependent on and distorted by the objectives, interests and fluctuations of Virtual Finance.[3]

Debt-Based System

The Real Economy should be financed with genuine funds; however with time, the Global Banking Elite succeeded in getting one Sovereign Nation-State after another to give up its inalienable function of supplying the correct quantity of National Currency as the primary financial instrument to finance the Real Economy. That requires decided action through Policies centred on promoting the Common Good of We The People in each country, and securing the National Interest against the perils posed by internal and external adversaries.

Thus, we can better understand why the financial “law” that requires central banks to always be totally “independent” of Government and the State has become a veritable dogma. This is just another way of ensuring that central banking should always be fully subordinated to the interests of the private banking over-world – both locally in each country, as well as globally.

We find this to prevail in all countries: Argentina, Brazil, Japan, Mexico, the European Union and in just about every other country that adopts so-called “Western” financial practice. Perhaps the best (or rather, the worst) example of this is the United States where the Federal Reserve System is a privately controlled institution outright, with around 97% of its shares being owned by the member banks themselves (admittedly, it does have a very special stock scheme), even though the bankers running “Fed” do everything they can to make it appear as if it is a “public” entity operated by Government, something that it is definitely not.

One of the Global Banking Over-world’s permanent goals is – and has been – to maintain full control over all central banks in just about every country, in order to be able to control their public currencies.[4] This, in turn, allows them to impose a fundamental (for them) condition whereby there is never the right quantity of public currency to satisfy the true demand and needs of the Real Economy. That is when those very same private banks that control central banking come on scene to “satisfy the demand for money” of the Real Economy by artificially generating private bank money out of nothing. They call it “credits and loans” and offer to supply it to the Real Economy, but with an “added value” (for them): (a) they will charge interest for them (often at usury levels) and, (b) they will create most of that private bank money out of thin air through the fractional lending system.

At a Geo-economic level, this has also served to generate huge and unnecessary public sovereign debts in country after country all over the world. Argentina is a good example, whose Caretaker Governments are systematically ignorant and unwilling to use one of the sovereign state’s key powers: the issuance of high power non-interest generating Public Money (see below for a more detailed definition). Instead, Argentina has allowed IMF (International Monetary Fund) so-called “recipes” that reflect the global banking cartel’s own interests to be imposed upon it in fundamental matters like what are the proper functions of its Central Bank, sovereign debt, fiscal policy, and other monetary, banking and financial mechanisms, that are thus systematically used against the Common Good of the Argentine People andagainst the National Interest of the country.

This system and its dreadful results, now and in the past, are so similar in so many other countries – Brazil, Mexico, Greece, Ireland, Iceland, UK, Portugal, Spain, Italy, Indonesia, Hungary, Russia, Ukraine… that it can only reflect a well thought-out and engineered plan, emanating from the highest planning echelons of the Global Power Elite.

Fractional Bank Lending

This banking concept is in use throughout the world’s financial markets, and allows private banks to generate “virtual” Money out of thin air (i.e., scriptural annotations and electronic entries into current and savings accounts, and a vast array of lines of credit), in a ratio that is 8, 10, 30, 50 times or more larger than the actual amount of cash (i.e., public money) held by the bank in its vaults. In exchange for lending this private “money” created out of nothing, bankers collect interest, demand collateral with intrinsic value and if the debtor defaults they can then foreclose on their property or other assets.

The ratio that exists between the amount of Dollars or Pesos in its vaults and the amount of credit private banks generate is determined by the central banking authority which fixes the fractional lending leverage level (which is why controlling the central bank is so vital strategically for private banker cartels). This leverage level is a statistical reserve based on actuarial calculations of the portion of account holders who in normal time go to their banks or ATM machines to withdraw their money in cash (i.e., in public money notes). The key factor here is that this works fine in “normal” times, however “normal” is basically a collective psychology concept intimately linked to what those account holders, and the population at large, perceive regarding the financial system in general and each bank in particular.

So, when for whatever reason, “abnormal” times hit – i.e., every time there are (subtly predictable) periodic crises, bank runs, collapses and panics, which seem to suddenly explode as happened in Argentina in 2001 and as is now happening in the US, UK, Ireland, Greece, Iceland, Portugal, Spain, Italy and a growing number of countries – we see all bank account holders running to their banks to try to get their money out in cash. That’s when they discover that there is not enough cash in their banks to pay, save for a small fraction of account holders (usually insiders “in the know” or “friends of the bankers”).

