On Money: Postal Financial Services

 

The social democratic wing of the US Democratic Party is floating two important proposals: 1) provide financial services through the wide network of postal offices to the so-called ‘unbanked and underbanked’ population; and 2) cap interest rates at 15% [6].

Both proposals have connections with monetary reform. The Kucinich NEED Act caps interest rates at 8% and also stipulates that the total interest payments on a loan cannot exceed the principle amount (Section 502)[1].

The idea of extending financial services through the postal system is not only a long-established idea but has been practiced, and is still practiced, in many countries [2]. In European MR circles this proposal is re-activated, but then in connection to the introduction of Central Bank Digital Currency (CBDC) as a measure to insure financial stability and a step towards full monetary reform [3].

The other important aspect of postal banking is to make financial services more accessible and less predatory. Many reporters and writers like Ellen Brown [4] quote from a 2001 UN discussion paper the following idea:

The essential characteristic distinguishing postal financial services from the private banking sector is the obligation and capacity of the postal system to serve the entire spectrum of the national population, unlike conventional private banks which allocate their institutional resources to service the sectors of the population they deem most profitable[5].

For the sake of social justice and economic equality the ideas of capping interest rates and providing banking services through the postal system should stay on our radar.

[1]. Zarlenga, Stephen A. 2014. “Presenting the American Monetary Reform Manual”. Valatie, NY: American Monetary Institute.

[2]. d’Alcantara, Gonzales, Paul H. Dembinski, and Odile Pilley. 2014. “Postal financial services, development and inclusion: Building on the past and looking to the future”. Université de Fribourg. htt

[3]. Edgar Wortmann. 2018. “Design Principles for CBDC“. International Movement for Monetary Reform. 28 June 2018.

[4]. Brown, Ellen. 2013. “What We Could Do with a Postal Savings Bank: Infrastructure that Doesn’t Cost Taxpayers a Dime“. The Web of Debt Blog. 23 Sept 2013.

[5]. Scher, Mark. 2001. “Postal Savings and the Provision of Financial Services“. DESA Discussion Paper No. 22. New York: United Nations-Development Policy Analysis Division.

[6]. Nichols, John. 2019. “AOC and Bernie Put Postal Banking Back on the Agenda“. The Nation, 10 May 2019.

Dutch Report on Money and Debt and its Reception by Ons Geld

On January 17, 2019, a research institute of the Dutch government, The Netherlands Scientific Council for Government Policy (WRR), offered its report on banking and money-creation to the Dutch government [1]. The report was commissioned by the government after a motion in the Dutch parliament in March 2016 during a debate, which itself was triggered by a citizen’s initiative organized by the Dutch monetary reform organization Ons Geld (Our Money)[2].

The Report

The 301-page report is titled “Money and Debt: The Public Role of Banks” and was accompanied with a 15-page synopsis [3]. An English translation is forthcoming. In its own words the scope of the report was thus:

In this report we discuss how money-creation works; how the context of money-creation has changed; and which problems the current system has. We investigate to what extent a public money system – as proposed among others by Ons Geld – can provide a solution. Finally we make recommendations to reform our system (Synopsis, 5; translated from Dutch original).

This article will give a summary of all these points as presented in the synopsis and also a summery of the official response by Ons Geld. How this report came about you can read here [5].

Money-creation

In the section “How money-creation Works” the authors explain the manner by which money is created and enters the economy. One of their findings is that 93% of the Dutch money stock is created as debt when banks originate loans and 7% of the money stock consists of cash in the form of coins and paper money. The Dutch named the non-cash part of the money supply “giraal geld”, which would loosely translate as “check money” and is usually named in English bankmoney or debt money. Because of this money-creating role by banks “money, debt and banks are in the current system very closely entangled”. But, though banks do create the bulk of the money supply, they cannot just do so without some restraints, of which the authors identify three: 1) The demand for money by businesses and individuals; 2) risk assessments by banks; and 3) monetary policies set by central banks.

Context

As far as the “Changed Context of money-creation” is concerned the authors identified three developments: 1) the shift from using cash to check money (after World War II just above half was check money); 2) the disappearance of public payment and savings options (the public Postbank was privatized and became part of ING); and 3) there was a shift from a “diverse banking landscape” to one in which there are only three big, uniform banks. The effect of these shifts was that 1) bank money became less prone to be changed into cash; 2) the necessary amount of prudent bank reserves diminished; and 3) banks acquired an implicit, public guarantee against insolvency. The overall effect was that “the brakes on money-creation” lessened and the risk of asset bubbles, inflation and economic crises heightened.

Core Problems

The report indicates “Two Core Problems” with the current Dutch money system: 1) The large amount and volatility of debt creates instability and economic crises; and 2) the balance between private and public interests became skewered. The banking sector became more important and powerful in the economy and the government became more important in the banking sector by guaranteeing and bailing out banks in crisis, with both tendencies leading to a “sort of semi-public” banking sector. This section ended with a call for “a good balance between public and private interests” (Synopsis, 8).

Public Money Proposal

In the section “The Public Money System as Solution” the report addressed the proposal offered by the Dutch monetary reform organization Ons Geld (Our Money), which proposal was inspired by the 1930 Chicago Plan and has now many variants developed in other countries like Iceland, the United Kingdom and Switzerland. Their synopsis is as follows:

These proposals differ in effect, but they essentially always come down to breaking the close link between money and debt. The current banking landscape would be split into a payment sector and a financing sector. In the payment sector money is held in accounts directly at the central bank or with payment banks where all deposits are 100% covered with central bank reserves. New money can only be created by the central bank. New money comes into the economy through government spending, loans or possibly direct transfers to citizens. In addition, it is possible that new money is used to reduce taxes or to pay off the public debt. In the financing sector, banks first have to raise money before they can provide loans. They can therefore not create new money. People lending money to these financing banks can also suffer losses and they can not reclaim their money at any time. How this financing sector should function exactly differs from one proposal to another (Synopsis, 9).

Though they find the wish to separate payments from financing to be “understandable”, the authors think that it also creates many new uncertainties. Their barrage of questions range from whether the central bank would be able to withstand public pressure; to whether they could prevent money-creation to get out of hand; to whether there would be enough credit to finance real estate; to whether a shadow finance system can be devised by the banks, effectively canceling the reform; to whether the government will really let banks fail. “What looks good on the drawing board can become something quite different in practice”. Together with the fact that such a system has never been tried out, the authors think it is hard to establish whether the new system might function better than the current one. And finally it is uncertain how such a system will fare during the transition period after introduction, and in the context of substantial international economic interdependence.

In its conclusion on a public money system the reports states that,

The WRR considers the transition to a public money system an unsuitable experiment with the monetary-financial system, the backbone of the economy (Synopsis, 10).

Recommendations

Apart from the negative conclusion about an alternative money system the report does provide four recommendations to change the balance between private and public interests: 1) Promote diversity in the financial sector; 2) limit the prolific growth of debt; 3) be better prepared for the next crisis; and 4) solidify the public dimension of banks.

Diversity is important for increased choice and better prices for consumers; increased stability of the sector; and better guidance of credit allocation. A possibility is to have a public or private bank solely dedicated to payments and savings or even the introduction of “digital central bank money”, all of which would have a disciplining effect on the banking sector and diminish their dominance. And their dominance, the authors observe, should be actively weakened by the government through different regulatory measures.

In order to diminish the growth of debt–which the authors deem important for stability, fast recuperation after crises, and balanced economic growth–macro-prudential policies have to be introduced to handle systemic risks. Some tax changes would be necessary and also the behavior of other parts in the economy (pension funds and the real estate market) will have to be regulated to manage debt levels.

Because instability is inherent in the current system, preparations for future crises are important to diminish its effects and enable fast recuperation. Financial risks will have to be spread in a more balanced manner from debtors to creditors; banks might be obligated to recapitalize; and besides the lowering of interests and the buying of bonds maybe more controversial monetary measures by the central bank will have to be applied like the monetization of government debt.

As there exists an unavoidable tension within banks between their private activities and public functions, the latter should be better “anchored’, i.e. the public interest should get “a more robust place” in the system through, for example, an advisory council; increased choice; an alternative payment system; and more publicly responsive regulators.

Conclusion

The report’s final word is a call for several balances: 1) a balance between regulation and freedom in private money-creation; and 2) a balance between private and public interests. “The prudent guidance of money and debt is a permanent task” (Synopsis, 13).

Reception by Ons Geld

Ons Geld published an official response to the report [4]. They especially appreciated three issues which the report addressed: 1) The call to study possible economic scenario’s and alternative money systems; 2) the possibility of a “secure harbor” for one’s money in the form of a “digital safe” to store one’s digital cash; and 3) the report’s starting point with the problematic entanglement of private and public interests in the current financial system.

On the other hand their critique and disappointment with the report is that it points in the wrong direction. The report proposes to solidify and manage the entanglement through further regulations, while Ons Geldproposes a clear separation between money-creation as a public utility and money lending as a commercial business. One venue which could incrementally lead to this separation is the establishment of a digital variation of cash. Once people get accustomed to digital cash, Ons Geld reasons, it will be easier to end the bank privilege of money-creation.

Meanwhile the societal discussion on the role of banks has been broadened and the issue of a fundamental change of the money system is on the political agenda. It is up to the government now to publish its own response to the report. Stay tuned.

Footnotes

[1]. IMMR. 2019. “Dutch WRR Report on Money and Debt is out“. International Movement for Monetary Reform. 1 Feb 2019.

[2]. Wortmann, Edgar. 2015. “Burgerinitiatief Ons Geld“. Ons Geld, 21 April 2015.

[3]. WRR. 2019. “Geld en Schuld: De Publieke Rol van Banken“. WRR Raport No. 100. Den Haag: Wetenschappelijke Raad voor het Regeringsbeleid. Synopsis. Translations from Dutch by editor.

[4]. Ons Geld. 2019. “Reactie van Stichting Ons Geld op het WRR-rapport ‘Geld en Schuld’ “. 19 Jan 2019.

[5]. Schuller, Govert. 2019. “Ons Geld and the Road to the WRR Report“. News – Alliance for Just Money, 6 Mar 2019.

Ons Geld and the Road to the WRR Report

Ons Geld (Our Money) is a Dutch foundation promoting sovereign monetary reform. Its motto is “Money Creation for the General Welfare” and proposes four changes to the current, dysfunctional money system, which proposal is basically the same as what for example The American Monetary Institute [1] and The Alliance for Just Money [2] propose in the USA:

1) Money should only be created by a democratic and transparent agency which acts on behalf of the general interest.

2) Money has to be created free from debt.

3) Money should be spend in the real (non-financial) economy before it gets into financial markets and real estate bubbles.

4) Banks should not be allowed to create money [3].

Citizen’s Initiative

With this program in hand Ons Geld together with the economist and monetary expert Ad Broere, and the satirical theater group De Verleiders (The Seducers) started a citizen’s initiative which gathered about 100,000 signatures–comfortably more than the required 40,000–to get the issue of money-creation on the political agenda. What helped the initiative was the theater production Door de Bank Genomen (Taken by the Bank), which satirized the banking world and its practices.

The summation of their joint appeal reads as follows:

The financial system is unstable which has adverse effects on the economy and society. That instability is related to the creation of money which is today mainly in the private hands of commercial banks. The financial system can be improved by making money-creation into a public task.

