Erecting the ‘wall of separation between church and state’… is absolutely essential in a free society. — Thomas Jefferson
The established beliefs about money in today’s world have become a sort of religion in which a fundamental tenet holds that government must, either directly or indirectly, have power over the system of money creation and circulation. This erroneous belief has taken the world to the brink of disaster which will surely ensue unless we take steps to depoliticize money by achieving the separation of money and state. It should be obvious by now that there will never be peace in the world so long as those who control our national governments are able to conjure up out of thin air the seemingly endless amounts of pseudo-money they need to pay for wars and whatever else might bolster their political and economic interests.
Read all about it in Chapter8—The Separation of Money and State, the latest chapter to be published in my new 2024 edition of The End of Money and the Future of Civilization.
Further chapters will continue to be posted as they are completed. Watch for Chapter Nine to be posted soon. As always, your comments and suggestions are welcomed, Thomas
Covering the history of centralized banking, the danger of today’s concentration of wealth in the hands of a few who are working to completely control humanity; and the need to reinvent money, devolve power to local communities, and create honest “home-grown” means of payment (liquidity). His highly acclaimed book, The End of Money and the Future of Civilization, is being revised, updated, and expanded to reveal how the dysfunctional money system operates, and how to reinvent money to enable the honest exchange of value. New chapters are being posted serially on Future Brightly, on his website, as well as on his Substack and Medium channels. Almost all his writings and accumulated resources for researchers and monetary innovators can be downloaded free at BeyondMoney.net.
You can view or download the video here or on Podbean
The US dollar is rapidly losing its status as the global “reserve currency.” One after another, nations outside of the western coalition are waking up to the fact that dollars are needed only to pay for imports that come from the United States. In trades with other countries they are choosing to begin paying one another by using their own currencies, as reported in videos like this. They are recognizing that the real resources that they own are much more valuable than the empty promises that are embodied in inflated US dollars or other political currencies. The exploitation of weaker nations by the western powers that has been ongoing for centuries is coming to an end and the emergence of a multi-polar world order is now unstoppable.
The Bretton Woods agreement that established the post-war world financial order in 1944 was based on the promise that US dollars would be redeemed for gold at $35 an ounce. But the continuous debasement of the dollar over the years made that completely unrealistic, and ultimately its impossibility was formally recognized when President Nixon in 1971 “closed the gold window” and announced that the US government was reneging on that commitment. It would no longer give gold for dollars except at the prevailing market price. From that point on the fate of the dollar was sealed; it was just a matter of time. Despite the imposition of a series of extreme financial, economic, political, and military measures by the US and its western allies, time has run out on dollar dominance and the unipolar world order.
The main questions now are, 1) to what further extremes will the western empire resort in its desperate effort to forestall the inevitable political reordering, and 2) what sorts of new monetary and financial arrangements will be established to supplant the old Bretton Woods arrangement?
Regarding the first of these, the past several decades have seen a succession of both covert and overt interferences designed to weaken or neutralize monetary dissidents and potential political and economic rivals. Notable among the former have been Saddam Hussein, who in 2000 began selling Iraqi oil for Euros instead of dollars, and Muammar Gaddafi the Libyan leader who had plans to launch a pan-African currency called the Gold Dinar to free Africa from American domination. As a consequence, both men were murdered and their countries destroyed. Following the NATO invasion of Libya, and the murder of Gaddafi, then Secretary of State, Hillary Clinton, disgustingly and arrogantly boasted, “We came, we saw, he died!”
But nuclear armed Russia and China are not so easy to push around and brought to heel. When their Russian puppet Boris Yeltsin chose Vladimir Putin to succeed him as prime minister, the globalist western oligarchs thought they could continue to rape Russia and exploit its vast resources for their own purposes. But Putin surprised them with his loyalty to “Mother Russia” and his unwillingness to betray the Russian people to the globalists. Whatever we in the west might think about the man, his stance has clearly endeared him to the Russian people.
