[A-List] Out of the Ashes of General Motors

[Bill Totten]

The Phoenix of Renewable Energy

by Ellen Brown

webofdebt.com (June 10 2009)
 

It may be prophetic that among the brands GM chose to kill was the Pontiac
Firebird, a classic hot car of the 1960s sporting the fabled Phoenix on
its hood. In mythology, the Phoenix was a colorful bird that incinerated
itself in its nest, then rose from the ashes as its own offspring. GM too,
says Michael Moore, could be reborn as something else. In a June 1 eulogy
of sorts, he wrote {1}:

"So here we are at the deathbed of General Motors. The company's body not
yet cold, and I find myself filled with - dare I say it - joy. It is not
the joy of revenge against a corporation that ruined my hometown … Nor do
I, obviously, claim any joy in knowing that 21,000 more GM workers will be
told that they, too, are without a job. But you and I and the rest of
America now own a car company!"

What would we want with a car company? Moore suggests that the bankrupt
mega-builder of obsolete gas guzzlers can be transformed into a
mega-builder of things we need more - mass transit vehicles, including
bullet trains, light rail mass transit lines, energy efficient clean
buses, hybrid or all-electric cars {2}, and alternative energy devices {3}
such as batteries, windmills, and solar panels. The factories that built
the cars that helped destroy the environment can become the tools for
cleaning it up. This would, of course, take some investment; but Moore
suggests that to pay for it all, the government could impose a two-dollar
tax on every gallon of gasoline.

It sounds good right up to the gas tax, a regressive tax that would hit
hardest in the wallets of the poor and would raise alarm bells for
politicians, the oil lobby, and voters. Isn't there some way to fund the
plan without driving up the tax burden or the national debt? In fact,
there is.


To Put Our New Car Company to Good Use, We Just Need to Own a Bank

The federal government could create its own credit with its own
government-owned lending facility, on the model of the Reconstruction
Finance Corporation {4} used by President Roosevelt to fund the New Deal.
But instead of merely recycling borrowed money as Roosevelt did, the new
facility could actually create credit on its books. Its capital base could
be leveraged into many times that sum in loans, in the same way that
private banks routinely create money (or "credit") today {5}. Assuming a
reserve requirement of ten percent, if the $300 billion or so that remains
of the TARP money were deposited in the new bank, this money could be
leveraged into $3 trillion in loans. If the money were counted as capital,
at an eight percent capital requirement it could become $3.75 trillion in
loans, or 12.5 times the original sum.

Indeed, it is the sovereign right of governments to create the national
money supply, but few governments exercise that right today. The only
money the US government now issues are coins, which compose only about one
ten-thousandth of the US M3 money supply. The rest is created by private
banking institutions when they make loans. This includes the
privately-owned Federal Reserve, which creates Federal Reserve Notes
(dollar bills) and lends them to the government and to commercial banks.
Federal Reserve Notes compose only three percent of the money supply. All
of the rest consists merely of credit created on the books of private
banks.

Many authorities have attested that banks simply create the money {6} they
lend as accounting entries on their books. The Federal Reserve Bank of
Dallas states on its website {7}:

"Banks actually create money when they lend it. Here's how it works {8}:
Most of a bank's loans are made to its own customers and are deposited in
their checking accounts. Because the loan becomes a new deposit, just like
a paycheck does, the bank … holds a small percentage of that new amount in
reserve and again lends the remainder to someone else, repeating the
money-creation process many times."

This was confirmed recently by President Obama himself. In a speech at
Georgetown University {9} on April 14, he said:

"[A]lthough there are a lot of Americans who understandably think that
government money would be better spent going directly to families and
businesses instead of banks - 'where's our bailout?' they ask - the truth
is that a dollar of capital in a bank can actually result in eight or ten
dollars of loans to families and businesses, a multiplier effect that can
ultimately lead to a faster pace of economic growth".

