Tag Archives: inflation

Shall We Have Honest Money–or Inflation, Depression, and War?

This little vignette written by Don Werkheiser remains one of the best concise explanations of inflation I’ve ever seen. It was published in the spring 1982 edition of Green Revolution, the journal of the School of Living a non-profit organization with which I was associated throughout the 1980s and into the early 1990s. The story helps to elucidate the nature of the dysfunctional political money system that has plagued the world for hundreds of years, but in its brevity and simplicity neglects to mention another feature of the money system that adds to our misery; that is the fact that the “Mayor” and his friends do more than spend counterfeit money into circulation, they have also established “banks” and require that other people who need money to do business must borrow their pseudo-money into circulation and pay interest on it. That enables the bankers to extract even more wealth from the rest of the people while creating an unending and unsustainable expansion of debt. I have articulated that “debt-growth imperative” in my paper titled, the Usury Conjecture.  

An Honest Money Would Stop Inflation by Don Werkheiser

A rural village has no money. All trade is by barter. A farmer comes to town and deposits 10 bushels of corn with a man who has a store room. This operator gives the farmer 10 receipts, each redeemable in a bushel of corn. But the farmer asks for receipts in smaller denominations. The storekeeper gives him 40 receipts for 40 pecks. The farmer trades ten of these corn-receipts for other products; they are each accepted at the value of a peck of corn. That acceptance constitutes the issue of corn notes as money.

Such receipts are generalized credit instruments. They refer to stored corn, but not to any specific peck of corn. When the seller wants a peck of corn the receipt is redeemed. Otherwise it is spent again, and ownership of a peck of corn is conveyed to the next seller. The next day the farmer returns to town and spends 10 corn notes (each of one peck of corn in value) for his wife’s birthday present. Now the farmer has doubled the money supply in circulation, but there is no inflation; there are redeemable goods back of them.

What then is inflation? We must understand “money” and the storekeeper’s actions.

The store room owner noticed that the corn notes were accepted in trade. So he made 40 more “peck-receipts” looking just like corn-receipts and then he spent them into circulation. That is inflation–counterfeit receipts passed as valid receipts. Assume that the counterfeit receipts were accepted at face value. In that case, the counterfeiter effected a robbery of commodities equal in value to 40 packs of corn, while those who accepted them received receipts which measured the extent to which they had been robbed. So long as confidence lasts, the game would continue and receipts could be spent. New sellers would be holding empty receipts. The game would collapse when all the corn in the warehouse was redeemed, and holders of the 40 counterfeit receipts found no one who would take them in trade.

Worse could happen if the counterfeiter had the skills of a politician. If, when confronted by angry holders of his counterfeit receipts he declared himself a benefactor of the community–and showed that the original issue by the farmer was too limited, and that his own issues stimulated industry and trade (he would not mention that the farmers issue was redeemable while his own was not). He noted that most people did not want corn; they wanted a medium of trade that they could use to speed up trade.
More to come.

They were told: “If the game stopped then, the holders would be losers, but if they continued, they could all buy what they wanted. In fact if they elected him Mayor he would declare pseudo-corn-notes to be legal tender, and he’d also begin a program of public works. Soon everyone would be rich.” An ignorant public agreed.

Elected Mayor, the counterfeiter issue another stock of corn-notes called “pecks” and declared them to be worth a peck of corn in the market (but not anywhere redeemable). On each note was a picture of a peck-basket, but what it contained was not specified.  Just a peck of value.

The “pecks” circulated and trade increased. Then a strange thing happened. The Mayor and his agents could outbid everybody for produce and services. They also controlled the printing presses for printing “pecks.” Prices were bid up on the things the Mayor’s group approved. Workers and businessman migrated into those industries for wages and profit. The stock of other things became short. Everyone couldn’t buy what they wanted. People threatened to recall the Mayor if he didn’t improve things. So he issued more “pecks” and then more and more.

