[R-G] [BillTottenWeblog] Reviewing Ellen Brown's "Web of Debt" (6)

[Bill Totten]

Part Six

by Stephen Lendman

sjlendman.blogspot.com (May 18 2009)


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


Restoring National Sovereignty with A Truly National Banking System

One serving everyone, not powerful moneychangers alone, the so-called
Money Trust cartel of Wall Street bankers looting the national wealth
for themselves and heading the country for bankruptcy, tyranny and ruin.
Stopping them is Job One, and only mass activist outrage can do it.

At the Chicago Democratic National Convention, William Jennings Bryan
won the nomination saying:

"(W)e believe that the right to coin money and issue money is a function
of government ... I stand with Jefferson (and say), as he did, that the
issue of money is a function of the government and that banks should go
out of the governing business ... (W)hen we have restored the money of
the Constitution, all other necessary reforms will be possible, and ...
until that is done there is no reform that can be accomplished".

No Fed existed at that time. If one did and operated like today, Bryan
would have said abolish it or make it truly federal. As a US government
agency, money created would go directly to the Treasury. But that's only
three percent of the money supply. What about the other 97% in the form
of commercial loans? Would that put government in the commercial lending
business?

"Perhaps, but why not. As Bryan said, banking is the government's
business, by Constitutional mandate" - at least the part of it involved
in creating new money. The rest could be in private hands, like today -
through banks and other financial institutions, such as finance
companies, pension and mutual funds, insurance companies, and securities
dealers. "These institutions do not create the money they lend but
merely recycle pre-existing funds". With government printing money,
banks would become more equitable recyclers - "borrowing money at a low
rate and lending it at a higher one", except for one downside. Some
would go bankrupt, but start-ups would replace them under a more stable
and equitable system.

In 1946, the Bank of England was nationalized in name only and retained
its (privately-controlled) money printing power. In 2003, James
Robertson and John Bunzl proposed changing it their book titled:
Monetary Reform: Making It Happen {1}. They advocated making it illegal
for banks to create new money as loans. Only a central bank should do it
with commercial banks having to borrow it for relending.

Government officials, however, balked at the idea saying the nation
would be harmed as banks would go broke having been stripped of their
"credit multiplier" capacity - the British version of fractional reserve
lending. London banks are second only to Wall Street so rather than risk
this fate they'd likely relocate "en masse to the Continent" and force
the British economy to collapse.

In the 1940s, Representative Jerry Voorhis proposed a similar plan to
Congress called "the 100 Percent Reserve Solution", his idea being "to
require banks to establish 100 percent reserve backing for their
deposits" - done by borrowing from the Treasury to supply what they needed.

In The Lost Science of Money (2002), Stephen Zarlenga wrote:

"With this elegant plan, all the bank credit money the banks have
created out of thin air, through fractional reserve banking, would be
transformed into US government legal tender - real, honest money". True
enough but at a cost so great that (in 1946) it launched Richard Nixon's
political career with a vicious red-baiting campaign accusing Voorhis of
Communist Party links.

His plan was later revived but never enacted into law. One of its
advocates is Zarlenga's American Monetary Institute. It drafted an
American Monetary Act to eliminate fractional reserve banking and impose
a 100% reserve requirement on all demand deposits, making them
unavailable to loan and only for "a (fee-based) warehousing and
transferring service". The Fed would be incorporated into the Treasury
with the government solely authorized to create new money - to be
circulated inflation and deflation-free for purposes such as:
infrastructure development, education, health care, job creation,
financing local economies, and funding government at all levels. For
their part, banks would function traditionally - as intermediaries for
deposits loaned out to borrowers.

A Monetary Reform Act goes further by requiring:

-  100% reserve requirement on all bank deposits, including savings;
deposits wouldn't be counted as reserves against which to make loans;
they'd be held in trust solely for their depositors' use;

-  banks servicing depositors could only lend their own money; and

-  doing it with depositors' funds would require they establish separate
institutions, not called banks.