When the Soviet Union collapsed, the western powers promised not to move NATO farther to the east, but they have reneged on that promise, and one by one have brought the former Soviet republics into the western fold. [Robert F. Kennedy Jr. has elaborated on this point in his recent speech and highlighted the importance of respect for Russia’s legitimate security concerns if ever there is to be peace]. Then, in 2014 the CIA engineered the overthrow of the elected government in Ukraine and replaced it with their own puppet government to further pressure the Russian government to play ball. The perceived existential threat of NATO weapons, even nuclear ones, on their very doorstep, was too much for Russia’s leadership to bear. It should have come as no surprise to anyone that the Russians reacted as they did to counter that threat by launching their “special military operation.” Putin had stated repeatedly that he hoped to negotiate a deal that would respect Russia’s national security interests but the US government has chosen to perpetuate the war in order to weaken Russia and force it to submit. Former nuclear weapons inspector, Scott Ritter, with his military experience and vast knowledge of the region provides a much more nuanced picture of that siltation than the biased sound bites one typically gets from the mainstream media.
Farther to the east, China a major economic, political and military power, has also balked at submitting to a New World Order in which the Western Empire calls all the shots. So now the globalist oligarchs who control the US government see China as a major obstacle to their plan for establishing a trans-human, technocratic utopia under the control of the elite Super Class. Hence, we see continual saber rattling, military and political provocations, and endless prating about the “Chinese threat.”
Regarding a new system of exchange and finance, I expect that we may soon see the emergence of a multilateral system for clearing credits among nations, one that will be more along the lines of the Bancor plan that John Maynard Keynes proposed at Bretton Woods in 1944. Not that Keynes should be the last word on the matter, but he at least proposed a way of preventing trade deficits from becoming perpetual as they are now, by imposing a levy (interest) on positive balances, as well as negative balances, that would seem to eliminate the debt trap. Professor Perry Mehrling provides a brief description of the Bancor plan in this video.
I expect eventually to see the complete depoliticisation of money and the broader application of credit clearing directly among buyers and sellers at the level of individual traders, as they have been doing for decades through the scores of commercial trade exchanges that have been operating around the world. Money is, after all, merely an information system about credits and debits that enables goods and services that are sold to pay for other goods and services that are bought. Further, the settlement of accounts will be done not only through reciprocal exchange, but also through cooperative support and forgiveness of debts, which will bring with it greater fairness and finally a peaceful world. Indeed, there may someday be a world government, but it will not be imposed by force, nor will it be the product of greed and materialistic human minds.
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Addendum: In this excellent article, America Has Just Destroyed a Great Empire, Prof. Michael Hudson offers a history lesson that underlines the points I’ve made in my article.
Here is a small excerpt:
Having endowed the region’s cosmopolitan Temple of Delphi with substantial silver and gold, Croesus asked its Oracle whether he would be successful in the conquest that he had planned. The Pythia priestess answered: “If you go to war against Persia, you will destroy a great empire.”
Croesus therefore set out to attack Persia c. 547 BC. Marching eastward, he attacked Persia’s vassal-state Phrygia. Cyrus mounted a Special Military Operation to drive Croesus back, defeating Croesus’s army, capturing him and taking the opportunity to seize Lydia’s gold to introduce his own Persian gold coinage. So Croesus did indeed destroy a great empire, but it was his own.
Fast-forward to today’s drive by the Biden administration to extend American military power against Russia and, behind it, China. The president asked for advice from today’s analogue to antiquity’s Delphi oracle: the CIA and its allied think tanks. Instead of warning against hubris, they encouraged the neocon dream that attacking Russia and China would consolidate U.S. control of the world economy, achieving the End of History.
But that’s not the way it’s working out. Please read the full article.
In this interview I provide a succinct description of the present central banking, interest-based, debt money system and its dysfunctional nature, the global crisis that it has created, and what we can do to transcend it.
The Usury Conjecture on the centralized, interest-based, debt-money system Revised June 2, 2022 Thomas H. Greco, Jr.