The more money people had, the less they could buy. Only the Mayor and his friends had enough — rather too much — money. They gave expensive parties, bought votes, hired police and soldiers; and gave everyone a vested interest in continuing the game, through welfare, social security, profitable contracts, and “peck-funded” jobs.

Confusion resulted. It is evident there are two kinds of money: honest redeemable money and inflatable unredeemable money. These keep our economy teetering between “prosperity” and “depression.” Have we any proof that those in charge of our money system intend to create an honest system? That would break their power. A sound alternative is for people to operate their own money system. American and world history have produced workable patterns; some are underway today.

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Take note that the story does not mention any need for gold or silver backing for money to be honest. As E.C. Riegel makes plain in his book, Private Enterprise Money, “When businessmen resolve to set up a money system, they agree to hold in trust for each other goods and services that are pledged against the drafts which they have issued in the form of money. These values — that are held in trust by all for any who may present a money draft therefore — constitute a vast pool, not housed at one place, but scattered throughout the trading sphere. This vast pool of goods and services is the basis or backing for the outstanding money supply. “Reserves” and metal hoards are but window dressing. Only that which is purchasable is back of money.”  

To learn more about honest and effective forms of money and how to create them, see my books, The End of Money and the Future of Civilization, and, Money: Understanding and Creating Alternatives to Legal Tender.

The Politics of Money and the New World Order

In light of the current surge in the rates of inflation in countries around the world, the dominant political monetary regime is once again being called into question. Perhaps this time there will be sufficient interest and concern about its dysfunctional and destructive nature to induce a significant surge toward the adoption of the sorts of private currency and exchange systems that we have been articulating and advocating for more than 40 years.

The Library on this website contains a number of references relating to the politics of money. Among these are Dr. Carroll Quigley’s book, Tragedy and Hope: A History of the World in Our Time (1966), and Cleon Skousen’s review of that book titled, The Naked Capitalist (1970).

Tragedy and Hope outlines in great detail the plans of the elite class of international bankers and their minions to create a New World Order under their absolute control. In my books and presentations I have often repeated this quote from Quigley’s book:

“…the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.”

The Cold War was just a facade to give the appearance of division while the banking elite proceeded with their agenda in both camps. In Chapter 5 of The Naked Capitalist Skousen says:

Dr. Quigley bluntly confesses that the International Bankers who had set out to remake the world were perfectly confident that they could use their money to acquire the cooperation and eventual control of the Communist-Socialist conspiratorial groups. In fact, John Ruskin of Oxford had persuaded the original Rhodes-Milner Round Table Groups that the way to federate the world was along socialistic lines, i.e., by having all property, industry, agriculture, communications, transportation, education and political affairs in the hands of a small cadre of financially controlled political leaders who would organize the world and its peoples in a way which would compel everyone to do what was good for the new, world-society.

It may seem somewhat contradictory that the very people whom Marx identified as the epitome of “Capitalism” should be conspiring with the followers of Marx to overthrow traditional Capitalism and replace it with Socialism. But the record supports the Quigley contention that this is precisely what has been happening. The reason is rather simple.

Power from any source tends to create an appetite for additional power. Power coming from wealth tends to create an appetite for political power and visa versa. It was almost inevitable that the super-rich would one day aspire to control not only their own wealth, but the wealth of the whole world. To achieve this, they were perfectly willing to feed the ambitions of the power-hungry political conspirators who were committed to the overthrow of all existing governments and the establishments of a central world-wide dictatorship along socialist lines.

That may have seemed fantastic at the time but it is blatantly obvious today to everyone except those who cling desperately to their belief in the benevolence of the relative few who control money, finance, politics and virtually every other system and institution around the world. If you want an up-to-date assessment of the geopolitical situation, watch this panel discussion Interrogating Cold War 2.0,featuring Patrick Wood, Iain Davis, Catherine Austin Fitts, and Kit Knightly, who discuss “the nature of the East-West dichotomy and whether the rise of Eurasia and the fall of the West were engineered by certain factions of global elites and for what purpose.”  