If Congress reclaims its money-creation power, banks will have to
maintain 100% reserve requirements (available for withdrawals), to
"avoid the electronic duplication that is the source of" money supply
growth today. It would require them to raise enough money to "fund" all
outstanding loans. "The 'credits' (or loans then) become 'deposits' that
represent 'liabilities' of the banks, money (they) owe to the
depositors". It would be secured (by borrowing) around $6 trillion or
more in real money, not the fictitious kind they create today.

In turn, they'd have to raise interest rates, pay depositors less,
operate on thinner margins, and likely drive customers to more
competitive non-bank institutions, already controlling eighty percent of
the market.

In December 2006, William Hummel proposed an alternative in an article
titled "A Plan for Monetary Reform" under which banks could sell their
existing loans to investors with ready cash if the federal debt was paid
off by monitizing it with government-issued currency. Federal bond
holders would need a new home for their savings with a rate of return
making up for what they lost. Investment funds would likely create new
vehicles for it. They could buy bank loans with investors' money and
bundle them as securities for resale with interest.

Selling the loans would let banks avoid incurring substantial new debt
to meet the new 100% reserve requirement. Bank "balance sheets could be
wiped clean and they could start fresh with new loans" - operating
traditionally by borrowing low and lending higher. However, these new
limitations could prove harmful, "imposing an unfair burden on
unsuspecting shareholders, warranting some equitable division of the
sale proceeds in compensation".

Consider also that if these type restrictions existed, banks "would have
little incentive to service the depository needs of the public". A
solution would be to transfer its "depository role to a system of
(nationwide) bank branches acting as one entity under the
(government-run) Federal Reserve". In other words, a government-run
public utility.

It would make the Fed "the sole depository and only its branches would
be called 'banks' ". Others would close down or become private financial
institutions in whatever form they'd choose.

Robert Guttman explains that basic banking is fairly simple - to provide
a safe place to store money and transfer it to others. A government
agency could handle it easily. It did earlier through the US Postal
System (until shut down in 1967) and can do it again.

With the restoration of traditional banks, servicing credit cards would
also have to be addressed as banks might be unable to do it. One
solution would be to turn credit extension "over to a system of truly
national banks (authorized to operate with) the 'full faith and credit
of the United States' as agents of Congress", newly empowered to create
money. In addition, government banks wouldn't be profit driven enough to
charge exorbitant rates. They'd be "reasonable, predictable and fixed".

Consider also that old banks (namely existing branches) could be bought
to become government-run ones, or if insolvent banking giants were
nationalized, their branches alone might do the job. The FDIC could hire
new management or have existing ones operate under new guidelines. The
difference would be that interest would accrue to the government (and
the) 'full faith and credit of the United States' would become an asset
of the" country.

There's one other limitation as well - 100% reserve requirements would
restrict money growth so it would have to expand to meet demand by other
means. One way in a system with no federal debt or interest is to let
consumer debt be self-regulated as under the LETS system in which "money
is created whenever someone pays someone else with 'credits', and it is
liquidated when the outstanding credits are used up".

Nationwide, "money would come into existence when it was borrowed from
the community-owned bank, (then) extinguished as the loans were repaid".
It's no different than how money is created now except that communities,
not bankers (siphoning off interest in windfall profits), will do it.
None of the above systems are perfect, but they're far better than the
current corrupted one benefitting bankers, not people.


The Question of Interest - Solving the "Impossible Contract" Problem

Money controlled by banks only creates the "principle and not the
interest" to repay loans. Governments, on the other hand, can "not only
lend but spend money into the economy, covering the interest shortfall
and keeping the money supply in balance".

However, "returning all the interest collected on loans to the
government would require nationalizing" all forms of lending at
interest, including banks. In the real world, a semi-private,
semi-public system might work better as follows:

-  governments would create money and be its initial lender;

-  private financial institutions, including banks, "would recycle this
money as loans";

-  they'd still earn interest, but not as much;

-  as a result, the money supply would need to expand to cover it, but
not as much as now; and

-  overall it would expand proportionally to demand keeping inflation
contained.

Vilified today as socialism, it's the very system colonists used
successfully to jump-start the country, make it grow, and do it without
taxes or inflation. Franklin and Jefferson championed it. So did
Jackson, Lincoln, and perhaps Kennedy later on.

