If you control the issuance of new notes, you can do great good or harm
Part III, The Trouble With Money and its Cure
Richard C. Cook, who worked in the Carter White House, NASA, and the Treasury Department, sums up the history of creating money in the US, how it's worked to the advantage of some, and how to democratize the process for everyone in an article that he emailed us that appeared in Global Research, July 7, 2007, and from which we excerpt.
excerpted by Jeffery J. SmithThe International Monetary Fund and the Bank of International Settlements warn we are likely to see financial shocks within the next few months. A dollar devaluation and a stock market crash are possible as early as December 2007. [Worried, the US Federal Reserve recently bailed out lenders and investors.]
Foreign investors, mainly Chinese, have been buying US public debt. These investors are increasingly uneasy with their dollar holdings; foreign purchase of US securities has plummeted. After six years of cheap credit, now the US must offer antsy investors higher returns.
In most nations, when the federal government sells bonds to the central bank, the bank pays with money that never existed before; that’s how new money is created. This debt and its interest grow exponentially unless real economic growth increases tax revenue. The debt overhang vs. real economic value is much higher now than in 1929.
Interest rates may not seem high compared with the 20%-plus rates of the early 1980s, but they are higher than our GDP growth rate of 2%. Rates have been high on average since the 1960s, as banks won deregulation. Since 1965, the dollar has lost 80% of its value, suggesting that raising the lending rate not only fails to slow inflation, as the Federal Reserve claims, but actually causes it.
During and after the Civil War (1861-5), Americans had five different sources of money:
(1) the Greenback, which the government spent into circulation; contrary to financiers’ propaganda, Greenbacks were not inflationary;
(2) gold and silver coinage and specie-backed paper currency;
(3) notes lent into circulation by the national banks;
(4) retained earnings -- individual savings and business reinvestment of profits -- which was the primary source of capital for industry; and
(5) the stock and bond markets.
After Congress passed the Federal Reserve Act in 1913, banks bought war bonds with new notes that inflated the money supply, reducing the value of Greenbacks and coinage.
Leaders for abolishing the Federal Reserve include former chairmen of the House banking committee Wright Patman and Henry Gonzales and current Republican presidential candidate Ron Paul. Instead, have Congress issue new money, as stated in the US Constitution. It’s what the US did before 1913.
Modern industrial economies can already provide a decent living for everyone without everyone working. Nevertheless, during the Depression the WPA hired people to grab a shovel and dig ditches. Clinton threw hundreds of thousands of mothers off the welfare rolls to compete for too few jobs that didn’t pay a living wage. Rulers cite jobs to try to justify constantly borrowing to fund the military-industrial complex. Yet the productivity of the modern economy is part of the social commons.
By sharing our economic heritage, we can let:
mothers have the choice of staying home with the kids like they could a generation ago;
some people choose to do eldercare;
others comfortably go into lower-paying occupations like teaching or the arts;
some just opt to study or travel for a while or learn new skills or start a business without facing financial ruin as they often must today;
retirees enjoy their retirement instead of having to stay in the job market or worrying about Social Security going broke.
We can guarantee everyone a basic income and pay citizens a National Dividend. [If a “dividend”, then it’d be a share paid from society’s surplus.]
People needing credit should not be at the mercy of privileged banks. Society could shift the balance of power from bank to borrower by letting government and local consensual currency clubs issue credit, too. Many benefits would follow: debt would come down and the financial industry could be right-sized, plus economic democracy would become a reality and the size of government would shrink.
The power to create money has been a tool to further enrich the rich. A critical mass needs to see the potential of credit and debit to serve everyone’s equitably.
Jeffery J. Smith runs the Forum on Geonomics.
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Reclaiming the Commons
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