Now is the time for “we the people” to decide whether we will docilely follow the “masters” into their feudalist New World Order, or take responsibility to work together to build a new society of peace, justice and liberty for all based on the establishment of systems and structures that serve the common good instead of the further concentration of power and wealth. You can get an idea of how we might proceed in the realm of money and finance by reading this Draft Manifesto of Monetary and Financial Rights and Liberties.

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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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Webinar Series: Our Money System – What’s Wrong with it and How to Fix it

I recently conducted a series of three webinars for the Henry George School of Social Science. All three sessions were recorded and can be viewed at the links provided below.

Our Money System – What’s Wrong with it and How to Fix it
A webinar series that takes a critical look at money & credit, their political and economic implications, and innovations that are making conventional money obsolete.

Here is a brief description of each session as it developed and a list of References and Resources recommended for further study.
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Webinar #1 https://beyondmoney.files.wordpress.com/2021/06/our-money-system-session-1.mp4

Webinar #1 begins by laying out the “big picture,” the multi-dimensional mega-crisis that is challenging us make major changes in our various systems and meta-structures. It suggests that civilization is going through a metamorphic change that can lead us into a new “convivial” society, but that requires moving away from the old “caterpillar economics” of perpetual growth driven by our dysfunctional interest-based debt-money system, and towards a new sustainable and more equitable “butterfly economics.” It describes in detail how the present global system of money and banking is dysfunctional and destructive, how it has concentrated wealth in few hands, centralized political power, corrupted governments and given rise to a domineering “super class.” It describes how money is created based on lending at compound interest and how that causes an economic growth imperative. It shows the enormous explosion of debt that has been accelerating over time and cries out for a new more stable and equitable system of money and exchange. 

References and Resources

View videos:

Read:

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Webinar #2 https://beyondmoney.files.wordpress.com/2021/06/our-money-system-session-2-1.mp4

Webinar #2 covered money mysteries, myths, and misconceptions relating to the essence and functions of money, the way it has evolved over time, and what gives it value. It described the inflationary bias of political money which causes it to continually lose purchasing power, which stimulated a discussion about how to measure value and how to define an objective unit of account that can be applied to determine the value of any credit instrument, including political currencies. The second part of the webinar was about how we can re-empower our communities by taking control of our credit, shifting our purchasing, saving and investment decisions toward the local economy, and becoming more enterprising and less dependent upon employment in huge corporate businesses.

References and Resources

View video:

Read:

Explore: https://beyondmoney.net/

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Webinar #3 https://beyondmoney.files.wordpress.com/2021/06/our-money-system-session-3-1.mp4

Webinar 3 was the capstone of the series. It focused entirely on solutions to the problems that were discussed in the previous sessions. It described the shortcomings of the current alternative exchange prototypes, enumerated the essential principles that need to be observed in order to make exchange alternatives more scalable, and suggested the types of organizational structures and protocols that are needed to create an effective and secure network of exchange that will be locally controlled but globally useful. It also contained a short video presentation that describes Mr. Greco’s vision of a global system of exchanges that apply mutual credit clearing in which “credit is locally controlled but globally useful.” This session also included a brief summary of his thoughts about the nature of and potential applications of digital currencies, cryptocurrencies, blockchain ledgers and smart contracts in building a new credit based system of exchange. 

References and Resources

Explore: https://beyondmoney.net/

Read:

View video:

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Dr. Paul Craig Roberts explains the geopolitical facts of life

This video featuring Dr. Paul Craig Roberts is a “must view.” Roberts, who was Assistant Secretary of the Treasury for Economic Policy under Ronald Reagan, explains very clearly how Greece was lured into its present predicament and made a “colony of the EU.”