Early 20th century Australia's Commonwealth Bank created money, made
loans, and collected interest at a fraction of what private bankers
charged. It worked well enough for the country to have one of the
highest standards of living in the world at that time. Once private
banks printed money, Australia became heavily indebted, and its living
standard fell to a 23rd place ranking.

In the 1930s, the Fed printed money. However, FDR empowered the
Reconstruction Finance Corporation to provide plenty of cheap credit to
build infrastructure, create jobs, and provide emergency loans to
states. The US Postal Savings System, Small Business Administration
(SBA), Fannie and Freddie initially worked the same way outside the
private banking system.

After being privatized, these mortgage lenders became corrupted, then
bankrupt proving government can be the solution, not the problem, and a
cheaper, more efficient one besides. From her own experience as
Assistant HUD Secretary, Catherine Austin Fitts states:

"The public policy 'solution' has been to outsource government functions
to make them more productive. In fact, this jump in overhead (simply
subsidizes) private companies and organizations ... regardless of
(their) performance. (The scheme) make(s) no sense except for the
property managers and owners who build and manage it for layers of fees."

It's the same argument used against privatized health care as opposed to
cheaper, more efficient universal coverage leaving out insurer
middlemen, letting government buy drugs at lower cost, and still leaving
lifelong, high quality, comprehensive, and affordable choices in
consumers' hands. It's a system begging to be instituted but won't be
under Obama.

Once again, fear of big government is misguided. It should protect and
serve everyone equally - impossible with the Money Trust running it, the
way it works now with bankers creating money and extracting the national
wealth for themselves.

Masquerading as "free enterprise today is a system in which giant
corporate monopolies (use) their affiliated banking trusts to generate
unlimited funds to buy up competitors, the media, and the government
itself, forcing truly independent private enterprise out" - the very
system Adam Smith and other classical economists abhorred.

Private banks have America and most other nations by the throat. They
force governments to pay interest on their own money as well as "advance
massive loans to their affiliated cartels and hedge funds, which use the
money to raid competitors and manipulate markets". Its Darwinism in the
extreme giving power brokers the right to choose who survives and who
doesn't with ordinary people faring worst of all.

The solution is "publicly-operated police, courts and laws to keep
corporate predators at bay" under a nationalized banking system,
creating its own money, and serving people, not bankers - a truly
equitable, sustainable, efficient and democratic system freed from
parasitic financiers.


Beating the Robber Barons at Their Own Game

Using accepted business practices, the Rockefellers, Morgans, Carnegies,
and Vanderbilts et al "deprived their competitors of property" by buying
it on the open market through takeovers. Their "slight of hand" was how
they funded them - through their own affiliated banks able to create
money out of thin air, the same way it's done today for even larger stakes.

What banking cartels can do, so can governments - but through a much
smaller, fairer and more efficient nationalized banking system operating
as a public utility. Private financial institutions could still recycle
loans but in the way described above.

Another choice would be for government to buy out all banks - a more
equitable but unnecessary choice even though it would be quite
affordable with the power to create money. What better time than now
given the gravity of today's economic crisis leaving world economies
close to collapse.

According to Murray Rothbard, the entire commercial banking system is
bankrupt. It belongs in receivership and their managements jailed for
embezzlement. Taxpayers would save a lot of money, and nations would be
on the road to recovery and prosperity.

One observer says too-big-to-fail banks are already stealth nationalized
since taxpayer bailouts stand ready whenever they get in trouble - the
idea being that costs are socialized and profits privatized, a process
begging to be halted. Taxpayer-supported banks "can and should be made
public institutions operated for the benefit of" everyone. Given that
major banks today are corrupted and bankrupt, now is the time to do it -
not as a temporary measure but irrevocably under a totally restructured
system.


The Quick Fix - Government that Pays for Itself

How much newly created government money would be inflation free? Could
income and other taxes be eliminated? Would it "avoid the 'impossible
contract' problem by furnishing the money necessary to cover the
interest (not) advanced in commercial loans?"