The right and duty of money-creation lies in principle with the government, not with private parties. The benefits of money-creation should be used for social goals. In this way the government will be in a better position to meet its obligations, in particular its responsibility to secure minimal living conditions for its population and the spread of wealth.

We appeal to the Lower House to take a stand in favor of the rights and duties of the government in regards to money-creation and its resulting benefits, and to ensure that that the government will reinstate its exclusive right of money-creation by bringing into circulation debt-free Euros, which would be created by a newly constituted public authority and be spend into circulation or offered as interest-free loans [4].

Public Hearing

The successful initiative resulted first in a public hearing about the money system conducted by the permanent commission on financial affairs of the Tweede Kamer (Dutch lower house). There were two panels. The first one was composed of the two directors of Ons Geld, Martijn van der Linden and Luuk de Waal Malefijt; the scriptwriter and actor in the satire “Taken by the Bank”, George van Houts; and the legal expert Edgar Wortmann. The second panel consisted of a financial regulator, Reinier Pollman of the Authority on Financial Markets; a banker, Teunis Brosens of ING; a representative of the central bank, Jan Marc Berk; and two academicians, Dirk Bezemer and Klaas van Egmond [5, 6].

The first panel gave an exposition of its monetary reform proposals and during the second panel a debate developed between Dr. Bezemer and Dr. van Egmond about the necessity of reform.

Van Egmond made some passionate points in favor of reform. He seems to be totally on board with monetary reform, which seems to be a boon for the reformers as he is not only a respected sustainability scholar, but also a founding member of the Sustainable Finance Lab at the University of Utrecht and, most importantly, a member of the influential Dutch think tank The Social Economic Council (SER).

Actually van Egmond co-wrote a working paper with Dr. de Vries titled “Dynamics of a sustainable financial-economic system” [7], which presents a “dynamic simulation model” in which the recent insights into the nature of bankmoney by Dr. Richard Werner [8] were incorporated.

The model provides the ‘laboratory’ setting in which the discontinuities and associated socio-economic un-sustainability of the current financial-economic system can be studied and the feasibility of more sustainable alternatives can be explored.

Van Egmond is arguably the third scholar to model the sovereign money proposal after Drs. Benes and Kumhof at the IMF [9] and Dr. Yamaguchi from Japan [10 ]. They all come to positive conclusions regarding the proposal:

(1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation (Benes & Kumhof, 2012: 1).

Parliamentary Debate

The second result of the initiative was a parliamentary debate in the Dutch House of Representatives [11], where on March 22, 2016, the following motion was carried in a 108-42 vote (with the whole faction of the ruling party the VVD voting against):

Ascertaining that deeper research of the role and function of banks in money-creation and other functions is necessary;

Considering the need of a serviceable banking system with less risks for savers and taxpayers;

The government requests The Netherlands Scientific Council for Government Policy to issue an opinion about the functioning of the money system including all forms of money-creation by banks and also include the advantages and disadvantages of alternative systems of money-creation and the amount of profits generated  through money-creation [12].

Report

Three years later, on January 17, 2019, the council presented its work to the Dutch minister of finance. The 301-page report is titled “Money and Debt: The Public Role of Banks” and was accompanied with a 15-page synopsis [13, 14].

A summary of the report and the response by Ons Geld you can find here [15].

Footnotes

[1]. Zarlenga, Stephen. 2009 (2006). “Presenting the American Monetary Act”. Valatie, NY: American Monetary Institute.

[2]. The Alliance for Just Money. “Mission“. 7 Mar 2019.

[3]. Various formulations in different amounts of bullet points were developed by Ons Geld since its inception.

[4]. Wortmann, Edgar. 2015. “Burgerinitiatief Ons Geld“. Ons Geld, 21 April 2015.

[5]. Jourdan, Stanislas. 2016. “Dutch Parliament Hearing about money-creation sparks Debate“. Positive Money, 13 Jan 2016.

[6]. Permanente Commissie Financiale Zaken. 2016. “Roundtable on the Monetary System in the Netherlands (with English subtitles)“. Video file. 14 Oct 2016.

[7]. Van Egmond, Nicolas D. & de Vries, Bert J.M. 2016. “Dynamics of a sustainable financial-economic system”. Sustainable Finance Lab Working Paper. Utrecht University, The Netherlands.

[8]. Werner, Richard A. 2012. “Towards a New Research Programme on ‘Banking and the Economy’ —Implications of the Quantity Theory of Credit for the Prevention and Resolution of Banking and Debt Crises”. International Review of Financial Analysis, 25/5 (December 2012): 94-105.

[9]. Kumhof, Michael & Benes, Jaromir. 2012. “The Chicago Plan Revisited“. IMF Working Papers 12/202. Washington: International Monetary Fund.

[10]. Yamaguchi, Kaoru. 2012. “On the Monetary and Financial Stability under A Public Money System (Revised): Modeling the American Monetary Act Simplified”. Paper presented at the 8th Annual AMI Monetary Reform Conference in Chicago, USA, Sept. 20 – 23, 2012. It was originally presented at the 30th International Conference of the System Dynamics Society, St. Gallen, Switzerland, July 22 – 26, 2012.

[11]. “Burgerinitiatief Ons Geld“. Parliamentary Debate at the Dutch House of Representatives. Video file. 16 Mar 2016.

[12]. “Gewijzigde motie van het lid Merkies (t.v.v. 34346, nr. 5) over een onderzoek door de WRR naar de werking van het geldstelsel”. Tweede Kamer, vergaderjaar 2015–2016, 34 346, nr. 16.

[13]. WRR. 2019. “Geld en Schuld: De Publieke Rol van Banken“. WRR Raport No. 100. Den Haag: Wetenschappelijke Raad voor het Regeringsbeleid. 15-page Synopsis of the report.

[14]. IMMR. 2019. “Dutch WRR Report on Money and Debt is out“. International Movement for Monetary Reform. 1 Feb 2019.

[15]. Schuller, Govert. 2019. “Dutch Report on Money and Debt and its Reception by Ons Geld“. News – Alliance for Just Money, 6 Mar 2019. 

Human Causes of the Economic Crisis and Spiritual Solutions

A Seeker Speaks / Thursday, November 27, 2008 / Steve Larsen

In recent months, we have seen unprecedented upheavals the US as well as the global economy. Big banks have fallen, as have insurance companies and brokerage companies followed by huge losses in the stock market. It is estimated US citizens have lost over a trillion dollars in their pensions and 401K plans. As matter of fact, I know a number of families, including our own, whose 401K funds were diminished by 20% or more in a matter of a few short days.

The government’s response, which was supported by both presidential candidates, is notable in that it chose not to address the underlying causes of the crisis, but rather to prop up a failing system with its 700 plus billion dollar bailout. Yet it could have chosen another route and that is to take a serious look at what really is wrong with our economic system and what can be done to fix it.

The fact that the government did not do this, however, really is not surprising as the public at large is generally unwilling to face these problems themselves. Of course, those who have the most to lose in all this – the big banks, brokerage companies, insurance companies and various conglomerate institutions who comprise what might be called the financial or power elite in America certainly don’t want to address the causes as they have a vested interest in keeping the system running just the way it has been – with the deck stacked decidedly in their favor.

The symbiotic relationship between the haves and the have-nots
This unwillingness to look at systemic problems of this nature is essentially a spiritual problem. Jesus talked about the necessity of taking the beam out of our eye as an essential part of our spiritual growth. This means being willing to fearlessly examine any and all conditions that prevent us from seeing the truth about ourselves, society and all its institutions, customs and mores. And then do what’s necessary to replace our incomplete and/or distorted ideas with a higher understanding.

And regarding the current crisis, while there certainly has been outrage at the government’s actions and actions of the financial elite, it wasn’t enough to carry the day to prevent the bailout from happening. And so far, it hasn’t been enough for most people to seriously question the modus operandi of the economic system itself. For many, the current system cannot be challenged as it is seen as unpatriotic and un-American. They equate the current economic system – which as we will see has been designed by and for the elite – as equivalent with free enterprise. Thus for many the system is a sacred cow that cannot be examined for fear that it might be undermined or compromised and with it the American way of life.

Einstein defined insanity as doing the same thing over and over while expecting different results. If our economic system has failed so miserably this time and in years past (think the Great Depression as well as the never ending cycles of inflation and recession) why then do people insist on doing the insane thing of not questioning what is clearly not working? I submit it’s because they have a vested interest in maintaining the status quo and therefore dare not question the beam in their own eye which prevents them from seeing the futility of their actions. And in regards to the economy, what is the nature of the beam that blinds us?

Before addressing this, we need to establish the fact that economically and spiritually speaking, there are two general groups of people. There is the 2 percent of the population that controls 98 percent of the wealth in this country – whom I call the power elite – and then there is the rest of us. Please note that when I discuss the concept of the power elite, my purpose is not to emphasize individuals who comprise the elite, but rather my focus is on the mindset or consciousness behind it.

By and large the power elite are untroubled by the fact that they hoard the wealth. It doesn’t bother them that two thirds of the world’s population lives in poverty while they have great wealth. Why? It’s because they need this disparity to maintain the illusion that they are better or superior to the normal people. This desire stems from the free will choices that many have made to cut themselves off from God – as they think they know better than God – and with it the abundant life that is given freely to all. And to maintain the illusion that they know better than God, they do all they can to keep God from acting in the earth.

Nevertheless, without this connection to God, they feel incomplete. Thus, they obtain a temporary reprieve from the gnawing sense of unwholeness by gaining a relative advantage over the people by acquiring more power, money, privilege, prestige, wealth, etc. compared to the masses. They also maintain the sense that they know better than God because they can demonstrate how powerful they are without God’s help. But their gain over us is always relative. And when it comes to money, they feel superior when they can reduce the amount of abundance we have compared to them. When we are lowered in economic stature they are raised in stature – relative to us. They do this even at the expense of lowering the total amount of wealth on this planet. For by keeping the people down, the built-in natural flow towards greater abundance is thwarted.

Yet the power elite can not maintain this sense of superiority in a vacuum. They need the regular people to play along with their illusion of superiority in order to sustain it. The regular people, however, generally do not have a desire to feel superior to others but rather they have the polar opposite need to feel inferior to the power elite. They have a subconscious belief that the power elite will take care of them. The regular people are happy that they don’t have to worry about running the economy because after all it’s too complicated and so they are grateful that the people whom they perceive to be higher than them will mange the economy so they don’t have to think about it.

Unfortunately, the people have entered into a mindset of an idolatry of the elite and so they believe that we must not let the elite fail. And so the government bailout of huge financial institutions and more recently the push for the bailout of the auto industry are acceptable to many due to the blindness of idolatry.

The central dynamic here causing this sense of idolatry is that the regular people on earth have also – to greater or lesser degrees – cut themselves off from God’s natural abundance. Not because they don’t believe in God or that they feel superior to others but rather because they don’t want to be responsible for making core decisions in life. They refuse to take dominion over their part of the earth and therefore the power elite are all too willing to do that for them.