If the Greek economy is to be rebuilt and some measure of Greek independence restored, ways must be found to create domestic liquidity independent of the global banking system . Domestic currencies might be issued by the national government or by regional governments, or liquidity could be created by private enterprises in the form of private currencies or credit clearing exchanges. I’ve explained in detail how this can be done in my article, 50 Ways to Leave the Euro.

Looking beyond Greece, Roberts speaks about inflation and unemployment and the true state of the U.S. economy, as well as U.S. foreign policy and the causes of the current geopolitical crisis.

Other important videos to watch are:
Max Keiser’s December 22 interview of Roberts, where he talks about Trump’s cabinet picks and relations with Russia, and
Michel Chossudovsky’s take on the “sweeping measures taken [against Russia] by Obama on December 29.”
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We’re in an inflationary depression, with serious trouble ahead

The statistics offered by the government and the FED are not to be trusted. We’ve long known that the Consumer Price Index (CPI) is manipulated in ways that are intended to mask the increases in the true cost of living for the average American. The same is true of the unemployment numbers. Amidst all the happy talk of economic recovery, wages (in real terms) continue to decline and debts continue to  mount up. Charles Hugh Smith in his recent post, What If We’re in a Depression But Don’t Know It?, provides some eye-opening charts and convincing narrative that makes it plain that economic depression is the current reality for all but the top 5%.

But it’s not only the U.S. that is in trouble, the depression is worldwide. The financial crisis of 2007-2008 was only the beginning of what some call “the great unraveling” There are any number of commentators that provide further arguments on that score, including Thom Hartmann (The Crash of 2016) and Gerald Celente.

But no one besides myself is pointing out the underlying cause of all these problems. It is the monopolization of credit by a banking cartel, in collusion with top government officials, that creates money based on interest-bearing debt, a formula that centralizes power and concentrates wealth in the hands of what Hartmann calls economic royalists.

By their control of the monetary machinery they are able to lavishly fund weapons, war, and the global corporatocracy, while making money scarce for everyone else. Further, this system is not sustainable because the interest burden causes debts to grow continually with the passage of time. Central governments have assumed the role of “borrower of last resort,” to keep the money supply pumped up and the banks from failing. This cancer has metastasized and the end is near. –t.h.g.

 

How do central banks control interest rates?

Question: How do central banks control interest rates?

Answer: By creating counterfeit money.

Of course, they will never admit that. They see their “purchases” of debt instruments, mainly those of governments, as being legitimate. But such purchases violate sound monetary principles, and even their legality is questionable.

The obvious question that must be asked is “Where do central banks get the money with which to buy those debt instruments?” The answer is, they do not “get” the money, they create it–by fiat. This is  their celebrated “quantitative easing,” which is actually currency inflation. The new “high powered money” thus created puts new “reserves” into the banking system, which banks use to multiply their own purchases of government bonds and other assets.

Without this “monetization” of debts by the banking system, newly offered debt instruments, like government bonds, would have to offer higher rates of interest to attract buyers from the general public.

Interest rates on the ever-increasing amounts of sovereign debts can only be kept low by this sort of central bank intervention. As I put it, central banks are the “buyers of last resort” for bonds that cannot be sold at artificially low rates of interest. The chart below show just how desperate the situation has become since the financial crisis of 2008.

Interest Rate Elephant In The Room

 

Initially, however,  in the case of the Fed, the purchases were of “junk” that the banks had created during the real estate bubble. That was the bailout that saved the banks but put the squeeze on people through foreclosures, layoffs, and loss of income on their savings.

As shown in this chart and others I posted previously, all he major central banks are doing the same thing, so foreign exchange rates are not too adversely affected–yet. But keep your eye on Brazil, Russia, India, China, and other countries that show signs that they may not be willing to play along./ t.h.g.