The Usury Conjecture in a nutshell The central banking, interest-based, debt money system that is dominant around the world today is neither stable, nor sustainable, nor fair. The creation of money based on bank lending with interest creates an imperative for debt to grow exponentially with the passage of time. That debt-growth imperative drives artificial economic growth as borrowers compete with one another to acquire enough money from the always insufficient pool of money to service their “loans.”
When I first began my intensive inquiry into money, banking, and finance more than 40 years ago, it did not take long for me to discover the essential nature of money, where it comes from and how it is created, allocated, circulated, mismanaged and abused. I was astonished that this system has been allowed to become such a dominant force in the world, that it has wreaked such enormous devastation upon the world, and that it has been allowed to go on for such a long period of time. What has led me to those conclusions has been thoroughly documented in my many books, articles, and web posts.
I have long wondered why there seem to have been no serious attempts to model the monetary system that predominates today throughout the world. Then, in November 2011, I again met up with a well known economist at a conference in Michigan where we were both presenters. In his presentation he reported having conducted such a simulation in which the results showed an equilibrium state being reached. I was dubious about his conclusions but in the context of the conference there was not sufficient opportunity to raise pertinent questions or to discuss them in any depth. I later wrote to him with my questions and asked him to respond to my assertion that some of his underlying assumptions about the system that he used in his simulation might not have been realistic. That was the beginning of my attempts to more fully articulate my “usury conjecture” which over the subsequent years has gone through several revisions. I think my arguments are sufficiently well developed at this point to be useful to others in understanding the system and in designing realistic simulations and mathematical models that are able to reveal its inherent flaws.
In my critique, I did not say that his model was “wrong,” only that some of the underlying assumptions were unrealistic and his model too limited to adequately describe the system as it presently exists. Here are the points that need to be considered:
Free banking. He stated at the beginning of his presentation that his model was a simulation of the monetary system as it existed during the “free banking” era in the United States around the mid-eighteen hundreds. But we no longer live in that world, money and banking have undergone a great many changes since that time and the free banking model does not describe today’s reality. Among the very significant changes have been:
The centralization of credit allocation power in the hands of a few huge banking companies. During the free banking era, that power was greatly decentralized, there was much more competition among banks and their asset portfolios consisted mainly of loans to businesses in the bank’s own geographic region, and much less in US government bonds or loans to massive diversified corporations which did not exist at that time.
The imposition of forced circulation (by means of legal tender laws) of a unitary national currency under the Federal Reserve System that ultimately decoupled the currency from any objective measure of value (like a fixed weight of gold or silver). During the “free banking” era, each bank issued its own “brand” of bank note denominated in dollars.
The gradual elimination of the redeemability of currency for specie (gold or silver) obliterated the objective measure of value, disconnected the money economy from the real economy, and opened the door for extreme monopolization of credit and the abusive inflation of the currency.
What happens to a bank’s interest income? As I understood his presentation, he made the assumption that the banks spend all of their interest income back into the economy, but that is clearly not the case. While a portion of a bank’s revenues are used to pay employees, and cover other expenses like equipment and facilities, it seems that most of the bank’s interest income is added to capital or re-enters the economy, not as consumption spending but in the form of additional loans or as reserves deposited with the central bank that enable further loans to be made, or as payouts to bank owners who, rather than spending it on consumption, use it themselves to lend it out, adding a secondary layer of debt and interest to the economy which creates a further shortage of money available for debt repayment. All of that requires a further expansion of lending (debt) by the banks to keep the money supply expanding enough to prevent too many defaults and subsequent bankruptcies, unemployment and economic depression.
Savings and investment. What does the bank do with peoples’ savings? In his reported simulation he did not describe the accounting entries that accompany the deposit of peoples’ savings, but savings and investment are two sides of the same coin. A bank, in its role as depository (as opposed to its primary role as “bank of issue”), reallocates surplus money (savings) from those who wish to save to those who need to use it now for capital formation (expansion of production capacity), or to spend on consumer goods when there are lulls in their income streams (consumer finance). The interest banks charge on these loans far exceeds the cost of providing the service and the interest they pay to savers, which creates further imbalances in income and wealth distributions.