If government and not banks created money, the amount needed would be
less - "without cutting government programs or adding to a burgeoning
federal debt". Inflation would be avoided and income taxes eliminated
without sacrificing growth and prosperity in proportion to a larger
population. More people would be employed as well compared to over
twenty percent out of work today according to economist John Williams
when all excluded and distorted categories are included.

Imagine an inflation-tax-free economy with enough government-created
money for health care, education, infrastructure development, other
productive growth, environmental cleanup, scientific research,
development of alternative energy sources, and much more. It would be
utopian compared to today's unsustainable system devouring people for
profits and heading world economies for ruin.

Under today's "impossible contract" system, 99% of the money supply is
borrowed, all at interest to lenders. It means more of it is owed back
in principle and interest than was borrowed. The money supply must
continue to expand to keep up and prices along with it. The latter could
be avoided if a proportional amount of goods and services are created,
not at all the case in America with growing amounts of manufacturing
offshored under a financialized economy paying tribute to bankers - "for
lending money they never had to lend" in the first place.

Roger Langrick solves the "impossible contract" this way: let government
"issue enough new money to match the outstanding collective interest
bill of the nation" even though it's prohibitive at around $500 billion
annually for government debt service alone. Today's public and private
debt comes to many tens of trillions so servicing that burden is
staggering, yet innovative solutions may handle it, and once done, a
brighter tomorrow awaits.


Ending Third World Debt

Today most of it is held by giant US-based banks like Citigroup and JP
Morgan Chase. If they're placed in receivership, the "US government
could declare a 'Day of Jubilee' " of debt forgiveness, and if done, it
"would not be an entirely selfless act". For America to pay off its
international debt, it needs all the goodwill it can get. Forgiving
other debts would encourage our creditors to forgive ours as world
nations have no interest in seeing major economies collapse. What
affects one, harms others.

"Our shiny new monetary scheme, rather than appearing to be a slight of
hand, could unveil itself as a millennial model for showering abundance
everywhere" for the mutual benefit of everyone. It's simple to do - just
void out debts on banks' books with a click of a mouse. "No depositors
or creditors would lose money, because (none) advanced their own money
in the original loans". They were created out of thin air through
accounting entries. On banking financial statements, they're liabilities
because accounting rules say books must balance.

Once old debts are gone, new ones can be avoided by stabilizing national
currencies to prevent devaluation by speculators. Bretton Woods
protected against this. A new system is now needed, one that "retains
the virtues of the gold standard while overcoming its limitations".

One now in use is to peg currencies to the dollar but with it comes loss
of flexibility to compete in international markets or be able to budget
enough for domestic needs - with a fixed money supply. Argentina's
"currency board" in the 1990s forced its eventual bankruptcy in 1995 and
again in 2001 as earlier mentioned.

A global currency is another proposal - one that creates more problems
than it solves. The world "is not one nation or one region", and who's
to be boss and in charge. Further, if all governments issued the same
currency, "the global money supply (would be) vulnerable to
irresponsible governments (issuing) too much". Strong ones would end up
dominating the weak, and national sovereignty would be weakened, perhaps
ended. A "fully dollarized" world is a prescription for trouble enough
to make scarcity "the order of the day".

Rather than one currency, "a single global yardstick" is needed "against
which governments can value their currencies - some independent measure
(by) which merchants can negotiate their contracts and be sure of
getting what they bargained for". How to do it is the question?


A New Bretton Woods

Michael Rowbotham picked up on John Maynard Keynes idea of pegging
currencies to a basket of commodities, calling it "a profoundly
democratic idea". He states:

"Today, wheat grown in one country may, due to a devalued currency, cost
a fraction of wheat grown in another. This leads to (cheap wheat
producers) becoming (heavy exporters) regardless of need, or the
capacity to produce better quality wheat in other locations. In
addition, currency values can change dramatically and the situation can
reverse. Critically, such wheat 'prices' bear no relation to genuine
comparative advantage of climate, soil type, geography and even less to
indigenous/local/regional needs". Nor does it stabilize production in
relation to need. By "imputing value to a nation's produce, and allowing
this to determine the value of (its) currency, one is imputing value to
its resources, its labourers and acknowledging its own needs".

