Tag Archives: bailout

Reconnecting the Monetary Economy to the Real Economy

This article was excerpted from my June, 2022 Newsletter which you can view in its entirety at my Mailchimp site. You can also sign up there to receive future newsletter editions.

Reconnecting the Monetary Economy to the Real Economy
Money is the “hole” that is defined by the “doughnut” of real goods and services; it is the nothing that serves only to account for that which is available in the real economy. When pseudo-money can be created by fiat, apart from anything of real value, confusion and madness ensue. — T. H. Greco, Jr.
I’ve been arguing for more than 40 years that the global system of money, banking, and finance is fatally flawed, and now its condition has become acute. Since 2008 it has been on life support. The connections between the monetary economy and the real economy have long been tenuous, but in recent years have been severed to the point of non-existence. When banks and governments can create quasi-money out of nothing without any real value basis and allocate it selectively to advance political agendas, you know the end is near. The last vestiges of budgetary restraint on federal government spending have been eliminated along with any concern about what people really need and want. The results have been the ever-increasing centralization of power at the federal level, central planning of the economy, worsening price inflation, declining purchasing power of fiat money, increasing corporate ownership of real assets, especially residential real estate, zero or negative returns on people’s savings, and increasing disparities of income and wealth. The only way this system can be perpetuated is by the complete elimination of any semblance of democratic government. As E. C. Riegel observed almost 80 years ago:
“Society is in the twilight of a passing day. The state now undertakes to finance the
economy, and, since a free economy is manifestly impossible where the state assumes the responsibility of supplying the money circulation, the politician is compelled to choose between fascism and communism.”
Private Enterprise Money
“Quantitative easing,” bank bailouts, and central bank purchases of securities from the debt and equity markets have been desperate, last gasp measures to try to save the dysfunctional and destructive system. At first the inflation was confined mainly to financial assets, particularly corporate stocks, as central banks intervened in the markets on the buying side. Then, with the massive bailouts and handouts that were doled out during 2020 and 2021, and the accompany lockdowns and forced closures of small businesses, price inflation shifted over to real estate prices, residential rents, commodities, and consumer goods and services. The system is doomed and must eventually give way to new, more sustainable and equitable systems of exchange and finance. Though barely noticeable, that process has been underway for some time at the micro level of communities and small businesses, but changing circumstances are now stimulating major changes at the macro level of national governments and global trade.
The connection between the real economy and the money economy must be inherent in any sustainable system of money and finance. The creation of sound exchange media (money) requires that money be spent into circulation by trusted producers of real valuable goods and services that are in the market and available to be delivered in the near-term. Money then is a mere place holder for real economic value; it is a credible promise that will be accepted as a form of payment.

            The Banker’s Last Gasp and the Great Monetary Reset
While the past several decades have seen the emergence of many successful approaches to decentralizing the control of credit through private currencies and independent commercial credit clearing circles, economic and financial corporatization and globalization have proceeded to place ever tighter control into the hands of an elite class who have used their money power as a weapon of war. The Breton Woods monetary agreement established toward the end of World War II made the US dollar the world’s reserve currency and allowed the US and its western European allies to dominate and control the machinery of money and finance. But with the breakdown of that agreement and the increasing application of financial and economic sanctions we now see that some countries, notably China and Russia, are taking independent action to protect their own economies and security interests.
These countries are moving to back their currencies with real commodities as Alasdair Macleod describes in his recent article The Commodity Currency Revolution, and in this YouTube interview Commodity-Backed Currencies to Challenge Dollar Yen & Euro?. This phenomenal shift is further elucidated in various other sources, including David Stockman’s Monetary Madness Among the Central Bankers, and Alastair Crooke’s post about the decline of the western financial system and the US dollar as the world reserve currency. The latter makes the point that “… the financial war on Russia gave the West an unmistakable lesson from Moscow that the hardest currencies are not USD or EUR, but rather oil, gas, wheat, and gold. Yes, energy, food and strategic resources are currencies [in the real economy].”

Another sobering thesis is being articulated by Dr. Tim Morgan at his website Surplus Energy Economics, in which he argues that, “the economy is an energy system, not a financial one,” and that “The concept of limits is replacing the paradigm of ‘infinite growth,’” and “What lies ahead is a process of adjustment – we might call it realignment – to the new reality of an economy in which the scope for expansion is constrained by limits, both to energy value and to environmental tolerance.” Morgan’s economic model, which he calls SEEDS [Surplus Energy Economics Data System], is based on the idea that continual economic growth has been possible only through the availability of the surplus energy that comes from fossil fuels. But that surplus (energy out minus energy in) is continuing to decline. For the moment, I will leave it to the reader to ponder what the implications of that might be.