So in the end, the people do not want to open the Pandora’s box of the money system as they are afraid that ultimately this will mean they have to make crucial decisions about it and thus be responsible for it. And this is something they have avoided for much of their sojourn here on earth. Instead, many people have been running more or less in an unquestioning automatic pilot mode. So you can see here that ignorance really is bliss – our ignorance (ig-nor-ance) is the power elite’s bliss.

To sum up, the power elite need the regular people to be in lower economic state so they can feel superior to them. The regular people have a need to feel inferior to the elite so they don’t have to take responsibility for themselves and the economy. Both groups have an interest in maintaining the status quo to prop up their unholy alliance. The power elite are the blind leaders. The regular people are the blind followers. The result is asymbiotic relationship between the blind leaders and blind followers that has lead to the fact that both groups have now fallen into the ditch of the current economic crisis.

So how do we break this gridlock between the two groups? I believe that like many things, knowledge is the key. As it says in Proverbs, “with all thy getting, get understanding.” I believe people will be far less fearful of challenging the elite if they are armed with correct information. Because when they truly understand what is going on, they will see that the elite only have as much power over people as we are willing to give them. Truly the elite are like the emperor without any clothes where the illusion of clothes was only maintained by those who wanted to see it that way.

Why am I suggesting that it is the people that must change and not the elite? Two reasons: First, the people have far more to gain (at least in the short term) from constructive change in the economy than the elite do. Second, the elite are typically too selfish, rebellious and proud to be open to positive changes that benefit everyone and not just themselves. This doesn’t mean the elite cannot change, but being a realist I think the probability of them changing in the near future is in fact very small.

Multiplying our talents to produce economic growth
One thing we need to understand about God’s design of the matter universe is that there are built in natural forces that move things forward even without our intervention. For example, there are built in evolutionary forces that drive species towards diversity and greater complexity. There are also built in economic forces that lead to greater and greater abundance in the earth. The main factor is that mankind simply needs to understand the principles behind this increase in abundance in order to flow with its tide rather against it by blocking its flow.

I could see how this could very well be a bit of a surprising statement to many. This is because most of us been programmed to believe that lack is the natural order of things and that there simply isn’t enough for everyone. As we’ll see later, this is a belief that has been perpetrated by the elite to block the flow of our abundance so they can maintain their relative superiority over us.

Of course right now it’s not so easy to see this natural economic force at work. However, if you look at two thousand years ago as compared to today, there is no doubt we experience a far greater amount of material abundance and a higher standard of living today then for example when Jesus walked the earth. So we must be doing something at least partially right, so what is that something?

Jesus’ parable of the talents eloquently expresses the main dynamic here. In this parable three servants are given varying amount of talents by a king and are told to go out and use those talents to the king’s benefit. Two of the three servants increased the talents which were then multiplied by the king saying to them “well done thou good and profitable servant, thou has been faithful over a few things, I will make thee ruler over many.” However, the third servant was fearful of the king and instead hid his talent in napkin whereupon the king promptly dismissed him as “unprofitable.”

The lesson here is that God has designed the universe in such a way as to increase our abundance. The principle is that when we put forth the effort to increase our own talents God multiplies all our talentsaccordingly. This is how individuals, society and economies grow and prosper.

Regarding economics, there are essentially three types of efforts that produce this multiplication effect:

1. Putting forth labor to produce goods or services.
2. Introducing new ideas, inventions and systems
3. Investing time, energy or money in endeavors that stimulate the first two. In other words taking some risk to promote economic projects even though you can’t be a certain of a return.

Any one of these three separately or in combination can have the effect of more abundance being created on earth. The fact that there is a greater material wealth on earth today than centuries ago proves the point that there is not a fixed amount of abundance on this planet and that God has multiplied it in accordance to the efforts we’ve put forth.

Yet even though the standard of living is higher today than ages past, many people are still living paycheck to paycheck, struggling to get by, and many others are still living in abject poverty. If there is a built in force in nature to increase abundance, why are so many people not experiencing this increase?

The answer lies in understanding how money works and how the money system can be turned on its head to benefit the few and not the many.

Money as an instrument
It has been said that money is the root of all evil. But if you also look at the good that has been accomplished through the use of many we can see that this is not a balanced statement. A more nuanced approach sees that money can be used for both good and evil and therefore is a tool for either and not the cause of it. I would say, however, that the love of money for its own sake is evil as we see shortly.

Money can be seen as a tool for economic transactions. As such, it has two primary functions:

1. As medium of exchange for goods and services
2. As a short term storage of value

In the ideal economy, the purpose of money is seen as a tool and not and end in itself. For money to flow properly, the amount of money in circulation should be roughly equal to the amount of goods and services currently produced in the nation or economic system. Also, money is meant to keep flowing and should not be hoarded. It serves as a temporary storage of value because it is meant to circulate through the people somewhat like blood in our veins.

In the ideal, spiritual economy, there is essentially a one-on-one relationship between the amount of money and the amount of something that has real actual value, be it goods or services. Or even, in the case of gold money, that the gold itself has a certain value. So the point here is there should always be a direct relationship between money and something that has real value. 

And when people actually multiply their talents, they can, as a result of that multiplication, accumulate a certain amount of money which they can then choose to store for times when they may not be able to make the money. Even this is legitimate, as long as the money was created as a result of providing a real service to life, be it an invention, taking the initiative, or performing physical labor. There is nothing wrong with storing that money. Even so, it is only when it is put to use in investing will it will help the economy grow. And thus, savings should really only be a temporary thing and should not mean that the money is permanently taken out of circulation.

For money is indeed meant to flow and thereby help the entire economy grow.But you see when there is a direct correspondence between money and something of real value, it is not possible to create money out of nothing, money that has no real value associated with it. And that means that even though the money supply can grow, the value of money is not degraded, for you still only have the money needed to buy goods and services.

And therefore, in a spiritual economy, you can actually have a society that has a steadily growing economy and a steady increase in the money supply without actually having an increase in the prices of goods and services. For why would we need an increase, when you do not have excess money that has no correspondence to real value? You still only have the amount of money needed to exchange goods and services, which means that the value of the money – what you can buy for that money – will remain constant.

For an example of a correct use of the money system, we need to look no further than the colonial economy prior to the revolutionary war. During this time, Ben Franklin gave a speech before British Parliament where he outlined the remarkable prosperity of the American colonies. He attributed this economic success primarily to the fact that there was only enough money printed to make the transfer of goods and services possible.

Franklin remarked: “In the Colonies we issue our own money…in proper proportion to make the products pass easily from the producers to the consumers. In this manner, creating ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one.”

During his speech, he maintained that there was very little unemployment, the public was well educated and the people were happy. The British were stunned and even outraged upon hearing this news and in response, quickly imposed their dysfunctional economic system (run by a Central bank) upon the colonies. The predictable result was that in a very short time the colonies experienced an inevitable economic decline. Franklin himself cited the imposition of the British money system as among the primary causes of the revolutionary war.

Although the success was short lived, it did demonstrate that an economy could prosper based on principles mentioned above. Certainly the Americans were industrious and ingenious and thus their efforts were multiplied accordingly. Secondly, they only printed enough money – called Colonial script – to grease the wheels of the economy – and no more. Thus there were no cycles of inflation and recession because there was not the intervention of the elite to create the conditions for such aberrations of the natural economic order to occur. Here we had the makings of an economy that was of the people, by the people, and for the people as opposed to of the elite, by the elite and for the elite. So how did the elite manage to create the economic conditions that benefit them to the total disregard of others?

Undermining the money system
Although the power elite have had their influence and grip on society throughout all recorded history, it is helpful to begin this discussion of the modern economic system during the middle ages and the feudal society.

In those days, the power elite were able to suppress and control the people through physical coercion. Anyone who rebelled against the system found themselves against the strong arm of unjust laws. Here, instead of multiplying their own talents, the people were basically slaves who worked so the nobility could maintain their privileged status. The power elite designed the system in such a way to reap the rewards of other people’s labor – basically reaping without sowing and thus stealing from the people. They were also in the mindset of getting something for nothing. Both of these conditions – reaping the reward of other people’s labor and wanting something for nothing – are two primary perversions of the natural economy and the money system that continues to this day. Essentially the power elite in that day as in the present see the people as worker bees whose main purpose is to provide them with lifestyle, shall we say, of the rich and famous.

Creating money out of nothing
Although this unjust system was in place for centuries, from the power elite’s perspective, there was a fundamental flaw in its design. Namely, when people are physically forced into a type of slavery they can’t help noticing that they are in fact enslaved. This will inevitably lead to rebellion and eventually did lead to the undoing of the system. The elite eventually recognized that it was far better for them to enslave people in such a way that they don’t notice that they are enslaved. And so this is what they did.

Centuries ago when the European kings began to go to war against each other, they realized they didn’t have the financial means to do it. So where did they get the money? Well around the same time, a concurrent but related development evolved which served the kings purposes. This development came from the fact that gold smiths (merchants who stored gold for a fee) in that day began lending out the gold in their reserves. They soon discovered that it was highly unlikely that all the gold in their reserves would ever be lent out at the same time – so they began to secretly lend out more gold than they actually had in their reserves and charging interest on it as well. This eventually led to writing promissory paper notes against these reserves which became the forerunners of the modern economic system known as fractional reserve banking.

Knowing that the kings needed money to finance their wars, these financiers convinced the kings to solve their financial problem and finance their wars by taking out loans from them. The loans themselves consisted of money that these financiers created out of nothing. What’s more, on the advice of these money changers, the king declared that this new money created out of nothing – or fiat money or money by decree – needed to be accepted by the king’s subjects as legal tender.

The result was that there was now more money in circulation than was needed to facilitate the transfer of goods and services. There was no longer a one to one correspondence between money and something of real value. The effect of this is that prices invariably go up – for three primary reasons:

1. There is now more money chasing after the same amount of things of value.
2. The first to receive the newly printed money – the power elite – bid up the prices of commodities as they compete for them while prices are still relatively lower.
3. The money changers charge interest on money created out nothing which can be viewed as an added tax on all commodities purchased through the loans.

The devaluation of the people’s labor
The problem with this back then which has continued to this day is that the effect that too much money in circulation disassociated from something of real value is that the value of the people’s labor is degraded. This is because when the price of goods and services goes up, people still only work x number of hours for x amount of dollars. So at the end of the day, their money simply doesn’t buy what it did before there was the influx of money into the system. This is why people have to work harder and harder just to make ends meet. They don’t understand why this is happening, they only know that their money doesn’t stretch like it used to and so they have to roll up their sleeves and work harder just to stay afloat.

So this is how the rich get richer and the poor get poorer. The rich are the first to get the newly printed money before prices increase and before these increases filter through the economy and effects the prices of all goods and services. This gives the power elite the advantage of purchasing commodities at lower prices than the rest of us enabling them to acquire more and more while the people struggle for a smaller and smaller portion of the pie. So essentially what what has been going on for centuries is a hidden but nonethelessmassive redistribution of wealth from the poor and middle class to the weathiest of the wealthy. Americans tend to get up in arms, and rightly so I might add, when socialists attempt to forcibly redistribute the wealth from rich to the poor. However, few protest when it is the other way around, as it has been for hundreds if not thousands of years on this planet.