Debt repayment. Repayment of principal on loans naturally results in the extinction of that amount of money. As old loans are repaid, new loans must be made to keep the money supply from shrinking which would cause additional defaults and economic stagnation or depression. New loans may or may not be sufficient to compensate and maintain the money supply. There must be both banks that are willing to lend and companies and people that are willing and able to borrower, but when the private sector had taken on as much debt as it can bear, government becomes the “borrower of last resort” in order to maintain or increase the money supply.
The role of a central bank. The central banks in countries around the world may or may not be a nominal part of the government. In the US, the Federal Reserve is an independent entity owned by banking corporations that pursue their own interests. There developed long ago, with the founding of the Bank of England, a collusive arrangement between banking and government. On the government side, the agreement enables perpetual deficit spending; on the banking side, the agreement enables the emergence of a banking cartel that enjoys the privilege of lending the peoples’ own credit back to them and charging interest for it. The advertised role of a central bank is to limit inflation and promote full employment. In actuality, the role of a central bank is to enableinflation sufficient to support government budget deficits while protecting and preserving the bankers’ privilege to milk the productive economy and enlarge their own wealth and political power.
Basis of issue. Besides the need to be free of interest, money needs to be issued on a proper value basis. There have been volumes written about this point, but sound principles of commercial banking have been discarded over the years because the perpetuation of the flawed system requires it, and because those who control the machinery of money use their power to promote their own narrow interests of wealth and power. Thus, some loans that banks make are legitimate while most are not. Banks should create new money to enable the production and sale of goods that are in the market or soon to arrive there. They should not make loans for speculative purposes or to monetize government debts as they commonly do today.[i] Thus, we have a stream of legalized counterfeit that dilutes the purchasing power of all the legitimate money in circulation. This currency inflation leads to price inflation, which amounts to a “hidden tax” that disproportionately harms the middle class who have substantial amounts of savings invested either directly or in pension funds which they do not control, and this “tax” hurts low income people who need to spend the bulk of their income just to survive.
The economy. Economists and politicians speak about THE economy as if it was a unitary whole, but there are actually many economies depending on geography, social and economic class, and there are the public sector and the private sector. There may be prosperity in some sectors, while others experience recession. Distinction is commonly made between the private and the public sectors, but it is essential to also distinguish between the small and medium sized enterprises (SMEs) and entrepreneurs on one hand, and the large corporate megaliths on the other. In recent decades, banks have gotten ever larger and their lending has been directed mainly toward central governments and large corporations, while at the same time the productive small and medium sized enterprises that are the backbone of every local economy have been starved of the credit they need to finance their operations. By acting in this way, banks limit or eliminate the risks they take. In the case of lending to central government (by buying its bonds and notes), banks enjoy a guaranteed return with no risk at all. During the pandemic years the bulk of the government stimulus money went to large corporations while many small independent local enterprises were forced to close and were never able to reopen.
“Cash” held by the banks. It is misleading to say that banks are sitting on a lot of cash instead of lending it out. In fact that “cash” has been lent out to the public sector (government) in the form of treasury bills, notes, and bonds, or to the central bank which holds it as “reserves” and on which the banks receive interest.
It seems obvious that the present global money system contains inherent in it a debt-growth imperative because of the interest burden that is attached to the bank loans that form the basis for money creation. I believe that any model that purports to simulate the actual present system of money and banking must account for most of the banks’ interest income as capital which is then loaned into circulation rather than spent, and if that were the case it would show that there can be no steady state but an endless growth in debt which leads to a general growth imperative and destruction of the Earth’s ecosystem as the real economy tries to expand in step with the overall debt.
That is in fact what the empirical data suggests. Any theory in opposition to the usury conjecture must provide an alternative explanation of why the total debt in the world continues to grow exponentially at a much faster rate than population or any measure of growth in the real economy as is show in the following charts.
Figure 1 the Institute of International Finance
Finally, the inherent inequity of this money system is obvious and is becoming ever more extreme year by year. The increasing inequalities in income and wealth are not natural phenomena; they are artifacts of the system architecture and management. Mere policy tweaks cannot correct that. The creation of money as interest-bearing debt by a banking cartel pumps virtually all of the benefits of productivity increases into the hands of the top level bankers and their minions whom we naively trust to operate the system in the interests of the common good.