This shift toward commodity backed national currencies, while not a total solution to the money problem, is a positive step toward reconnecting the means of payment to real economic value. I expect that it will eventually lead to the emergence of a new standard of value against which the value of currencies can be objectively measured. That standard will not be gold, as it was in the past, but a wide assortment, or “market basket,” of useful commodities like the one I’ve been proposing for the past 40+ years. History shows that, as exchange systems evolve, credit instruments become the primary payment media because their quantity is able to expand and contract in step with actual supplies of goods and services. Then, the commodities serve only as the measure of value and unit of account to quantify credit. Just as happened in the past with gold, I expect the commodities in a standard “basket” will serve as a new measure of value, but payments will be made using credit instruments and the credit clearing process, with perhaps, occasional settlement of residual account balances by the transfer of actual commodities. As I’ve repeatedly explained elsewhere, it is crucial that these credit instruments (currencies) be spent into circulation interest-free and on the basis of an adequate real value foundation.
            The Usury Conjecture on the centralized, interest-based, debt-money system
In this article (available on my website or on Medium), I describe the growth imperative that is the fatal flaw inherent in the global central banking, interest-based, debt-money system; I summarize the observations that have led me to conclude that it is utterly destructive and must ultimately be replaced; and I call upon systems analysts to create realistic models of the system to prove the conjecture beyond any reasonable doubt.

This is 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 had been allowed to become such a dominant force that has wreaked enormous devastation upon the world over such a long period of time despite many attempts to reform it. One champion of monetary reform was Congressman Wright Patman who, as chairman of the  Committee on Banking and Currency of the US House of Representatives during the 1960s, sought to educate the public about the money and banking system through the publication of the committee report titled, A Primer on Money, and a shorter extract titled, MONEY FACTS – 169 Questions and Answers on Money. These reports were produced and distributed through the Government Printing Office and were important in my early research. You won’t find any mention of them on Wikipedia, but if you want to cut through the fog of obfuscation and learn how the system really works they can be accessed through my website.

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.

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Is Capitalism about to crash?

Richard Wolff provides an insightful analysis and historical perspective on the present state of capitalism and democracy. Clearly, Franklin Roosevelt saved capitalism in the 1930s by yielding a bit to the masses’ demand for a share of the economic benefits. Will there be a repeat of that in the coming decade under the next President?

That is doubtful. Conditions today are much different than they were in the 1930s. Big government is no longer in vogue since governments have ceded most of their power to transnational corporations. People now are much more aware of the need for structural change in politics, economics and finance. The vogue today is decentralization of power and restoration of the commons.

I don’t know if Marx has any answers because I’ve never studied Marxist economics.

I am convinced of one thing however that no one else seems to recognize, that is the fundamental flaw in the global interest-based, debt-money, central banking regime. It is the “debt-growth imperative” that derives from the way banks create money by making loans that require the payment of interest. One need only look at the empirical evidence of global debt growth over time to see that it conforms to the exponential growth function of compound interest. Even the richest countries have exploding levels of sovereign debt because there are limits to how much debt the private sector can bear, so governments become the “borrower of last resort” to keep the money supply from collapsing. That’s the reason for bank bailouts and “quantitative easing.”

The fundamental need is for a deep restructuring of money, banking, and finance to decentralize control of credit and eliminate the “debt-growth imperative.” Such an idea may seem radical in the extreme and will not be welcomed by the powers that be, but alternative approaches are already in the works and will be ready to save the day when the capitalist train crashes off the rails.

Prepare to be poorer

Michael Hudson is one of the few academic economists who is worth listening to. He understands how bankers and politicians of both major parties have been deceiving and fleecing the people and he is willing to expose it. In this video he explains how it works and how both Trump and Hillary have planned to continue (and intensify) the fleecing

Michael Hudson: Donald Trump Wants to Make the 1% Even Richer


An academic study from the European School of Management and Technology highlights the utter futility of the bailout programs in pulling Greece out of the quagmire of debt bondage and economic depression.The report concludes:

“This paper provides a descriptive analysis of where the Greek bailout money went since 2010 and finds that, contrary to widely held beliefs, less than €10 billion or a fraction of less than 5% of the overall programme went to the Greek fiscal budget. In contrast, the vast majority of the money went to existing creditors in the form of debt  repayments and interest payments. The resulting risk transfer from the private to  the public sector  and the subsequent risk transfer within the public sector from international organizations such  as the ECB and the IMF to European  rescue mechanisms such as the  ESM still constitute the most important challenge for the goal to achieve a sustainable fiscal situation in Greece.”