War and hidden taxes
So this increase in prices and the degradation of the value of the people’s labor was and remains to this day ahidden tax on the people to accomplish the objectives of the power elite. This is how most of the wars for the last several hundred years have been financed. If the leaders went to the people and told them they would have to be taxed to finance their wars, the people would likely revolt and the taxes would not be levied and wars would not be fought. Yet because the tax is disguised as inflation, the people don’t notice they are being taxed because it doesn’t appear on their tax bill or paycheck. They only notice they have to work harder and harder for less and less – then the power elite have a far better chance of getting them to not only finance their wars, but to fight in them as well.

For example, do you think in 2003 if George Bush would have went to the people and told them that everyone in the United States would be taxed, say, $2,000 to finance the war in Iraq – a war that many people were unsure about – that the people would have approved this? Not likely. So instead of taxing the people, the power elite (in the form of the US government) simply fired up the money machine and created money out of nothing to finance the Iraq war as they have done for hundreds of years.

In fact, if you want to look for the driving engine behind wars, follow the money trail. If you do, you’ll see that in most cases wars are funded by banks are other financiers who often times fund both sides of any given conflict. For example, although there was supposed to be a great ideological divide between capitalism and communism, it is a not so well known fact that the Bolshevik revolution and the subsequent build up of the Soviet army (as well as the US military build up in response) was funded in part by Wall Street and other powerful interests in the West.

And when it comes to war, the power elite are able to convince the people to fight them because of some supposed differences over ideology, race, religion, land, politics, resources etc, but it is always the people who fight the wars and not the elite. Most wars are in fact, the result of infighting among the power elite where a dominant elite is being challenged by one or more aspiring elite groups or when any of them want to expand their power over the people. The power elite use the age old strategy of divide and conquer to get the people to fight their wars for them. Once again, the people suffer at the expense of the elite’s gain. And the people doubly suffer because ultimately war cannot produce something of value it only destroys something of value, e.g., the destruction of people lives, their livelihoods, their land, property, means of production, culture and entire way of life.

Another advantage for the elite is that when they fund wars, they know that governments are willing to spend far more to achieve their ends then when not at war. Once again, when war is on the horizon, follow the money trail and you’ll often find the true cause behind most military conflicts.

And of course there are many occasions where the elite create money of nothing to fund government programs that are not war related. In that case the dynamic is the same; the people pay a hidden tax when the government does not want to tax us directly thereby stealing from the people the value of their labor. For example, where do you think the money came from for the recent stimulus package, or for that matter the financial bailout of Wall Street? It of course came in the usual manner of rolling the printing presses and then charging interest on the money created out of nothing which has the inevitable inflationary effect of devaluing the people’s labor and purchasing power.

Underwriting the dysfunctional economy
One would think that if the power elite consistently created money out of nothing that the resulting inflation would eventually make all money virtually worthless. This has in fact happened in the last century in pre-Nazi German and later in Argentina where it took a wheelbarrow full of money to buy goods. The money wasn’t worth the paper on which it was printed proved by the fact that some even burned it for fuel. Incidentally, during the 1800’s and for 100 years thereafter Argentina relied on a gold standard to back their money supply and never had these problems. It was only when they switched to a fiat based money system that they did experience the severe inflation and the devaluation of people’s labor.

Yet for the most part, the western economies have managed to avoid this calamity (though with far less abundance then there could be) essentially because it is the hard working people who have, so to speak, underwritten the money system of the power elite. What has happened is that regular people, those who do not believe in getting something for nothing, have actually multiplied their talents and have thereby have managed to keep the power elite’s economy limping along to a greater or lesser degree.

So through the multiplication of our talents, we have all been underwriting or you might say enabling the power elite’s economy and thus it hasn’t totally collapsed. And if it weren’t for this fact, this economy would have done so centuries ago. This is because the greed of the elite who control the money supply and policy will not stop until they have killed the goose that laid the golden egg – which is the industry, creativity and ingenuity of the people.

The Federal Reserve – of the elite, by the elite and for the elite
In one sense, the history of the United States is the story of who controls the money supply – the people or the elite. Although America had the historical example of unrivaled success of the colonial economy, with the influence of Alexander Hamilton and financier Robert Morris, they chose to implement a system that incorporated a strong central bank as the backbone of the economy. This despite the fact that the Constitution stipulates that only Congress should have the power to print money. To me this was an effort by the framers of our constitution to ensure accountability to the people inasmuch as they are represented by Congress. Yet the United States nevertheless sided with the banking interests in forming their monetary policy. This virtually ensured that at least to the degree that banks and special interests were unaccountable; they would most assuredly manipulate the supply of money for their own selfish purposes.

Prior to 1913 however, there wasn’t a Central bank quite like the Federal Reserve. In fact, the control of the money supply went back and forth eight times between the bankers and the government before to this date. There was in fact the first National Bank of America founded in 1790, the same year that the European monopolist banker Mayer Amschel Roschild boldly declared: “Give me control of a nation’s money and I care not who makes the laws.” This system had the predictable effect of causing cycles of inflation and recession.

The Central bank was in power up until the time of Andrew Jackson who after great political battles in the 1830’s was able to root out of the Central bank and return the power of creating money to the government. During this fight for the money supply, the gold standard was put in place to a certain degree and did have some positive effect on balancing the economy. Even so, the fiat system was still the primary method used to create money as the Central banks still had significant reigns on the economy even if they weren’t officially sanctioned by the US government. This of course resulted in a number of economic downturns and debacles, including but not limited to the following:

Panic of 1797-1800
Depression of 1807-1804
Panic of 1837-1843
Panic of 1857-1860
Panic of 1873-1879
Panic of 1893 -1896
Panic of 1907-1908

Supposedly, the Federal Reserve was created to prevent these economic meltdowns. Yet since it’s inception in 1913, we have seen the following:

Recession of 1920 -1921
Great Depression of 1929 -1939
Recession of 1953
Recession of 1973 -1975 during the oil crisis
And of course the crash of 2008

It’s obvious that the Fed has failed to live up to its goal of preventing such calamities. So what is the Federal Reserve and what are its real purposes?

First off, we need to understand that the Federal Reserve is not Federal and it really has no reserves. From its inception the Fed has been and still is a consortium of unelected private bankers – whose identities are largely unknown – who are therefore unanswerable to the people. I’m sure you’ve noticed, for example that no one cast a vote to make Alan Greenspan or Barnard Bernanke chairmen of the Federal Reserve as this is an appointed position.

There are no reserves in that there is no backing for the money that the Fed creates out of nothing. The only backing is the implicit promissory note of American people to keep multiplying their efforts to keep the money machine afloat. The only backing is the perpetual burden of taxation placed on the American people to fill its coffers with money. For without their effort and these taxes, the Fed and the entire economic system would surely collapse under its own corruption.

It was brought into being by a secret meeting of private bankers and politicians on Jekyll Island in Georgia and later stealthily slipped through legislature on December 23rd 1913 when most representatives had gone home for the holidays. In fact there wasn’t even a quorum present when it passed the Senate.

So the entire enterprise was based on a deception of the American people. And as I said, it really is not a branch of the government. In reality, the Federal Reserve is an instrument of the power elite that serves three main purposes:

1. To enforce the fiat money system where money is created out of nothing, lent to the Federal Government, the interest of which is then placed on the backs of the American taxpayers.
2. To control the money supply and thereby control the people.
3. To prop up the major banks and protect them from risky investments.

All of these purposes have the effect of keeping the power elite in a superior status and keeping the people toiling for their bread. It is important to note that all money currently in circulation is created by the Federal Reserve. And the Fed – which is again a consortium of private bankers – makes enormous profits off of the interest they charge for printing our money. The money the US taxpayers owe to the Fed is the national debt that we keep hearing about. The Fed does not care if we ever pay off the debt they just want the magic money machine to keep rolling so they can keep making off the interest they charge us for creating money out of nothing.

The Fed controls the money supply by tightening and loosening lines of credit to business and the public. In times when money is more freely available, people multiply their talents, the economy expands and businesses thrive for a time. When the reigns of credit are tightened however, businesses fold and people lose their jobs. The Fed and the elite profit in either scenario. In good times they make money off the interest paid to the money machine. Yet in hard times, the elite are right there to buy up the lost businesses at bottom bargain prices and thereby expand their control over the people and the economy.

Relatively few people today are aware of the Fed’s negative influence as the power elite now controls much of the major media where people get there information. Yet this has not always been the case. The following are quotes from prominent citizens regarding the role of Central banks in the economy.

If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.
– Thomas Jefferson

“I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
– Thomas Jefferson.

You are a den of vipers and thieves. I intend to rout you out, and by the Eternal God, I will rout you out… If people only understood the rank injustice of the money and banking system, there would be a revolution by morning.
– Andrew Jackson

“The money power preys upon the nation in times of peace & conspires against it in times of war. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. It denounces, as public enemies, all who even question its methods or throw light upon its crimes. I have two great enemies, the Southern Army in front of me & the financial institutions at the rear; the latter is my greatest foe.
– President Abraham Lincoln

“It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
– Henry Ford

“We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures that control it.” – Congressman Louis T. McFadden in 1932 (Rep. Pa)

“By this means government may secretly and unobserved, confiscate the wealth of the people and not one man in a million will detect the theft.”
– British Lord John Maynard Keynes

“The financial system has been turned over to the Federal Reserve Board. That Board administers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money”
-Charles A. Lindbergh Sr., 1923

“All the perplexities, confusion and distresses in America arise not from defects in the constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation – John Adams

“Whoever controls the volume of money in any country is absolute master of all industry and commerce.”-James A. Garfield

I cannot emphasize enough how important it is for the American people to understand how our economy works and how the Federal Reserve and the power elite are stealing the wealth of the people. Even as I’m writing this, the headlines read that the Fed has recently spent over 4 trillion dollars in bailing out the financial elite in this country. This will have the predictable inflationary effect of putting too much money into circulation that has no correspondence to something of value. Unless something is done quickly, the Fed, out of their greed and their need to keep the elite in a position of superiority, will bankrupt America.

We need to take back the money supply from the elite and give it to the people where it belongs. We need to overcome our idolatry of the elite and recognize the power of God in each of us. God can and will turn around the economy but it won’t be by a blinding flash of a miracle from the sky but through multiplying our illumined efforts in creating a balanced and sustainable economy by utilizing right principles.

For these interested in a far more detailed and thorough analysis of the Federal Reserve then provided here, I would highly encourage you to watch the following video: http://video.google.com/videoplay?docid=7757684583209015812&hl=en

The causes of current economic crisis
While the fiat money system is the major instrument for the manipulation of money supply and can therefore be considered a meta-cause of our economic ills, I would say that the current crisis was precipitated by more local factors consisting of a combination of greed, arrogance and fear.

The problem basically is that many of the elite (and also many of the people in general) want to get something for nothing. They are all hoping that a minimal investment will produce a large return. This is essentially the gambling consciousness where everyone wants to win the big prize by investing relatively small sums of money compared to the sum of the prize. The trouble is, of course that in gambling only a few can win the big prize because if everyone won it the gambling industries would all go under.

So investors were essentially gambling on their investments – and these investments were largely held in debt based products derived from the mortgage industry. A few years ago, a number of new financial products hit the market that went almost entirely unregulated by the government (due to intense lobbying in Congress by many large financial institutions). The products, termed “derivatives” because they were derived from the reselling of debt (primarily mortgage based) leveraged across a variety of complex financial instruments.