An international trade unit could be established based on a basket of
commodities representative enough to fend off speculators - just a
"yardstick for pegging currencies and negotiating contracts". Exchange
rates would be fixed everywhere but not forever. Changes would "reflect
the national market for real goods and services", not currencies. They'd
be "no room for speculation or hedging".

Various proposals involve "private international currency exchanges, but
the same (type) reference unit (could) stabilize exchange rates among
official national currencies". One calls for:

-  a new fixed exchange rate system;

-  a treaty banning speculation in derivatives;

-  canceling or reorganizing international debt; and

-  having governments issue enough "credit" to create full employment,
then used for technical innovation and infrastructure development.

The plan is for exchange rates to be "based on an international unit of
account pegged against the price of an agreed-upon basket of hard
commodities".

Other plans are around as well, all stressing the same idea - "the
urgent need for change" because the current system is corrupted and broken.

How then to stabilize national currencies? "The simplest and most
comprehensive ... international currency yardstick (measure) seems to be
the Consumer Price Index ... modified to reflect" real consumer
expenditures, not the quantity of currencies traded in international
markets by speculators. Henceforth, currencies "would just be coupons
for units of value recognized globally" - stable enough for "commercial
traders (to) 'bank' on them".

National currencies "would become what (they) should have been all along
- (contracts) or promise(s) to return value in goods and services of a
certain worth, as measured against a universally recognized yardstick
for determining value".


Government without Taxes or Debt

Only a "radical shift in our concepts of money and banking will save us
from the cement wall looming ahead" - an abyss otherwise named. Letting
bankers hold "an illusory sum of gold", to be multiplied many times over
by fractional reserve alchemy, entraps everyone in debt bondage. "The
result was a (giant) Ponzi scheme that has pumped the global money
supply into a gigantic credit bubble" now imploding.

Everything of value is at risk, including our futures and that of our
loved ones - unless we can reverse the corrupted system entrapping us,
and think of the benefits: expanded government services and prosperity,
inflation and tax free.

Today's "web of debt" is based on fraud, deceit, and manipulative
sleights of hand, including:

-  fractional reserve alchemy - pure hocus-pocus witchcraft hokum;

-  the gold standard of an earlier time letting bankers dangerously
inflate the money supply "on the same gold reserves";

-  the private banking cartel Federal Reserve owned by major banks in
each of twelve Fed districts empowered to create money and charge the
government, business, and individuals interest on it - the result being
everyone put in permanent debt bondage to world-class predators;

-  the federal debt and money supply; both continually expand under a
highly inflationary scheme;

-  the federal income tax to pay interest to bankers;

-  the FDIC and IMF to ensure mega-banks get bailed out no matter what
unwarranted risks they take; the IMF is also a sort of knee-cap breaking
enforcer for the monied interests - extracting multiple pounds of flesh
in as part of a giant extortion racket;

-  a "free market" for those who own it under a corrupted, manipulated
system of socialized risks and privatized profits, enforced by the
Pentagon's long arm;

-  the Plunge Protection Team (PPT) and Counterparty Risk Management
Policy Group (CRMPG) - created to rig and manipulate markets along with
colluding Wall Street bankers bailed out whenever they get in trouble;
the notion that markets move randomly is rubbish - about as real as the
tooth fairy or Mother Goose;

-  "floating" exchange rates - for more manipulation and collusion in
international currency markets;

-  short selling - for speculators in all type assets; when used against
currencies, it can artificially force them down enough to cause economic
havoc the way it was done to Asian Tiger countries in 1997 and many
others as well;

-  "globalization" and "free trade" - a predatory system benefitting
America and the West under WTO rules; countries also become vulnerable
to speculative assaults when their currencies are convertible and
economies opened to "free trade";

-  inflation myths - money creation isn't the problem; speculative
currency attacks force destructive devaluations, meaning prices rise as
a result; American inflation is "caused by private banks inflating the
money supply with debt", not by printing money; also by productive
growth not keeping up;