See Rocholl *, J., and A. Stahmer(2016). Where did the Greek bailout money go? ESMT White Paper No. WP–16–02. http://static.esmt.org/publications/whitepapers/WP-16-02.pdf

Counting the Cost – Money for nothing

Tarek El Diwany and Jem Bendell have done a great job in this Al Jazeera interview program explaining the dysfunctional features that are built into the corrupt global system of money and banking. They also cover Islamic banking and mutual credit clearing. This is a “must watch” video.—t.h.g.

Lie more about LIBOR—Giethner’s claims “not credible”

Here’s a video from Yahoo! Screen featuring an interview with Neil Barofsky, former Special Inspector General in charge of the TARP bailout and author of a new book, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.

In this interview, Barofsky says that Treasury Secretary Tim Geithner’s claims about his LIBOR whistle-blowing are “not credible,” and that the entire regulatory process has become “captured to the interests of the banks.”

Barofsky says that LIBOR was built into the bailout plan, so the fraud means the taxpayers are being repaid less than they should be, and added “I hope we see people in handcuffs.”

Watch it here.

Occupy World Street, Ross Jackson’s Anthem for the movement

Ross Jackson is more than a thought leader and visionary; here he is performing a song he wrote for the Occupy Movement. I think it is both inspiring and entertaining, an excellent companion to his recent book by the same name. You can learn more about the Occupy World Street agenda at the website,  http://occupyworldstreet.org/.

Banks too big to fail; bankers too powerful to jail.

According to the Associated Press, federal negotiators are close to concluding a deal with major banks that would essentially forgive them of crimes committed in connection with the mortgage crisis. You can read the story here, and a critique of the proposed settlement here: Obama Is on the Brink of a Settlement With the Big Banks—and Progressives Are Furious.

What’s the “Occupy” movement all about?—Part 2

Here is an article I came across that provides some further insights about the current mood of the people and the Occupy movement.—t.h.g.

The Re-Greening of Our Hearts (Part 1)

By Jack Adam Weber – Guest Writer for Wake Up World. 14th October 2011

Here we are in the thick of Occupy Wall Street, with the movement and its message spreading worldwide, loud and clear: No more collusion by government and Big Business. No more tax cuts for the already rich and dirty. No more destruction of our planet for the bad habit of bullying-billionaire-ism, an epidemic disease attacking the weak of heart and low morale.

In the first weeks of the ongoing Fukushima disaster I read too many editorials describing the choice between a nuclear or more sustainable future as hinging on the monetary cost to multinational companies, government, and taxpayers. Does it also make you squirm in your skin to hear our world fixated on economic gain at any cost, with the real possibility of environmental collapse as well as species and human extinction from toxic waste streams given secondary concern? Do you care more about remaining “competitive” in the international marketplace above the survival and health of your children and family?

I have reached my limit of political puppet talk to distract attention from and justify the destruction of life on Earth. I could give a crap about the International Marketplace, whatever it is. Come to think of it, I think we should downsize the mythic International Marketplace by 90% (I’d still like to have curry powder to cook with) and replace it with hundreds of regional festivals where we all camp out and envision a new, locally-based future. Camp Headquarters will be biking distance from your home!

We need a new paradigm for living and doing business on Earth, not just an adjustment of the current system. We need a modus operandi that is eco-centric not solely human-centric. This orientation forms the crux of Deep Ecology, which perceives nature as sacred, not primarily a commodity for human progress and development. By granting Nature a right to live and thrive, we grant the same to humanity. We can no longer pretend as though nature is forever indispensable [sic.] and able to re-grow itself no matter the pace at which we use it up. Or that some fantastic messianic miracle of technology is going to save us and regenerate what we have denigrated. Even if there were such a technology, what kind of world would remain in the aftermath?


The monumental Fed Rip-off

We now have the results of the first-ever audit of the Federal Reserve. What it reveals is astounding and outrageous.

Senator Bernie calls it “socialism for the rich,” but it’s not merely “socialism for the rich,” it’s wholesale looting of our common wealth by the people who run the world. This blows sky high all arguments in favor of an “independent” central bank. Independence in this case means allowing an unelected self-serving elite to take what they want free from any effective oversight or control by the people or the people’s representatives.

The list of institutions that received the most money from the $16 trillion Federal Reserve bailout can be found on page 131 of the GAO Audit and are as follows..

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)

An excellent article on this story, from which the above list was obtained, can be found on Countercurrents.org.–t.h.g.