The trouble is, as recently corroborated by the G-20 economic summit, the risks on these debts were hidden and while large profits were taken on them, these debts eventually came home to roost because the risk could not be adequately assessed, even by the elite. So what essentially drove the investors was greed and the idea that they could get something for virtually nothing. And that nothing really consisted of the mortgage debts which essentially came from money created out of nothing. Arrogance played a role as these financial institutions thought they had the sophistication to adequately assess the risk when they obviously did not.

So what inevitably happens when greed goes too far and things begin to collapse is that the polar opposite of fear rears its’ head. Fear then drives the investors and stakeholders to begin pulling out their investments when the financial industries start to go south. What we need to realize, however, is that all these psychological conditions of greed, arrogance and fear and the concept of lack itself are all illusions which only exist as a result of mankind believing in the ultimate illusion that we are in fact separate from God.

It is only when we realize as Jesus said long ago that the kingdom of God is within us that we can remove the beam of separation and all the psychological baggage that comes with it from our individual and collective psyches and begin to heal ourselves of all illusions including the illusion that only the elite can run the economy. For surely God can and will inspire the economy but it is only when each of us makes ourselves the open doors through which divine light and ideas can flow that this will occur. Again, we must not passively wait for a miracle to occur as each of us needs to become the miracle and then the economic ship of this nation as well as the world will be righted.

Monopolies and the proper role of government in the economy
The power elite not only control our economy through monopolizing the money supply but through acquiring vast monopolies in the business sector as well. We need to realize that we cannot have a truly free economy when other businesses are not free to compete against large corporations. If one or a handful of corporations control 90% or more of the market share in any sector of the economy, how can any smaller company effectively compete against that? And if there is not competition, what incentive is there for corporations to reduce prices? And so we see that not only is the value of our labor and spending power being degraded through the fiat money system of the elite, but our pocketbooks are further emptied through the high prices that many monopolist industries charge for their products and services.

Now before I continue, it should be noted that in last 15 years or so, there has been enormous influx of relatively cheap goods coming into America from China and as well as various third world countries. This has given Americans and other Western nations the illusion of prosperity where no real prosperity exists. This has the effect of lulling the West to sleep believing that all is well in the economy, which as the dramatic events of the past few months have shown, nothing could be further from the truth.

There is also the added problem that these cheap goods are being bought for a price. And the price is the welfare of the workers who produce these goods. For as everyone knows, most of the workers are paid sub standard, near poverty level if not slave wages and therefore when the West purchases these goods we end up subsidizing the injustices done to these workers by the power elite in those countries. This is clearly not a sustainable system. We must know that the universe acts like a mirror and so it will inevitably return the effects of the unjust conditions of our brother and sisters to our doorstep – some of the effects of which we may be witnessing today.

Returning to monopolies, the history of United States is unfortunately replete with them. From the railroads, to the steel mills, to the auto industry, to the energy companies and now technology companies (ever wonder, for example, why one software company has their operating system installed on 99% of the world’s computers?), gigantic corporations have been allowed through certain government regulations, to gain an unjust hold on market shares and after that no regulation is needed as these companies can effectively undercut all other potential competitors through the control of the market share and all the subsidiary industries and suppliers that feed it.

Again, free competition is the enemy of monopolies so the latter will do all they can to stomp it out. Therefore, the government can play a legitimate role in regulating industry and trade in such a way that no single company is allowed to obtain more than a certain amount of the share of a particular market. Now, there are some anti-trust laws on the books but these are typically either ignored or circumvented altogether by the large corporations. We need to tighten these rules and enforce them in such a way as to create a level playing field where all can compete. And when we do, not only will consumers get better products, but they will get them at better prices due to the competition among businesses who are given a fair chance to compete.

Look what happened in the 1970’s when the Bell telephone monopoly was broken up by the Supreme Court. Many new companies emerged and phone rates were by and large dramatically reduced. However, this safeguard against this particular industry was not sustained as today we are also faced with virtual monopolies by the likes of AT&T and a few others.

This means we need to be vigilant for as we know, perpetual vigilance is the price of freedom. This also means that the media needs to reform and start playing a far greater role in all of this again, as today they are basically the lapdog of the elite and not the watch dog that will sound the cry of alarm when such shenanigans and crimes in high places occur. If you don’t believe me, when have you ever heard any of what I have discussed in this article in the popular dominant media? My guess is almost never. When have you ever heard a criticism of the Federal Reserve by any major newspaper or major media outlet? Of course you haven’t because these outlets are controlled by the elite. Government can play an important role here by regulating what percent of any medial outlet can be owned by a single or corporate conglomerate.

The government needs to also play a role in regulating financial products. New products that enter the market need to be vetted for viability and risk and if the risk is too high or they threaten the stability of the entire economy then they should not be allowed on the market. The present crisis that stemmed from the derivatives based on housing market debt could have been averted if these products would have first been assessed using the above criteria.

So in a modern economy it is clear that government must play a major role to prevent the system from collapsing as well as helping the entire economy grow by it’s insistence on sound economic practices. This means that we need men and women of wisdom, honor and intelligence to step up into roles in the government. I believe there are indeed people with these qualities that God has prepared and are so to speak, waiting in the wings. And so part of our job as citizens is to help find these individuals and raise them up and then put pressure on the government to involve such people in the day to day governmental operations and decision making regarding affairs of the economy.

But ultimately, a government can rise no higher than the people who elect it. And, inasmuch as the government is a reflection of the people – and we get the government we deserve – we need to rise higher to deserve better. Therefore it behooves us all to raise our consciousness regarding spiritual matters and from this knowledge about economic matters as well.

And while on the subject of control, it must be recognized that very few people in this country are learning about the history of money and it’s manipulation in our nation’s schools. If we are to be and remain a free people, we must be an enlightened people. This will only come about when parents demand that children stop being programmed in the mediocrity of the mass consciousness which encourages students to blindly accept every lie spoon fed them by the powers that be. Parents must insist that children be properly educated about the economy and government in the schools or remove them from these schools altogether as many Americans have already done.

Conclusions
For surely it is the Father’s good pleasure to give us the abundant life – but we need to reach for it and multiply our understanding and love that the Father may multiply our own efforts to produce the abundant life here on earth. Clearly, God is infinite and so is God’s abundance. There is more than enough for all, we just need to bring it into manifestation by making ourselves aware of spiritual principles and how the abrogation of these principles have produced an economic slavery in modern society that far surpasses that of the Israelites who toiled in the land of Egypt.

Let us all demand that our government follow sound economic principles, many of which are outlined here. Let us rise above the consciousness that we need an elite group to run our economy when we know that the power of God can run the economy through us. You can’t solve a problem in the same state of consciousness that created the problem. Therefore, we must entirely rethink how our economy is run and tear down the towers of Babel erected by the elite and replace it with the rock of Christ principles. When we do so, we will once again have an economy and a government that fulfills Lincoln’s vision so eloquently expressed over a century ago – that is truly of the people, by the people and for the people.

Steve Larsen is a writer, producer, guitarist and singer / songwriter in Illinois. Find him here and here.

Paying for the Green New Deal

Open Letter by Nick Egnatz to US Congresswoman Alexandria Ocasio-Cortez (NY-14).

Dear Congresswoman Ocasio-Cortez,

You have proposed an individual income tax rate of 70% on earnings in access of $10 million per year. This to fund a proposed progressive agenda of transitioning to clean renewable energy, expanded Medicare for All and tuition free public university education. You correctly reference that we had a 90% top tax rate in the 1950s and did just fine with it. Critics are quick to point out that even increasing the top tax rate won’t fund the Green New Deal, as the reforms are called.

Whether of not there is success in raising the top tax rate I support the Green New Deal, while calling for reform of our monetary system to provide the additional funding that makes it all possible, doing so debt-free and without inflation/deflation.

If you would just rather watch a video before you read my thoughts, please do. Reverend Delman Coates is pastor at Mount Ennon Baptist Church in Clinton, MD. His presentation is titled The New Abolitionism — Monetary Reform and the Future of Social Justice.

70% of Americans live paycheck to paycheck, 40% can’t cover a $400 emergency (new tires on the car, a trip to the dentist or a couple of missed workdays due to the flu).

The American people, almost half of whom have virtually no net worth, would overwhelmingly support monetary reform that would fund, debt-free, a massive rebuilding of both our crumbling physical infrastructure and our human infrastructure via education, healthcare and a clean, sustainable environment. Monetary reform will create millions upon millions of new good-paying jobs and bring about the drastic reduction of both private and government debt. All the American people need is a little knowledge about unjust and just systems of money — what our money system is now and what it could be with simple monetary reform legislation that is already written and in Congress.

Aristotle’s statement “Money exists not by nature, but by law” is the soul of the monetary reform movement. Aristotle did not spout theories and then use his intellect to try and justify them. He observed nature and society, what worked, what didn’t and what conformed to nature. Both ancient Sparta and ancient Rome had legal systems of public money, with no intrinsic commodity value, that allowed them to grow and prosper for about 400 years each. Rome eschewed gold and silver (commodity money) for bronze coins (fiat legal money). Sparta used iron coins that were dipped in vinegar after smelting to take away any future commodity use. Both Rome and Sparta thrived with fiat legal money and then sadly after 400 years each, got away from it and began their decline (See Stephen Zarlenga, The Lost Science of Money, Chapters 1 & 2).

In the American colonies three examples of money by law systems (fiat legal money) like the NEED Act represents were responsible for the growth of the colonies, the Revolution that gave us our country, and the eventual abolition of slavery and the continuation of the Union. Colonial Currency allowed the colonies to grow and build infrastructure when the Mother Country made possession of its own currency illegal in the colonies. Continental Currency enabled the colonists to fight the Revolution, debt-free. Greenbacks financed the Civil War, allowing the Union and country to continue (Idem, Chapters 14, 15, 16 & 17).

In contrast the present debt money system is responsible for the huge unmanageable levels of debt that people and governments presently have and must continue to have for there to be money in the system for society to function. The debt money system is a fraud that fails the people in actual practice in the real world. The debt money system is quite simply incapable of functioning for the betterment of society and the environment. Abolition of this cancerous system is imperative.

Both theory and actual practice give the NEED Act the solid foundation that should be required of our nation’s monetary system. The NEED Act is based on the premise, reiterated in our Constitution, that the power to create our money belongs to the people collectively, through our elected government. It is further supported by the successful historical examples cited above and in Stephen Zarlenga’s book The Lost Science of Money.

Money is not a commodity, as often represented by gold or silver in ancient times, or the modern banking system’s representation of money as credit or debt. Money is an abstract legal power of the state that acts as is a final means of payment, facilitates commerce and “promotes the general welfare” of society as called for by the preamble to our Constitution.

Monetary reform is the only vehicle that can get both people and government out of debt. Why? Unknown to almost all of us, virtually all of what we use for money is created out of thin air as debt by private banks when they make loans. As the loans are repaid the money is extinguished from the bank’s books, it exists only while we are in debt. Only money for the principal amount of the loan is created by the bank, no money is created for the huge amounts of interest we must pay over the life of the loan. Therefore within the debt money system there is never enough money to repay both loan principal and interest. And even if there were exactly the amount of money in the system to repay the debts, once repaid the money no longer exists and there would be no money in the system for society to function. We are consigned by the debt money system to endless and ever increasing debt. This applies to both government and individuals.