History is replete with stories of collapse of societies resulting from exponential growth of debts and extreme inequalities among the various classes of the population. I have long argued that since money throughout the world today is based on “loans” made by banks at interest, the exponential growth of debt is required to keep the system going. That is clearly evident in the empirical evidence of debt growth over the past 100 years and especially since 1971 when the last link of money to anything real was severed by President Nixon’s announcement that US dollars would no longer be redeemable for gold.
The global economy is a complex adaptive system, but collapse happens when a system fails to adapt in an effective way. Jubilee or periodic resets have been common throughout history going back before Biblical times. Economist Michael Hudson has had much to say about that in his various writings especially in his latest book, …and forgive them their debts. I have been arguing for “debt triage” and a long term shift of finance away from interest-bearing debt financing and toward shared equity financing but because of the concentration of political power in the hands of the vested interests, and the general lack of understanding and concern about the flaws inherent in the present systems, I see little likelihood that these measures will be implemented soon enough to avoid major economic disruptions and social and political turmoil. That leaves innovative private and community initiatives as the most promising approach to avoiding disaster.
I have taken a functional approach to solving the problems that are inherent in the present global system of money, banking and finance and argued that the supposed functions of money–means of exchange, savings medium, and measure of value, are in fact distinct from one another and must be handled separately. The exchange function which is the essential function of money should be mediated by the use of interest-free short-term credit allocated to producers in proportion to the value of goods and services they are ready, willing and able to sell within the next few months. The savings function and the investment function on the other hand are two sides of the same coin and should be provided for by the temporary assignment of savers’ funds to enterprises that will use them to expand production capacity or develop new capacity. The measure of value function needs to be provided by defining a standard of value and unit of account in terms of some selected commodity or group of commodities.
I have described numerous alternative structures and systems to serve the exchange function, including private, local, and community currencies, and decentralized credit clearing networks of buyers and sellers and have cited numerous historical and current examples. I’ve also described financing arrangements that shift the capital formation function from interest-based debt financing to shared-equity financing that shares both the rewards and the risks of business investment. These are the actions that I am confident have the ability to prevent the disastrous collapse of civilization while enabling the necessary transformation to a peaceful, healthy and regenerative society. All of this has been thoroughly articulated in my books, The End of Money and the Future of Civilization, Money: Understanding and Creating Alternatives to Legal Tender(excerpted here), and in my various articles, presentations, and interviews which can be accessed at https://beyondmoney.net/.
Addendum of Tuesday, June 28, 2022:
One of my correspondents recently asked if the interest that banks charge when they create money by making loans causes inflation. Perhaps this response will help to clarify the picture of our current monetary and economic predicament, and add some precision to my usury conjecture.
First of all let me make clear that, while the money needed to pay the interest on a particular loan is not created when the loan is made, the banks must create sufficient money (by making additional loans) to enable the aggregate money supply to stay ahead of loan principal repayments, otherwise the money supply will contract and cause economic depression (defaults, business failures, unemployment, etc.). Thus, the creation of money by banks on the basis of interest-bearing loans biases the entire system towards deflation (too little money), as I described in my Usury Conjecture document, https://beyondmoney.net/2022/06/03/the-usury-conjecture-on-the-centralized-interest-based-debt-money-system/.
To compensate for that, banks push hard to induce private borrowers (corporations and individuals) to take on additional debt. But there is a limit to their willingness to borrow more and to their ability to repay, therefore the national government steps in to play the role of “borrower of last resort.” From the banks’ perspective that is ideal because when a bank lends to the government (by buying government bonds, notes, or bills) it gets a guaranteed return and takes no risk of default. Politicians are all too willing to go into debt to dole out money to their corporate patrons (especially weapons and drugs makers) who fund their election campaigns, and to curry favor with the voters by throwing a few crumbs their way. The government therefore goes way beyond borrowing the amount needed to keep the money supply sufficiently pumped up to avoid deflation, and thus creates inflation by funding many things that are pure waste from a consumption and environmental standpoint. So, does interest on bank loans cause inflation? No, not directly, but indirectly as I’ve just explained.