The money generated by banks through the multiplier effect comes at a
heavy cost in interest. One advantage of a government-owned bank {10} is
that it could fund public projects interest-free or nearly interest-free,
cutting production costs dramatically. Interest comprises as much as 77%
of the cost of goods and services {11}, such as public housing, that
require large amounts of capital. The cost of interest is lower for
labor-based services such as garbage collection, for which it makes up
only about twelve percent of the cost. Averaging them all together, the
overall cost of interest has been estimated to be about half the cost of
everything we buy. If money for infrastructure development were issued
interest-free, projects currently considered unsustainable because of the
burden of interest could become not only self-sustaining but actually
profitable for the government.

In The Modern Universal Paradigm (2007), Rodney Shakespeare gives the
example of the Humber Bridge, which was built in the UK at a cost of GBP
98 million. Every year since the bridge opened in 1981, it has turned an
operating profit; that is, its running costs (basically repair,
maintenance, and staff salaries) have been exceeded by the fees it
receives from travelers crossing the river Humber. But by the time the
bridge opened in 1981, interest on its construction loans had driven its
cost up to GBP 151 million; and by 1992, only ten years later, the debt
had shot up to a breath-taking GBP 439 million. The UK government was
forced to intervene with sizeable grants and writeoffs to save the local
residents from bearing the brunt of these costs. If the bridge had been
financed with interest-free, government-issued credit, these costs could
have been avoided and the bridge could have funded itself.

In March of this year, Congressman Chris Van Hollen introduced a bill to
establish a Green Bank {12} aimed at catalyzing clean energy and energy
efficient projects. The proposed bank would be an independent, tax-exempt,
wholly owned corporation of the United States, with the exclusive mission
of providing a comprehensive range of financial support to qualified
clean-energy and energy-efficiency projects in the US If this Green Bank
were operated on the fractional reserve system, its initial capital base
could be leveraged many times as loans. The loans could then be paid off
with the income generated by the projects, preventing inflation and
allowing additional loans to be made. Unlike the bank bailouts that have
eaten up so much of the government's revenues, green projects create real
goods and services and real profits; and the projects could be
particularly profitable if they were created without the burden of
interest.


Historical Precedents

Funding public projects with government-issued credit is not a new idea.
It has a long and successful history, including these notable examples:

* In the early eighteenth century, the colony of Pennsylvania {13} issued
money that was both lent and spent by the local government into the
economy, producing an unprecedented period of prosperity. This was done
without producing price inflation and without taxing the people.

* When Abraham Lincoln {14} needed money to fund the American Civil War,
rather than paying 25 to 36 percent interest charges, he avoided going
into debt by printing Greenback dollars that were "legal tender" in
themselves. The ploy not only allowed the North to win the Civil War but
helped fund a period of unusual national expansion and development.

* The island state of Guernsey {15}, located in the Channel Islands, used
government-issued money to fund roads, bridges, and other needed
infrastructure throughout most of the 19th and 20th centuries, without
price inflation and without incurring government debt.

* The Bank of North Dakota {16}, founded in 1919, is a wholly state-owned
bank that creates credit on its books just as private banks do. This
credit is used to serve local needs, and the interest on loans is returned
to the government. Not coincidentally, North Dakota has a $1.2 billion
budget surplus at a time when 47 of fifty states are insolvent, an
impressive achievement for a state of isolated farmers battling
challenging weather.

* During the First World War, when private banks were demanding six
percent interest, Australia's publicly-owned Commonwealth Bank {17}
financed the Australian government's war effort at an interest rate of a
fraction of one percent, saving Australians some $12 million in bank
charges. After the First World War, the bank's governor used the bank's
credit power to relieve the depression conditions in other countries by
financing production and home-building, and lending funds to local
governments for the construction of roads, tramways, harbors, gasworks,
and electric power plants. The bank's profits were paid back to the
national government.