“In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits…” (Bank of England, Quarterly Bulletin 2014 Q1, “Money Creation in the Modern Economy“).

How does monetary reform get us out of debt?

Step 1

Monetary reform decisively stops all bank creation of what we use for money as debt. Under monetary reform banks will only loan money that already exists, exactly what most of us mistakenly think is going on now.

Without getting too complicated, the present debt money representing loans is a liability to the banks. This money, on the banks books as a liability, under the NEED Act instantly become US Money and is no longer a liability to the banks, but the banks are charged with transferring this money to the US Treasury as soon as it is repaid. The banks are allowed to keep the interest part of the repayments and immediately transfer the principal to the Treasury as it is repaid. Future lending will use funds invested with the bank in which the investors (us) will receive a negotiated portion of the interest that is charged. Banks will also have safekeeping accounts (savings and checking) in which the banks will not be allowed to touch this money. Banks will be allowed to charge for this service.

Step 2

Simply stopping banks from creating our money is not enough. The federal government has to step up to the plate and create new US Money, in non inflation/deflationary amounts, and spend it into existence for the needs of the nation as determined by Congress — think infrastructure, clean sustainable environment, healthcare, education, repayment of national debt. Critics will predict rampant inflation, yet creating money for programs that create infrastructure (physical — roads, bridges, etc., human — healthcare, education, child care, etc.) have never been inflationary in the past and there is no reason to believe that it will be now.

Step 3

The Constitution gives “Congress the Power to coin (create) Money.” But a century ago in 1913 our Congress made a fatal mistake and gave the Money Creation Power away to the Federal Reserve System and the private banks that own and control the Federal Reserve Banks. All 12 Federal Reserve Banks are owned and controlled by the private banks in their districts. Blatantly unconstitutional, the Federal Reserve Act has never been ruled on by the U.S. Supreme Court. The third step of monetary reform is to nationalize the Federal Reserve System. Make the Federal Reserve System federal — again exactly what most of us mistakenly think it is now, a part of our government.

In addition to the obvious financial and quality of life benefits to the poor and working class that monetary reform would bring, the new system of just money is also easy to understand. Simply make the monetary system conform to what we think it is now: federal government creates all our money, banks loan money already in existence and the Federal Reserve becomes a part of our government.

1. Our federal government will create all US Money for the needs of the nation, as determined by Congress, and spent into existence, debt-free in non inflation/deflationary amounts.

2. Banks will stop creating what we use for money and only loan money that is already in existence.

3. The Federal Reserve System will be nationalized and put into the Treasury Department. A Monetary Authority, somewhat similar to the Supreme Court, will be created and charged with determining the amount of new money to be created, maintaining a non inflation/deflationary money supply. Congress will continue to determine what we spend our money for.

This system of just, public or sovereign money was put into Congress in 2011 as the NEED Act (National Emergency Employment Defense Act) by Dennis Kucinich.

In addition to repayment of the national debt, infrastructure and other spending deemed appropriate by Congress, the NEED Act specifically calls for a Citizens Dividend to be paid to each citizen. The intention of the writers of the NEED Act was that it should be a substantial amount. $10,000 each was discussed and would be appropriate considering the financial damage done to individuals and families during the Great Recession and continuing to the present day, while at the same time banks were bailed out of bad loans and received trillions of dollars to inflate their owners’ wealth, while the poor and middle class sit upon a financial bubble.

The Citizens Dividend will transform the lives of hundreds of millions of Americans. It is also monetarily necessary to pump money into the system initially to prevent deflation, not enough money to go around, as we transition from bank money creation. Most of us actually live in a deflationary system with not enough money to go around for us and fabulous wealth sitting in the vaults of an elite few.

Evidently content to stick with the status quo of a rapidly disappearing middle class, Federal Reserve economists have avoided critiquing the NEED Act. Fortunately Michael Kumhof and Jaromir Benes at the International Monetary Fund were not content to sit around and do nothing. They embedded a comprehensive and carefully calibrated model of the banking system in a DSGE (dynamic stochastic general equilibrium) model of the U.S. economy, similar to the models used by the Federal Reserve. They concluded that monetary reforms that are in the NEED Act would:

1. “Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money.

2. Complete elimination of bank runs.

3. Dramatic reduction of the (net) public debt.

4. Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation…While inflation drops to zero.” (IMF Working Paper, “Chicago Plan Revisited“)

Monetary reform is not a progressive/conservative wedge issue. It is a win/win issue for both sides of the political spectrum: repaying the federal debt as it comes due (impossible under the present system), allowing people and government alike to get on solid financial footing; while creating jobs, prosperity, infrastructure, education and healthcare in a clean sustainable environment.

The NEED Act is readable, understandable and available to be reintroduced into Congress. It can be found with a simple online search. Current Congress Members might want to contact Dennis Kucinich for assistance. Conservatives and progressives are urged to contact monetary reformers at the Alliance for Just Money to get started.

The American Monetary Institute, under founding Director Stephen Zarlenga and his successor Robert Poteat, has been the leader in the quest for monetary reform and a system of just money. Zarlenga wrote his magnum opus Lost Science of Money and the American Monetary Institute drafted the American Monetary Act that became the NEED Act when Kucinich put it into Congress in 2011. Unfortunately Zarlenga died in 2017 and Poteat in 2018.

Neither Stephen Zarlenga nor Robert Poteat had formal education in economics, yet they both achieved tremendous insight on the nature of money. Stephen Zarlenga’s 2002 book The Lost Science of Money was reviewed by former Deputy Director of Modeling for the International Monetary Fund, now with the Bank of England, Michael Kumhof as “a masterful work”. Kumhof read it 3 times (750 pages) and was inspired by it to model the 1930s Chicago Plan in his IMF Working Paper “The Chicago Plan Revisited“.

The Alliance for Just Money is a fledgling organization composed primarily of supporters of the American Monetary Institute trying to move the monetary reform agenda forward in a more public manner.

A word of caution, there are two U.S. organizations (Modern Monetary Theory & Public Banking Institute) that claim to support monetary reform, but do not support the NEED Act and have refused to critique it. They prefer to ignore a vigorous debate on the comprehensive reforms of the NEED Act and instead call for continuing the present debt money system, albeit with minor changes.

Monetary Reform has gone international with groups springing up across Europe and elsewhere. Many of these monetary reformers have attended annual conferences held by the American Monetary Institute each fall in Chicago.

The Swiss had a recent citizens referendum to change to a just money system. While the majority of Swiss supported the change in a poll before the referendum, the power of the Swiss banking industry was able to cloud the issue and carry the day. Still 26% of the Swiss people voted to change their money system.

I have written extensively online on monetary reform. “Linking Social Justice to Monetary Reform” was written 5 years ago and put into a zine that friends of mine published. They send it to prisoners across the country along with hundreds of others. I usually pass them out when I give a talk.

I had guest commentary op-eds published in my local paper the Northwest Indiana Times, Indiana’s 3rd largest newspaper. I cannot find any other op-eds on monetary reform published in our entire country. I bring this up not to boast about anything I have done, but to illustrate the complete avoidance to the issue of monetary reform by the corporate media (See appendix).

Our corporate newspapers have allowed a total of 4 op-eds in the last couple of decades on the issue of comprehensive monetary reform. These op-eds were not written by a learned economist, but by a college drop-out who participated in the Vietnam War through ignorance and for the last 14 years stands vigil every Saturday in front of the Highway of the Flags War Memorial, Highland, Indiana in protest of our government’s imperialism, wars overseas and war at home on the poor and working class.

The economics profession has been equally negligent in educating the American people about the nature of our money. The Federal Reserve System employs many hundreds of monetary economists. These current, past and future Federal Reserve economists are on the editorial boards of the academic economics journals and control what gets published. They have completely ignored the NEED Act, as if it didn’t exist. It is career suicide for a monetary economist to support monetary reform.

Incredibly the Federal Reserve is unable to tell us where our money comes from and how it is created. The Chicago Federal Reserve has 11 monetary economists listed on their webpage. I wrote all of them asking how our money is created. Ten ignored my letter, but one replied. A gracious letter, acknowledging how important the subject was but that the public affairs department would have to provide an answer to my question. Still no answer. I’ll save a discussion for another time of how the economics textbooks incorrectly portray how our money is created.

Kaoru Yamaguchi received his doctorate from University of California, Berkeley and was a department head at the prestigious Doshisha University, Japan. He lost his job at Doshisha for modeling and writing about the NEED Act before it was put into Congress. A member of the System Dynamics Society, Dr. Yamaguchi has written several academic papers concluding that the reforms of the American Monetary Act (NEED Act) allow us to repay our federal debt as it comes due and completely rebuild our crumbling infrastructure, $2.3 trillion then, now $3.6 trillion per American Society of Civil Engineers Infrastructure Report Cards, with zero inflation, creating 7-10 million new good-paying full time jobs. Dr. Yamaguchi’s life and research is devoted to sustainability and his system dynamic modeling reflects environmental sustainability. As a reward to Dr. Yamaguchi’s pioneering work on monetary reform and a sustainable future, his department at Doshisha University was eliminated.

I am at your service to assist you in any way that I can to bring about true monetary reform and a system of just money. I will gladly put you in touch with other monetary reformers, including New York City.

Sincerely,

Nick Egnatz
occupynick@yahoo.com

 

Appendix: Guest commentaries by Nick Egnatz for the Northwest Indiana Times:

Gary could fulfill development needs with the NEED Act

The NEED Act Erases Big Steel’s Claimed Need for Worker Concessions

Fund Infrastructure Work with the NEED Act

Monetary reform needed for smart infrastructure investment

 

Introduction to the Problem with Modern Monetary Theory (MMT)

By Govert Schuller.

The Modern Monetary Theory (MMT) school is perceived sometimes as representing the ideas of the New Currency Theory (NCT) school so named by the eminent German economic sociologist and monetary reform theorist Joseph Huber. Huber, though admitting overlaps between the two theories, thinks the actual differences have profound consequences both at the theoretical level and, more importantly, at the policy level. Because this misconception creates confusion and unearned allegiances I like to highlight some pertinent quotes by Huber to be clear about these differences.

Guided by Huber’s introduction to his 2013 paper “Modern Money and Sovereign Currency” I will name four fundamental problems with MMT as 1) a problem of definition; 2) a problem of perception; 3) a problem of historical analysis; and 4) a problem of over-aggregation.

1) The initial problem according to Huber is one of definition:

“For example, MMT claims to be a chartal theory or state theory of money. Most people will understand ‘state money’ or ‘sovereign currency’ as money issued by a state authority such as a national central bank. MMT, however―and in line with banking doctrines and national-liberal ideas of old in the vein of Knapp and Mitchell-Innes―understand by ‘sovereign currency’ that the state just defines the national currency unit and for the rest accepts the money denominated in that currency issued by private banks rather than a public agency. This creates misunderstanding from the beginning.” (p. 5)

In short, MMT equates bank-credit money with sovereign money because it is issued in the state’s denomination and is accepted by the state as a medium of exchange. Meanwhile sovereign monetary reformers think that the 97% of the money stock created by commercial banks should not be considered sovereign money.