As economist Milton Friedman has famously said, “Inflation is always and everywhere a monetary phenomenon,” and on that point, I agree with him. It’s not just the amount of money that causes inflation; it’s the basis upon which the money is issued. Price inflation is mainly caused by money debasement, which is the creation of money on an improper basis. An improper basis is any loan that is not made to enable the sale of goods and services that are readily available in the market in the near term. Thus, improper money creation is based on loans that are made to finance speculation, or to finance long term capital improvements that create consumer goods only in the far distant future, or to purchase debt instruments of the government. None of those put additional goods or services into the market for purchase in the near term; therefore you have “more money chasing the same amount of goods and services,” or money being put into circulation faster than goods and services are being produced.
It is possible for some price inflation to be caused by reductions in supplies, but that is usually limited to particular products. However, in today’s global economy there are various factors that are affecting supplies more generally, so that has become a contributing cause of the inflation that is being experienced at this time.
Earlier this month Prof. Richard Werner posted a video on YouTube, which I thought was quite good in explaining the way banks create money, but I felt moved to post a response to it that provides some fundamental concepts and clarifies what is required to start regional alternatives to dominant centralized banking system and political fiat monies. I recommend that you watch Werner’s 10 minute video, and then contemplate my responses.
Prof. Werner makes many good and important points in this lecture, about how money is created and allocated by huge banking institutions which gives them enormous power over governments, people and the economy. Yes, control of money needs to be decentralized and democratized. Public and community banks are important elements in achieving that but they exist within the current dominant paradigm of creating money by making loans at interest, which is a fundamental flaw that forces a growth imperative. Debt grows exponentially as time passes so there is never enough money to enable all borrowers to pay what they owe. A distinction must be made between “exchange credit” and “investment credit.” The former should be allocated without interest to producers based on the value of goods and services each is able to sell immediately or in the near-term; the latter should be the reallocation of existing money from savers to entrepreneurs. The exchange function can best be organized as credit clearing circles, like the original WIR cooperative circle that Werner mentioned, then these various circles can be networked together into a global system of exchange. I have been articulating these points and more for the past several decades, most recently in a webinar I conducted for the University of Hertfordshire in November 2021: 2021-11 Transcending the present political money system–the urgent need and the way to do it. (https://beyondmoney.net/wp-content/uploads/2021/11/2021-11-hertfordshire-preso.mp4). The Q&A that followed is at https://beyondmoney.net/wp-content/uploads/2021/12/herts-qa.mp4. _________________
Thank you for the insightful comment, Thomas. What are your thoughts on the concept of interest in general? Is a interest-based financial system doomed to always end with enormous inflation culminating in financial collapse? _________________
That’s a very good question. One must distinguish between primary interest that banks impose on “borrowers” in the process of creating debt-money, and secondary interest that is demanded by those who hold existing money when they lend it to others for whatever purpose.
The primary interest causes debts to banks to grow exponentially because the interest payments do not, for the most part, go toward consumption expenditures but to ever expanding pools of capital held by “capitalists.” Thus, the money supply available for repayment to the banks is always deficient unless the banks create more money by making more “loans” to stay ahead of the extinction of money that occurs when principal payments are made. The empirical evidence of debt growth over time clearly supports this; I call it the ‘usury conjecture,” which I hope will eventually be proven mathematically and/or through some realistic model of the system.
The so-called “business cycle” that oscillates between inflation and depression is natural result of that inherent flaw in the centralized, interest-based debt-money regime. The interest must be paid, one way or the other. Quantitative easing by the various central banks amounts to life support for that failing system. It is essential that the new system be ready to take over before the plug is pulled on the old one or it dies in a chaotic collapses.