* A successful infrastructure program funded with interest-free "national
credit" was also instituted in New Zealand after it elected its first
Labor government in the 1930s. Credit issued by its nationalized central
bank allowed New Zealand to thrive at a time when the rest of the world
was struggling with poverty and lack of productivity. According to a book
titled State Housing in New Zealand, published by the Ministry of Works in
1949:

"To finance its comprehensive proposals, the Government adopted the
somewhat unusual course of using Reserve Bank credit, thus recognizing
that the most important factor in housing costs is the price of money -
interest is the heaviest portion in the composition of rent … This action
showed … it was possible for the State to use the country's credit in
creating new assets for the country".


The Inflation Objection

The objection invariably raised to proposals for government self-funding
is that the result would be dangerously inflationary. Addressing that
issue in the Winter 2004 edition of the New Zealand Guardian Political
Review, Stan Fitchett explored whether the New Zealand government's 1930s
approach would create price inflation today. He confirmed with bank
officials that 97 percent of the New Zealand money supply is now created
by commercial banks when they make loans. The year he was writing, the
money supply increased by 18,527 million New Zealand dollars, or 16.8
percent; and 97 percent of this increase came from commercial bank
lending. Fitchett confirmed with banking experts that if the Reserve Bank
had created 100 million New Zealand dollars to build new houses in New
Zealand, the sum would have had no noticeable impact on inflation, since
it was only one-half of one percent of what was already being added to the
money supply annually by private commercial banks. Similar ratios apply in
the United States and other countries.

If it is dangerously inflationary for public banks to create money, then
it is dangerously inflationary for private banks to do it; but we don't
hear economists and politicians clamoring for the private credit machine
to be shut down. To the contrary, a flood of money is being poured into
that choking and sputtering machine in a desperate attempt to get its
pistons firing again. A more efficient solution to the credit crunch would
be for the government to abandon its old Tin Lizzie-model credit machine
and create a shiny new public Firebird model; and the first thing the new
credit engine might be tested on are green energy projects of the sort
proposed by Mr Moore. Out of the ashes of a failed GM could arise not only
a new, clean way of traveling but a new way of funding government and the
services we expect from it.

Links:

1 http://www.huffingtonpost.com/michael-moore/goodbye-gm_b_209603.html

2 http://www.yesmagazine.org/article.asp?id=2282

3 http://www.yesmagazine.org/article.asp?ID=3325	

4 http://www.yesmagazine.org/article.asp?ID=3162

5 http://www.yesmagazine.org/article.asp?ID=3499

6 http://www.webofdebt.com/articles/creditcrunch.php

7 http://www.dallasfed.org/educate/everyday/ev9.html

8 http://www.yesmagazine.org/article.asp?ID=3499

9 http://www.nytimes.com/2009/04/14/us/politics/14obama-text.html

10 http://www.yesmagazine.org/article.asp?id=3361

11 http://www.mkeever.com/kent.html

12
http://www.foxbusiness.com/story/industry-coalition-hails-congress-green-bank-act/

13 http://findarticles.com/p/articles/mi_qa3647/is_200208/ai_n9106543/

14 http://www.yesmagazine.org/article.asp?ID=3394

15 http://www.prorev.com/sovreign.htm

16 http://www.yesmagazine.org/article.asp?ID=3361

17
http://web.archive.org/web/20010714001752/http:/dkd.net/davekidd/politics/money.html

_____

Originally posted on YesMagazine.org on June 9 2009.

Ellen Brown, JD, wrote this article in June 2009, for Path to a New
Economy, a collection of online articles for YES! Magazine, on economic
and financial solutions. Ellen developed her research skills as an
attorney practicing civil litigation in Los Angeles. In Web of Debt
(2007), her latest book, she turns those skills to an analysis of the
Federal Reserve and "the money trust". She shows how this private cartel
has usurped the power to create money from the people themselves, and how
we the people can get it back. Her eleven books include the bestselling
Nature's Pharmacy (1998), co-authored with Dr Lynne Walker, and The Key to
Ultimate Health (2000), co-authored with Dr Richard Hansen. Her websites
are www.webofdebt.com and www.ellenbrown.com

(c) Copyright 2007 Ellen Brown. All Rights Reserved.

http://www.webofdebt.com/articles/gm.php


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