2) The second problem is MMT’s perception of banking as both benign for the economy and non-threatening to a state’s sovereignty:

“MMT does not recognize a need for monetary reform. Central bank and government together, it is assumed, exert effective control over banks’ creation of credit and deposits. Fractional reserve banking on the whole is seen as efficient and benign. To NCT this is just another example of fictional economics, for the actual situation today comes close to one of capture of the state’s monetary sovereignty by the private banking sector.” (p. 5)

In short, MMT ignores the cause of the aggravated and destructive boom-bust cycle fueled by the volatile expansion and contraction of bank-credit money, and is oblivious to the political power gained by the commercial banks.

3) A third problem is that MMT has its monetary history wrong.

“MMT has it that money is credit and debt by its very nature and history. MMT adherents ridicule the notion of debt-free money as ‘dry water’. . . . . Money certainly is a medium for paying debt, i.e. to get rid of debt, and thus has of course developed historically in a context of debt of various kinds. . . . MMT, yet, misrepresents 2,500 years of coin currencies when money typically was not lent into circulation against interest, but spent into circulation by the rulers of the realm free of interest and redemption.” (p. 6)

In short, because MMT sees money only as credit/debt they cannot understand the historical record indicating that there were times in which certain states did issue debt-free sovereign money.

4) A fourth problem is that MMT aggregates the productive, real-economic sector and the FIRE sector, i.e. finance, insurance and real estate.

“MMT’s categories of sector balances – public, private, foreign – remain simplistic and actually misleading as long as they do not incorporate in each sector Hudson’s distinction between a FIRE subsector, which can indirectly contribute to productivity, and a real-economic subsector which can immediately be productive.“ (p. 95)

Here I would add that, though the financial sector is perceived as the credit engine of the real economy and therefore both could be aggregated, the historical record shows that, when the financial sector starts allocating credit into speculative, non-productive ventures, the real economy will suffer and therefore they should be treated as different sectors.

Huber’s assessment of MMT therefore is quite severe:

“Without openly denying this, MMT is nonetheless contemptuous of monetary quantity theory and the notion of sound finances. MMT cultivates laxness about deficits and debt. MMT does not question why the concept of ‘functional finance’ turned out to be quite dysfunctional in practice.”

In summary, because 1) MMT works with a skewered definition of sovereign money; 2) has a blind spot to the elasticity of the money supply as the real cause of destructive speculation bubbles and ensuing debt-deflation spirals; 3) MMT misunderstands the historical record of sovereign money production; and 4) does not differentiate between the real economy and the FIRE sector, the aggregate of these shortcomings leads MMT to become irresponsibly lackadaisical about debts, deficits and the power of the financial sector over the state.

On the other side, those promoting sovereign monetary reform are very aware of the societal-formative and -destructive power of credit allocation by banks and their increasing gain in political power and are therefor promoting a three-prong policy proposal:

1) Nationalize the central bank and institute a monetary authority to manage the money supply such that its size has neither inflationary nor deflationary effects;

2) Allow the state to spend debt-free money into circulation on projects society really needs;

3) Abrogate the prerogative of banks to create the money supply and, instead, let them be true intermediaries in society’s flow of sovereign money.

With the above in mind I give Huber the last word on this:

“Today, monetary sovereignty is something which has to be recaptured from the banking industry. Regaining control of the currency and repossession of the complete monetary prerogative is a task of constitutional importance, a legal imperative, and a fundament of any stable economy.” (p. 95)

Post Script

In March 2019 Huber wrote another paper on MMT:

Huber, Joseph. 2019a. “Modern Money Theory revisited – still the same false promise“. Sovereign Money, March 2019  .

Sources

Huber, Joseph. 2013. “Modern Money and Sovereign Currency”. Sovereign Money: Website for New Currency Theory and Monetary Reform.

Huber, Joseph. 2014a. “Modern Money Theory and New Currency Theory”. Real-World Economics Review,  66 (13 Jan 2014): 38-57.

Additional Sources

Palley, Thomas I. 2014. “The Critics of Modern Money Theory (MMT) are Right”. IMK Working Paper, No. 132, Institut für Makroökonomie und Konjunkturforschung (IMK), Hans-Böckler-Stiftung, Düsseldorf.

Palley, Thomas I. 2015. “Money, Fiscal Policy, and Interest Rates: A Critique of Modern Monetary Theory“. Review of Political Economy, 27/1: 1-23.

Lavoie, Marc. 2013. “The monetary and fiscal nexus of neo-chartalism: a friendly critique.” Journal of Economic Issues, 47/1: 1-32. 

Roche, Cullen. 2011. “Modern Monetary Theory (MMT) Critique“. Pragmatic Capitalism, 7 Sept 2011. 

Walsh, Steven & Zarlenga, Stephen. 2012. “Evaluation of Modern Monetary Theory”. AMI Research Paper.

 

Labor Day and Monetary Reform

Labor Day might be the appropriate day to confirm the establishment of an activist organization promoting economic and social justice by reforming the US monetary system. Its name is the Alliance for Just Money.

The goal is to bring the money system back under sovereign, constitutional control away from the commercial banks which have abused their prerogative to create the money supply by creating a string of devastating crises in the financial sector and unnecessary economic hardships to most citizens.

Many economists, bankers and other experts now agree on the specific chain of causation of these crises and many agree on the kind of legislation necessary to fundamentally address the problem.

In the US a bill is ready to be re-introduced to congress which will institute the necessary sovereign monetary reform. It is the 2012 National Emergency Employment Defense Act (NEED Act) developed by now former congressman Dennis Kucinich (D-OH) and Stephen Zarlenga of The American Monetary Institute.

For too long commercial bankers, central bankers and their allied economists and politicians have downplayed, if not intentionally ignored, the real nature of banking and money creation. Recent research has irreversibly exposed the actual mechanisms underlying money creation and its link to financial crises with the Bank of England in 2014 most conspicuously admitting the truth.

It is now up to the citizenry to educate itself on monetary matters and then to put pressure on their representatives to become in turn literate on these issues and sponsor the kind of legislation which will radically rectify the the current deeply flawed system.

Please avail yourself of the proffered resources to educate yourself on monetary issues. The issue in the end is not that complex and once grasped it will trigger an epiphany hard to eradicate.

It might even radicalize you as congressman Charles Binderup (D-AR) observed in 1938 in paraphrasing an insight by Henry Ford:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” (Source)

And radical change in favor of the working and middle class is what Labor Day was originally all about.

Modeling the Financial-Economic System and how to make it Sustainable

Two economic researchers, van Egmond and de Vries, at the Sustainable Finance Lab (University of Utrecht, the Netherlands) developed a dynamics model in which the financial system is explicitly included. Their working paper is titled “Dynamics of a Sustainable Financial-Economic System”[1] and it also addresses a sovereign monetary system.

After Yamaguchi in 2010 [2] and then Kumhoff & Benes in 2012 [3], this might be the third successful modeling of sovereign monetary reform (SMR) to date.

They also explicitly heeded the call by Richard Werner, who supports SMR, for a new research programme in macroeconomics citing what increasingly looks like his seminal 2012 paper on the Quantity Theory of Credit.[4]

Find below the Abstract of the van Egmond & de Vries paper and the section on the “Legitimacy of money creation by the government”.

Abstract (page 1)

Along the lines of neoclassical theory, a system dynamics model has been developed to describe the most important mechanisms governing the physical output of goods and services in the economy in interaction with the financial system. The model gives a meaningful reconstruction of the overall long-term dynamical behaviour of the financial-economic system, including the endogenously modeled crisis.

The occurrence of the boom- and bust-cycles can be understood and to a reasonable extent predicted from the asset price driven credit cycle. The model confirms Minsky’s instability hypothesis, in which the euphoria over apparently ever increasing (asset) prices, GDP, wages, consumption and loans turn the system into the downward spiral of the bust, when financing cost becomes unbearable for individual households and the economy is no longer stimulated by a continuously decreasing interest rate as soon as the interest rate approaches the zero level. Once the residential quote passes a certain threshold, defaults significantly increase, banks tend to go bust and have to be recapitalized by the government, with substantial macro-economic consequences.

The current financial system appears to be fundamentally unstable. Lacking central coordination, euphoric herd behavior of the many private banks causes the unjustified creation of too much money and subsequent boom-and-bust behavior of the economic system.

The model experiments show that money creation by the government, according to a ‘money creation rule’, for example directed to price stability and / or employment, can stabilize the boom-bust cycles. At a constant price level, both the physical and the monetary production as well as consumption then follow a pathway of stable, continuous growth which reflects the increased productivity resulting from technical progress. Throughout history, money creation by the government is strongly legitimated and advocated by prestigious social, philosophical and economic thinking.

Price stability and the associated positive effects on employment and GDP can be realized by creation of debt free money at a rate corresponding to the growth of the real, physical economy (without inflation); in the model experiment this was about 10 to 15 bn € /year. In case an inflation rate (e.g. 2 %) would be preferred politically, an additional amount over 10 bn € has to be created yearly, increasing over time. Including the saving on interest payments on the declining government debt, the total sum of money which could be spent by the government amounts over 25 bn € / year. This money can be used to lower tax rates and to invest in physical and social infrastructure, for example in the transition to sustainable energy and transport systems.

Legitimacy of money creation by the government (pages 43-44)

Although beyond the scope of this paper, the proposed reform can also be motivated from a more fundamental point of view and in addition to the considerations with respect to system instability as discussed here. As already pointed out by Aristotle in his Ethica Nicomachea (350 BC), ‘money exist by law, not by nature’. Money is not a commodity, but a social construct (Van Dixhoorn 2013). This implies that money has to be created by (groups in) society, in practice usually the State and that the money supply is a government prerogative. . Since Aristotle, numerous philosophers, economists and politicians including Locke, Franklin, Paine, Berkeley, de Montesquieu , Ricardo, Lincoln, Jefferson and Jackson have supported this view.

The current money-as-debt (MaD)system, with money creation by private banks, cannot be considered beforehand as ‘normal’. On the contrary, the system is from a relatively recent date, the end of the 17th century, when in the ‘Glorious Revolution’ the concept of the Bank of Amsterdam was transferred to London and ownership changed from public (the city of Amsterdam) to private. William Paterson, the founder of the Bank of England stated that ‘the bank hath benefit of interest on all moneys which it creates out of nothing’ (Zarlenga, 2002). Since then the struggle for power over the creation of money has caused many conflicts and even wars.

The usual argument in favor of privatized money creation is the alleged assertion that poorly run money systems of the past were under governmental control. In most cases these assertions refer to developing countries and the German hyperinflation of 1923. However, closer examination of the hyperinflation in interwar Germany points to the contrary: it was rather the pressure from the World War I allies (UK, USA) to privatize the German Bank rather than public governmental control that brought he inflation about. After taking control back by the government by Reichskanzler Schacht, the hyperinflation was halted within one year (Zarlenga 2002). It also should be realized, as shown in this paper, that over the last decades private banks and not governments have created the enormous amounts of money that have led to the 2007 / 2008 financial crisis.