Capital can dominate only when exchange media are scarce, either naturally (commodity money like gold and silver) or artificially (centrally controlled debt money). When exchange media are abundant there is no basis for demanding interest. That abundance derives from reconnecting to the real economy of valuable goods and services. As E. C. Riegel clearly showed, only producers are qualified to issue (credit) money. That is money that producers SPEND into circulation and is accepted by others as payment based on the issuer’s credible promise to accept it back as payment for their own goods and services that they are ready, willing and able to deliver immediately or in the near term. That credit money can take the form of currency vouchers (physical or digital) issued interest-free by individual producers, or more effectively, issued jointly by the members of credit clearing circles. Those circles can then be combined into a global network of exchange in which trade credits are allocated and controlled locally but are globally useful as payment. I outline that system toward the end of my previously mentioned webinar (https://beyondmoney.net/wp-content/uploads/2021/11/2021-11-hertfordshire-preso.mp4). Once that system is in place, interest on secondary “loans” will give way to returns on equity shares as a way of funding capital formation.
I was the featured guest on Ellen Brown’s podcast of December 30, 2021. I consider this to be one of my best interviews in which I covered a wide range of the most important questions related to rebuilding our system of money and finance. My interview is comprised of the first 38 minutes of the program.
This audio together with a transcript can also be found here.
This discussion between Thomas H. Greco, Jr. and Intercoin founder Greg Magarshak covers a wide range of topics including the principles of sound currency issuance; mutual credit clearing; proper allocation of credit; the problems of centralized power, depression, and inflation; empowerment of small businesses and local communities; crypto-currencies; universal basic income (UBI), and more.
Poverty and homelessness have been persistent problems in virtually every community and are becoming worse, and disparities in incomes and wealth have long been increasing. Meanwhile the stock markets are booming while returns of savings accounts have been driven below zero in real terms. All of this has been happening while human productivity is greater than at any time in human history. What’s wrong with this picture?
Clearly, there must be some serious defects in the systems by which our collective production is distributed and used. This is the realm of money, banking and finance which controls the functions of value exchange, saving, and investment. As I’ve repeatedly argued, it is not just a matter of how these systems are managed (policy), but the way they’ve been designed, i.e., their very structure. Whether by intention or by accident, these system are designed to do precisely what they are doing. They enrich and empower the few at the expense of impoverishing and dis-empowering the many.
While there may be little possibility of reforming these systems, they can be transcended. New systems and structures can be designed and deployed that better serve the necessary functions. My work has been focused mainly, but not entirely, on the exchange of value function, which is the fundamental purpose of money. Over the past forty years I’ve written and lectured extensively about private and community currencies and mutual credit clearing as ways of transcending the political money regime. See, for example, How to Bring Liquidity Into an Economy, Free of Interest, Inflation, and Boom and Bust Cycles.
Michael, in his recent newsletter, Gimme Shelter (With Local Investment), reports on some exciting developments, one of which is “…the SEC quietly increased the ceiling on a crowdfunding raise from $1.07 million to $5 million—effectively enabling significantly more housing projects to be funded by grassroots investors sick of Wall Street.” Another is the emergence of community investment trusts (CITs), which “allow members of the community to invest in neighborhood projects. Whereas most CLTs [Community Land Trusts] are nonprofit, CITs can be for-profit and issue equity.”
“Still another approach is to buy pieces of equity in homes to make home ownership more affordable. That’s the strategy of a new company called Landed. It strikes a deal with new homeowners to pick up half or more of the down payment.”
For more details on all of that, read Michael’s entire article here. # # #
1/30/1981 President Reagan and David Stockman meeting on the economy in the Oval Office
In his current subscription pitch and announcement for his new book, PEAK TRUMP: The Undrainable Swamp And The Fantasy Of MAGA, David Stockman lays out some startling facts, provides a cogent analysis, and makes some dire predictions. As President Ronald Reagan’s Budget Director and long-time political insider, Stockman should be heeded. Here are some excerpts:
“We are in a whole new ball game. The Deep State, the House Dems, the Mueller hit squad and the mainstream media are all going in for the kill.