For the rest of us mortals “there is no more money left,” which means that they must resort to whatever public insurance scheme may or may not be in place (e.g., in the US, the state-owned Federal Deposit Insurance Corporation that “insures” up to US$250,000 per account holder with taxpayer money). In countries like Argentina, however, there is no other option but to go out on the streets banging pots and pans against those ominous, solid and firmly closed bronze bank gates and doors. All thanks to the fraudulent fractional bank lending system.

Investment Banking

In the US, so called “Commercial Banks” are those that have large portfolios of checking, savings and fixed deposit accounts for people and companies (e.g., such main street names as CitiBank, Bank of America, JPMorganChase, etc.; in Argentina, we have Standard Bank, BBVA, Galicia, HSBC and others). Commercial Banks operate with fractional lending leverage levels that allow them to lend out “virtual” dollars or pesos for amounts equal to 6, 8 or 10 times the cash actually held in their vaults; these banks are usually more closely supervised by the local monetary authorities of the country.

A different story, however, we had in the US (and still have elsewhere) with so-called global “Investment Banks” (those that make the mega-loans to corporations, major clients and sovereign states), over which there is much less control, so that their leveraging fractional lending ratios are far, far higher. This greater flexibility is what allowed investment banks in the US to “make loans” by, for example, creating out of thin air 26 “virtual” Dollars for every real Dollar in cash they held in their vaults (i.e., Goldman Sachs), or 30 virtual Dollars (Morgan Stanley), or more than 60 virtual Dollars (Merrill Lynch until just before it folded on 15 Sept 2008), or more than 100 virtual Dollars in the cases of collapsed banks Bear Stearns and Lehman Brothers.[5]

Private Money vs Public Money

At this point in our review, it is essential to very clearly distinguish between two types of Money or Currency:

Private Money – This is “Virtual” Money created out of thin air by the private banking system. It generates interests on loans, which increases the amount of Private money in (electronic) circulation, and spreads and expands throughout the entire economy. We then perceive this as “inflation.” In actual fact, the main cause of inflation in the economy is structural to the interest-bearing fractional lending banking system, even among industrialised countries. The cause of inflation nowadays is not so much the excessive issuance of Public Money by Government as all so-called banking experts would have us believe but, rather, the combined effect of fractional lending and interest on private banking money.

Public Money – This is the only Real Money there is. It is the actual notes issued by the national currency entity holding a monopoly (i.e., the central bank or some such government agency) and, as Public Money, it does not generate interest, and should not be created by anyone other than the State. Anybody else doing this is a counterfeiter and should end up in jail because counterfeiting Public Money is equivalent to robbing the Real Economy (i.e., “we, the working people”) of their work, toil and production capabilities without contributing anything in return in terms of socially productive work. The same should apply to private bankers under the present fractional lending system: counterfeiting money (i.e., creating it out of thin air as a ledger entry or electronic blip on a computer screen) is equivalent to robbing the Real Economy of its work and production capacity without contributing any counter-value in terms of work.

Why We Have Financial Crises

A fundamental concept that lies at the very heart of the present Financial Model can be found in the way huge parasitic profits on the one hand, and catastrophic systemic losses on the other, are effectively transferred to specific sectors of the economy, throughout the entire system, beyond borders and public control.

As with all models, the one we suffer today has its own internal logic which, once properly understood, makes that model predictable. The people who designed it know full well that it is governed by grand cycles having specific expansion and contraction stages, and specific timelines. Thus, they can ensure that in bull market times of growth and gigantic profits (i.e., whilst the system, grows and grows, is relatively stable and generates tons of money out of nothing), all profits are privatised making them flow towards specific institutions, economic sectors, shareholders, speculators, CEO and top management & trader bonuses, “investors”, etc who operate the gears and maintain the whole system properly tuned and working.

However, they also know that – like all roller coaster rides – when you reach the very top, the system turns into a bear market that destabilises, spins out of control, contracts and irremediably collapses, as happened to Argentina in 2001 and to the better part of the world since 2008, then all losses are socialised by making Governments absorb them through the most varied transference mechanisms that dump these huge losses onto the population at large (whether in the form of generalised inflation, catastrophic hyperinflation, banking collapses, bail-outs, tax hikes, debt defaults, forced nationalisations, extreme austerity measures, etc).