-  the "business cycle" - responsible financial managements produce
stable prosperity; when irresponsibly done by a private banking cartel,
booms and busts result; it's an unnatural "monetary scheme in which
money comes into existence as a debt to private banks for 'reserves' of
something lent many times over";

-  the home mortgage boondoggle - monetizing home mortgages today
creates most money; borrowers think they're using "pre-existing funds,
when the bank is just turning one's promise to pay into an 'asset'
secured by real property"; when paid off, the interest usually exceeds
the original loan, and in cases of default, banks seize the homes;

-  the housing bubble - it was caused by easy credit in the 1990s and
post-2000 by an irresponsible Fed and Wall Street bankers' plan,
including massive fraud like issuing up to ten mortgages on a single
home when its owner had only one;

-  adjustable rate mortgages (ARMs) - affecting about half of all US
ones, it was a scam through subprime lending and low "teaser" rates,
later ratcheted to unaffordable levels and catching buyers unawares;

-  the secret bankruptcy of banks - they gambled hugely on risky
derivatives and housing loans, far afield from traditional banking of
borrowing low and lending higher for modest, stable profits; the result
- all major banks are insolvent with only government bailouts keeping
them afloat;

-  "vulture capitalism" and derivatives - the former amounts to
predatory banks and hedge funds "buying out shareholders and bleeding
businesses of profits, using loans of 'phantom money' created on a
computer screen" out of thin air; the latter turned banks into casinos
making huge bets that went sour; and

-  moral hazard, once called the "Greenspan put"; substitute Bernanke
and Geithner now for the maestro of misery; it lets banking giants take
outsized risks knowing bailout backups await any that go sour.

Conclusion - private commercial banking practices are corrupted,
destructive and obsolete, and vulture capitalist investment banks are
parasites on productivity, serving their interests at public expense.
Congress should and must either close down insolvent banks or put them
in receivership as step one. Then "claim them as public assets, and
operate them as agencies serving" public depository and credit needs.

The federal debt is another problem - at "its mathematical limits,
(it's) forcing another paradigm shift if the economy is to survive". We
have a choice: let a debt-based house of cards collapse or have it be a
wake-up call for radical change. Again, imagine the possibilities:

-  ending personal income taxes and stimulating stable economic growth
at the same time;

-  eliminating the federal debt entrapping us and future generations in
permanent bondage;

-  returning money creation power to the government as the Constitution
mandates with a cornucopia of benefits to follow;

-  strengthening universal Social Security for everyone in place of
disappearing private pensions;

-  fostering stable, inflation-free prosperity with no booms and busts;

-  keeping borrowing costs fair and affordable, not subject to private
bank manipulation; and

-  ending destructive currency devaluations and economic warfare for
private gain; with stable exchange rates, the "dollar becomes
self-sustaining, and the United States and other countries become
self-reliant", free from foreign creditors and one-way market rules
benefitting the strong over the weak.

Impossible? Only for non-believers, but it won't happen magically. It's
for organized people to challenge organized money enough for government
to reclaim its money creation power.

Nothing short of a populist revolution for radical change is needed -
bubbling up from the grassroots to an unstoppable force. "Reviving the
'American system' of government-issued money" would return us to our
colonial roots, and like Dorothy in the Wizard of Oz, "we the people
would finally have come home".

More on that topic in a follow-up article.

Note:

{1}
http://74.125.153.132/search?q=cache:eJlif1NPL1QJ:www.jamesrobertson.com/book/monetaryreform.pdf+%22Monetary+Reform:+Making+It+Happen%22&cd=1&hl=ja&ct=clnk&gl=jp

_____

Stephen Lendman is a Research Associates of the Centre for Research on
Globalization. He lives in Chicago and can be reached at
lendmanstephen at sbcglobal.net.

Also visit his blog site at sjlendman.blogspot.com and listen to The
Global Research News Hour on RepublicBroadcasting.org Monday - Friday at
10 am US Central time for cutting-edge discussions with distinguished
guests on world and national issues. All programs are archived for easy
listening.

http://www.globalresearch.ca/index.php?context=va&aid=13641

http://sjlendman.blogspot.com/2009/05/reviewing-ellen-browns-web-of-debt-part_18.html


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