“They are determined to take the Donald down and preserve the rule of the bipartisan establishment in favor of Empire abroad and Big Government, massive debt and Fed-fueled Bubble Finance at home.
“At the same time, the Donald is now practically handing them his political head on a platter. That’s because he has bombastically embraced the “big, fat, ugly bubble” that he so accurately harpooned during the campaign.
“But that bubble has now reached a fatal triple-top and is fixing to implode, and to take the American economy and Trump’s presidency down with it.”
Stockman says, “We are heading for the double whammy of a political/constitutional crisis and a thundering financial breakdown at the same time.” He argues that it was the failure of “the Washington/Wall Street consensus” that led to Trump’s victory in 2016, and that actions of the Federal Reserve have caused a massive asset bubble along with huge disparities of incomes and wealth.
He goes on to say that “just because Donald Trump targeted the symptoms correctly [during his campaign] that doesn’t mean he had a plan to fix the American economy or the skills and know-how to move the turgid, essentially paralyzed machinery of the Federal government.” Stockman characterizes Trump as “a political flyweight, megalomaniacal incompetent and bile-ridden bully who stumbled into the Oval Office against all odds.” He decries the massive growth of government debt over the past four decades and boldly asserts that recession will hit the US economy before November 2020, and that “Wall Street, the US economy and the Donald’s fantasy of MAGA will come tumbling down with it.” Whether or not his timing is correct, it is clear that a political and economic shipwreck is just ahead.
Stockman decries the “bipartisan ruling class” which is “in favor of permanent war, unchained entitlements, fiscal incontinence, unsustainable debt-fueled household spending, rampant corporate financial engineering and Keynesian monetary repression and “wealth effects” based central banking that lies at the roots of our current economic malaise,” and referring to the Mueller Russiagate investigation and subsequent impeachment hearings, Stockman says, “the Donald’s fluke elevation to the Oval Office has finally caused the Deep State to come out of hiding and bare its fangs against American democracy itself.”
Stockman criticizes the Fed for “dithering” and delaying “normalization,” by which he presumably means raising interest rates and ending Fed purchases of government bonds. He also calls for “fiscal rectitude” (balanced budgets) on the part of the government, something that even his beloved Ronald Reagan was unable to pull off.
But what Stockman (and everyone else) fails to realize is that, under the interest-based debt-money regime that has prevailed throughout the modern era, it is impossible for national governments to consistently balance their budgets. Here’s why. Since money is created when banks make loans, and since interest is charged on those loans, aggregate debt increases simply with the passage of time. If growth in the money supply does not keep up with debt growth, many debtors will default and the economy will sink into recession. Thus, the banking system must find ways to keep people and corporation borrowing ever greater amounts of money. Over my lifetime I’ve seen banks roll out a succession of creative schemes. Starting with the liberalization of consumer credit following World War II (“Buy now; pay later”), then the widespread issuance of credit cards, then the introduction of “student loans,” then the easing of requirements for people to buy real estate, banks have gotten people to borrow more and more.
Then, when the private sector is all “loaned up” and cannot take on additional debt, the government must step in as “borrower of last resort.” By deficit spending, financed through the issuance of bonds, the national government, with the help of banks that buy those bonds, the money supply is expanded. (When banks buy government bonds they are making a loan to the government). And when all available funds have been sucked up, the Fed must step in as “lender of last resort” to itself buy up additional government bonds while keeping interest rates at acceptable levels. That approach, called “quantitative easing,” is what saved the global system of money and banking from total collapse in 2008 after the housing bubble burst. Thus, the government and the banking establishment are locked together in a deadly embrace and “dance of death” that is spiraling out of control.
It may very well end with a major decline and long drawn out recovery, as Stockman is predicting, but unless a new interest-free money system is implemented after the wreckage is cleared, the ultimate outcome may simply be another round of ever more extreme boom-bust cycles and political chaos.
The original 2009 edition of my book, The End of Money and the Future of Civilization , is out of print but the Kindle edition and used copies can be ordered from Amazon.com. Chapters of the new 2024 edition will be posted as they are completed. You can find them here.
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Beyond Money 