The Four-sided Global “Ponzi” Pyramid Scheme

As we know, all good pyramids have four sides, and since the Global Financial System is based on a “Ponzi” Pyramid Scheme, there’s no reason why this particular pyramid should not have four sides as well.

Below is a summary of the Four-side Global “Ponzi” Pyramid Scheme that lies at the core of today’s Financial Model, indicating how these four “sides” function in a coordinated, consistent, and sequential manner.

Side One – Create Public Money Insufficiency. This is achieved, as we explained above, by controlling the National Public entity that issues public money. Its goal is to demonetise the Real Economy so that the latter is forced to seek “alternative funding” for its needs (i.e., so that it has no choice but to resort to private bank loans).

Side Two – Impose Private Banking Fractional Lending Loans. This, as we said, is virtual private money created out of thin air on which bankers charge interest – often at usury levels – thus generating enormous profit for “investors,” creditors and all sorts of entities and individuals who operate as parasites living off other people’s work. This would never have been the case if each local central bank were to flexibly generate the correct quantity of Public Money necessary to satisfy the needs of the Real Economy in each country and region.

Side Three – Promote a Debt-Based Economic System. In fact, the whole Pyramid Model is based on being able to promote this generalised paradigm that falsely states that what really “moves” the private and public economy is not so much work, creativity, toil and effort of workers, but rather “private investors,” “bank loans” and “credit” – i.e., indebtedness. With time, this paradigm has replaced the infinitely wiser, sounder, more balanced and solid concept of corporate profit being reinvested and genuine personal savings being the foundation for future prosperity and security. Pretty much the way Henry Ford, Sr. originally grew his most successful company.

Today, however, Debt reigns supreme and this paradigm has become entrenched and embedded into people’s minds thanks to the mainstream media and specialised journals and publications, combined with Ivy League universities’ Economics Departments that have all succeeded in imposing such “politically correct” thinking with respect to financial matters, especially those relating to the proper nature and function of Public Money.

The facts are that this Model generates unnecessary loans so that banking creditors can receive huge profits, which includes promoting uncontrolled, unwarranted and often pathological consumerism, which goes hand in hand with the increasing abandonment of the traditional value of “saving for a rainy day.”

Such debts having political and strategic goals rather than merely financial ones, are usually given a thin layer of “legality” so that they may be imposed by the creditor on the debtor (i.e., in the case of The Merchant of Venice, the bond entered into between Antonio and Shylock giving the latter the legal right to a pound of the former’s flesh; in the case of chronically indebted countries like Argentina, such “legality” is achieved through a complex public debt laundering[6] mechanism carried out by successive formally “democratic” Caretaker Governments to this very day).

Side Four – Privatisation of Profits/Socialisation of Losses. Lastly, and knowing full well that, in the long run, the numbers of the entire Cycle of this Model never add up, and that the whole system will inevitably come crashing down, the Model imposes a highly complex and often subtle financial, legal and media engineering that allows privatising profits and socialising losses. In Argentina, this cycle has become increasingly visible for those who want to see it, because in our country the local “Ponzi” Pyramid Cycle lasts on average 15 to 17 years, i.e., we’ve had successive collapses involving brutal devaluation (1975), hyperinflation (1989) and systemic banking collapse (2001), however in the industrialised world, that cycle was made to last almost 80 years (i.e., three generations spanning from 1929 to 2008).

Conclusions

The fundamental cause of today’s on-going global financial collapse that exerts massive distortions over the Real Economy – and the ensuing social hardship, suffering and violence – is clear: Virtual Finance has usurped a pedestal of supremacy over the Real Economy, which does not legitimately belong to it. Finance must always be subordinated to, and in the service of, the Real Economy just as the Economy must heed the law and social needs of the Political Model executed by a Sovereign Nation-State (as we back-engineer this entire system, we thus understand why it is necessary for the Global Power Elite to first erode the sovereign Nation-State and to eventually do away with it altogether, in order to achieve its monetary, financial and political ends).