From a political point of view, the Central Bank is under full governmental and democratic control, though legally independent in order to prevent interference by short-term oriented political forces. Comparable to the judicial power as the ‘third power’, the Central Bank would be part of a ‘fourth power’, which can act with great independency according to a priori defined rules but, at the end of the day, under full democratic control. (pp. 43-44)

Sources

[1]. Van Egmond, N. D., and B. J. M. de Vries. 2016. “Dynamics of a Sustainable Financial-economic System“. Working Paper of the Sustainable Finance Lab. Version 2. Utrecht University, The Netherlands.

[2]. Yamaguchi, Kaoru. 2010. “On the Liquidation of Government Debt under A Debtfree Money System: Modeling the American Monetary Act”. In Proceedings of the 28th International Conference of the System Dynamics Society, Seoul, Korea, 2010. The System Dynamics Society. 

[3]. Kumhof, Michael & Benes, Jaromir. 2012. “The Chicago Plan Revisited“. IMF Working Papers 12/202. Washington: International Monetary Fund. 

[4]. Werner, Richard A. 2012 “Towards a New Research Programme on ‘Banking and the Economy’ — Implications of the Quantity Theory of Credit for the Prevention and Resolution of Banking and Debt Crises”. International Review of Financial Analysis, 25/5 (December 2012): 94-105.

Alliance for Just Money

INTRODUCTION

A new organization focusing on sovereign monetary reform has been established. Its name is the Alliance for Just Money and it grew organically out of the American Monetary Institute, with which it is allied.

On the fifteenth of July, 2018, the founding meeting of the new organization took place.  Articles of incorporation, by-laws, mission statement and guiding principles were all unanimously accepted by those participating.

Following are the mission statement and guiding principles of the new organization with contact information to obtain more information, and an introductory bibliography.  A web site is in the make.

MISSION STATEMENT

Our Mission is to research, educate, and organize for real monetary reform. We define real monetary reform as the development, implementation, and protection of a transparent public sovereign money system consistent with Article 1, Section 8, Clause 5 of the United States Constitution to serve the general welfare and commerce of society.

Achieving sovereign money requires three reforms of our existing money and banking systems; these must be implemented together to achieve real monetary reform:

1. Require Congress to exercise its Constitutional power to be the sole creator of all U.S. money, debt-free, and to establish a transparent and independent public monetary authority to determine the amount of new money the Treasury will disperse under authority of Congress.

2. End the privilege of commercial banks to create and issue what we use as money.

3. Transfer ownership of the 12 Federal Reserve Banks, and all remaining operations of the Federal Reserve System, to the U.S. Treasury.

GUIDING PRINCIPLES

We are a non-partisan organization of people of all political, vocational, philosophical, and personal viewpoints who share the common value of working together, and with individual and organizational allies who share our purpose, to achieve real monetary reform. Our Guiding Principles are:

*Accountability to each other and responsibility for achieving our Mission

*Transparency and honesty

*Affirmation of the dignity and worth of all life and the ecosystem upon which we all depend

*Dedication to continuous learning and educating of the public

*Decision-making through informed dialogue, consensus-building, and democratic inclusion

*Economic and political independence

*Participation grounded in self-respect, mutual respect, and enjoyment of our work together

*Grassroots organizing to build power to effect systemic change

CONTACT INFORMATION

For now you can e-mail the following persons for information about membership, on-line meetings and study material. Please write “alliance” in the subject line.

Official address: email reform@monetaryalliance.org

Paul Lebow: paul.l@monetaryalliance.org

Mark Young: mark.y@monetaryalliance.org

Govert Schuller: govert.s@monetaryalliance.org

SOURCES FOR FIRST ORIENTATION

Bjerg, Ole. 2016. “Where does money come from? “ TEDxCopenhagen. 24 May 2016. Video file.

“Ole Bjerg believes that we have handed a vital societal power — money creation — to the financial sectors, and that this leads to instability, inequalities and a concentration of power outside democratic institutions. Facing this gloomy situation, he highlights the solution: a sovereign money system”.

Prof. Bjerg teaches management and philosophy in Denmark and was the founder of the Danish monetary reform organization Gode Penge.

Egnatz, Nick. 2014. “Linking Social Justice to Monetary Reform”. Alpheus. 25 Dec 2014.

“Social Justice is the struggle to make society work for the vast majority of people. The comprehensive monetary reform of the NEED Act is the necessary first step on the path to realization of this struggle. The following ten points are the major social issues in which I will try to link social justice with monetary reform”.

Nick Egnatz is a Vietnam veteran and worked closely with the American Monetary Institute in support of the comprehensive monetary reform contained in the NEED Act.

Graeber, David. 2014. “The truth is out: money is just an IOU, and the banks are rolling in it”. The Guardian, 18 March 2014.

“Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called “Money Creation in the Modern Economy“, co-authored by three economists from the Bank’s Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.”

David Graeber is professor of anthropology at the London School of Economics and author of Debt: The First 5000 years; he was involved in the Global Justice Movement and Occupy Wall Street.

Kumhof, Michael & Jakab, Zoltán. 2016. “The Truth about Banks”. Finance and Development. IMF Publication (March 2016).

During the Great Depression a group of prominent economists proposed a set of monetary reforms now known as the 1930s Chicago Plan. Benes and Kumhof analyzed and computer-modelled the proposal and confirmed its positive features in their 2012 landmark paper “The Chicago Plan Revisited”.This article is a journalistic summary of their findings.

Benes and Kumhof worked at the Research Department of the IMF.

McLeay, Michael et al. 2014a. “Money Creation in the Modern Economy”. Monetary Analysis Directorate. Bank of England Quarterly Bulletin (Q1, 2014): 14-27.

“In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money”.

The authors work at the Monetary Analysis Directorate of the Bank of England.

McLeay, Michael et al. 2014b. “Money in the Modern Economy: An Introduction”. Monetary Analysis Directorate. Bank of England Quarterly Bulletin (Q1 2014): 4-13.

“Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This article provides an introduction to what money is today”. This article is a useful introduction to the more detailed paper on money creation.

Positive Money. “10 year old explains the truth about where money comes from…” London: Positive Money. 4 Sep 2013. Video file.

“10 year old Holly explains where money really comes from, why is there so much debt and what it means for you…” Informative video created by the UK monetary reform organization Positive Money.

Schuller, Govert. 2018. “Formulations of the Three-Point Policy Proposal for Monetary Reform“. Alpheus, 6 Feb 2018.

Modern monetary reform aims at three inter-connected changes of the monetary system, which unity is essential and therefore for many non-negotiable. This is a compilation of different formulations of essentially the same three points. Most formulations are intentionally triple-pointed and some are differently constructed even while more or less covering the same proposals.

Zarlenga, Stephen. 2011. “Congressman Dennis Kucinich’s Briefing to Solve the Debt Crisis”. Huffington Post. The Blog. 11 Aug 2011.

In the summer of 2011 Congressman Kucinich (D-OH) hosted Professor Yamaguchi for a Monetary Briefing to present to members of Congress his scientific evaluation of the NEED Act. Yamaguchi’s conclusion is that the current debt-based system will lead to severe economic crises and that a sovereign monetary system would solve a host of economic and social problems.

Stephen Zarlenga is co-founder and Director of the American Monetary Institute and author of The Lost Science of Money.

Zarlenga, Stephen A. 2014. “Presenting the American Monetary Reform Manual”. Valatie, NY: American Monetary Institute.

Full text and introduction to the “National Emergency Employment Defense Act” (the NEED Act). “The power to create money is an awesome power – at times stronger than the Executive, Legislative and Judicial powers combined. It’s like having a ‘magic checkbook’, where checks can’t bounce. When controlled by banks it can be used to gain riches, but much more importantly it determines the direction of our society by deciding where the money goes – what gets funded and what does not. Will it be used to build and repair vital infrastructure such as the New Orleans levees and Minneapolis bridges to protect major cities? Or will it go into warfare and real estate bubbles and Wall Street Gambling – leading to crashes and depressions, as banking has usually done”.

Trump crossed the Rubicon, but let’s stay positive

About a year ago I thought it very probable that Trump would vacate his position before 18 months of his presidency would have elapsed. I did not make a big announcement of that combined prediction and hope, but still shared it with a few friends. Many times I thought it was getting close but then republicans decided to stay passive and the moment passed. Today is that milestone of 18 months and Trump is still in office. Too bad.

If there is still a silver lining around the gathering dark clouds of US falterings in so many areas induced by a vengeful Trump, his corrupt cabinet and his republican enablers, it is that last week’s performance of Trump at the NATO gathering, in the UK, at Helsinki, and back home, was of such a jaw-dropping, insensible, counter-productive and self- & Russia-serving nature that even his most ardent defenders will have to take notice and seriously engage the idea that they were betting on the wrong horse all along.

As far as I am concerned, Trump crossed the Rubicon and will have to be dealt with accordingly otherwise you can wave goodbye to the republic. So far one could see him merely as a politically incompetent and psychologically damaged man, and entertain the hypothesis, as I did, that he is the expression of an emerging pathocracy, i.e.  a “pathological human system run by conscience-deficient people”[1]. Last week’s performance refutes the idea that it’s merely incompetence and narcissism and I would venture now that the ‘pathocracy hypothesis’ is receiving daily confirmations, though there are some stirrings of conscience in the GOP and even at FOX.

This assessment leads me to the idea that the upcoming mid-term elections will be of existential importance to this country. Will these crucial elections be sufficiently protected from ongoing Russian interference? Will the republicans and democrats sufficiently refrain from dirty tricks, and most importantly, will the US electorate be able to make up its own mind? If the republicans keep their hold on congress this year with the help of Putin, corrupt republicans, voter suppression and deceived voters, well, then the new pathocracy will have firmly entrenched itself and can then easily grab the 2020 elections, pack the supreme court with reactionaries, gut the welfare state and let greedy corporations take over federal departments and agencies. 

On the other hand, because the civilizational process of people attaining more empathy and self-control is a jagged one–and we’re obviously in a down-ward phase with Miller and Trump leading the way–the next up-ward phase might actually be a very good one with the US catching up on creating a political and economic infrastructure which will serve the people and not the 1%. A pink-blue, anti-gun, millennial wave is on the rise and hopefully will be able to recapture the House and start rectifying the enormous damage done so far by the Trump administration and their lackeys in congress six months from now.

One very important idea for reform, to end on an upbeat note, is to radically change the money and banking system through nationalizing the money supply and taking away from the banks their unconstitutionally gotten prerogative to create and allocate most of the current money stock. A group of academic economists, independent researchers and business journalists have now the evidence that this ill-gotten bankers’ privilege is wrecking the economy, creating inequality and pushing the federal, state and local governments ever closer to bankruptcy. 

It does not have to be that way and actually the Swiss electorate had the opportunity last June to switch from a bank credit money system to a sovereign money system. Even though they lost, the opposition was well organized and used deception and fear tactics to win. I’m sure the Swiss will try a reform referendum again. Meanwhile other countries are pressing for reform and new organizations are popping up to make the case for a sovereign money system. One new organization is here in the US and will go by the name of the Alliance for Just Money. Stay tuned. 

[1]. Mika, Elizabeth. 2017. “National Character Counts Week: Welcome to Pathocracy“. Medium. 19 Oct 2017.

See also: Mika, Elizabeth. 2017. ” ‘Now More Than Ever:’ On Straitjacketing Trump“. Medium. 23 Aug 2017.