In fact, if we look at matters in their proper perspective, we will see that most national economies are pretty much intact, in spite of having been badly bruised by the financial collapse. It is Finance that is in the midst of a massive global collapse, as this Model of “Ponzi” Finance has grown into a sort of malignant “cancerous tumour” that has now “metastasised,” threatening to kill the whole economy and social body politic, in just about every country in the world, and certainly in the industrialised countries.

The above comparison of today’s financial system with a malignant tumour is more than a mere metaphor. If we look at the figures, we will immediately be able to see signs of this financial “metastasis.” For example, The New York Times in their 22 September 2008 edition explains that the main trigger of the financial collapse that had exploded just one week earlier on 15 September was, as we all know, mismanagement and lack of supervision over the “Derivatives” market. The Times then went on to explain that twenty years earlier, in 1988, there was no derivatives market; by 2002 however, Derivatives had grown into a global 102 trillion Dollar market (that’s 50% more than the Gross Domestic Product of all the countries in the world, the US, EU, Japan and BRICS nations included), and by September 2008, Derivatives had ballooned into a global 531 trillion Dollar market. That’s eight times the GDP of the entire planet! “Financial Metastasis” at its very worst. Since then, some have estimated this Derivatives global market figure to be in the region of One-Quadrillion Dollars…

Naturally, when that collapse began, the caretaker governments in the US, European Union and elsewhere, immediately sprang into action and implemented “Operation Bail-out” of all the mega-banks, insurance companies, stock exchanges and speculation markets, and their respective operators, controllers and “friends.” Thus, trillions upon trillions of Dollars, Euros and Pounds were given to Goldman Sachs, Citicorp, Morgan Stanley, AIG, HSBC and other “too big to fail” financial institutions… which is newspeak for “too powerful to fail”, because they hold politicians, political parties and governments in their steel grip.

All of this was paid with taxpayer dollars or, even worse, with uncontrolled and irresponsible issuance of Public Money bank notes and treasury bonds, especially by the Federal Reserve Bank which has, in practice, technically hyper-inflated the US Dollar: “Quantitative Easing” they call it, which is Newspeak for hyperinflation.

So far, however, like the proverbial Naked Emperor, nobody dares to state this openly. At least not until some “uncontrolled” event triggers or unmasks what should by now be obvious to all: Emperor Dollar is totally and completely naked.[7] When that happens, we will then see bloody social and civil wars throughout the world and not just in Greece and Argentina.

By then, however, and as always happens, the powerful bankster clique and their well-paid financial and media operators, will be watching the whole hellish spectacle perched in the safety and comfort of their plush boardrooms atop the skyscrapers of New York, London, Frankfurt, Buenos Aires and Sao Paulo…


Footnotes

1. The concept of “Geoeconomics” was coined by the New York-based Council on Foreign Relations, through a studies group honouring Maurice Greenberg, the financier who was for decades CEO of American International Group (AIG) which collapsed in 2008 and had strong conflict-of-interest ties with major insurance and reinsurance broker Marsh Group whose CEO was his son Jeffrey. Both father and son were indicted for fraud by then New York Attorney General Elliot Spitzer. Spitzer would later pay a very heavy price for this after becoming Governor of New York State when someone “discovered” his sex escapades which were quickly blown up into a major scandal by The New York Times

2. We have described the basic Global Power Elite structure, model and objectives in our e-Book The Coming World Government: Tragedy & Hope?, available through www.asalbuchi.com.ar.

3. For more information, see the Third Pillar of the Second Republic Project “Reject the Debt-Based Economy” on www.secondrepublicproject.com.

4. Some notable exceptions: Today: Libya, Iran, Syria, China; In the past: Peron’s Argentina, Germany and Italy in the 30’s and 40’s…. Are we seeing a pattern here?

5. See The New York Times, 22 September 2008

6. See White Paper comparing Debt Laundering mechanisms to Money Laundering mechanisms, lodged under Pillar No 3 “Reject the Debt-Based Economy” of Second Republic Project in www.secondrepublicproject.com.

7. This is more fully described in the author’s book The Coming World Government: Tragedy & Hope?, in the chapter “Death & Resurrection of the US Dollar”. Details on www.asalbuchi.com.ar. Also available upon request by E-mail: salbuchi@fibertel.com.ar.
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"For the first years of [Ludwig von] Mises’s life in the United States...he was almost totally dependent on annual research grants from the Rockefeller Foundation.” -- Richard M. Ebeling

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