The emerging market mess and US manipulations

Anyone who wants to understand present-day geopolitical phenomena must pay attention to former Assistant Treasury Secretary, Dr. Paul Craig Roberts. Roberts is one of a handful of people who understands what is going on–and is willing to tell people about it. Explore his website http://www.paulcraigroberts.org/, and be sure to listen to his recent interview with Eric King, here.

In that interview, Roberts tells the story of how and why the US interferes in money and securities markets, and the effects those manipulations have on others around the world. He also predicts that the Federal Reserve will soon be faced with the choice of either saving the banks or saving the dollar, perhaps as early as the end of this year. But I suspect that the Fed may not quite yet have exhausted their bag of tricks. Because banking corporations dominate politics in most of the world, and because the dollar’s role as the global reserve currency has served the purpose of Western dominance, the Fed, in alliance with other central banks, will try to save both the banks and the dollar for as long as they can.

What is actually being protected is the global usury-based debt-money regime, that unholy alliance between politicians and top level banks that enables central governments to spend far in excess of their tax and other revenues, thereby thwarting democratic government and the popular will, while enabling banking institutions to privatize our collective credit and charge us interest (usury) to access it.

So what do the central banks have left in their bag of tricks as they taper off their massive amounts of  “quantitative easing” (currency inflation)? That’s the question to ponder. I think it’s obvious that they will (1) try to corral everyone’s savings and all surpluses into government securities and Wall Street equities (think, privatization of Social Security), and (2) outright confiscation of bank deposits via selective bank failures and assessments on depositors (ala the recent Cyprus trial balloon).

Still, those can only be, at best, delaying tactics, and not without serious social and political repercussions. The real solution will continue to be denied and delayed by the powers that be. Thus it must emerge from the bottom, from the creative instincts and talents of innovators in many fields who are bringing to market better ways of mediating the exchange of value and financing the creation of sustainable, Earth-friendly, and life-supporting products and services. –t.h.g.

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Do Banks Create Money out of Nothing?

One of my correspondents recently referred me to an article and asked for my opinion about it. The article is Creating Money out of Nothing: The History of an Idea, by Mike King, dated April 2012 .

I read the abstract, the conclusions, and part of the body text, but could not bring myself to make a detailed read. “The history of an idea” is not relevant to my interests nor to the debt crisis that plagues civilization. Verbose and tedious, it seems to be an academic exercise that I doubt  will be of interest even to historians.

On the positive side, it did prompt me to write a few words of clarification on the question, words that I think are both pertinent and helpful to those who truly wish to understand the nature of money and the role of banks in today’s world.

The accusation that banks create money out of nothing has, according to King, been made by many famous economists, including Schumpeter, von Mises, and Keynes. I too must admit to having once or twice used that statement as a sort of shorthand criticism of the global money and banking system.

It is surely true that saying that banks make “money out of nothing” is an exaggeration that can be misleading to the uninitiated.

Bank actually create money out of something. The question is, what is that something, and what is wrong with it?

The short answer is that banks create money on the basis of the promises of their borrowers to repay.

Mr. King would have us believe that banks simply take in money from savers and lend it out to borrowers. That is clearly wrong. Even the Federal Reserve, in its own publications, says that,

The actual process of money creation takes place primarily in banks.(1) As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.

In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.–Modern Money Mechanics

As I’ve pointed out in all of my books, banks serve two primary functions. They act as both depositories, reallocating funds from savers to borrowers, and banks of issue that monetize the promises of their borrowers. I’ve explained that in detail in Chapter 1 of my book, Money: Understanding and Creating Alternatives to Legal Tender, and in Chapter 9 of my latest book, The End of Money and the Future of Civilization.

But not all promises provide a proper basis for creating money. As Edward Popp, describes it, banks create both bona-fide and non-bona-fide money. (See Money, Bona Fide or Non-Bona Fide at http://www.reinventingmoney.com/documents/bonafidePopp.pdf).

The vast majority of the non-bona-fide money that banks create, is created on the basis of loans made to national governments (when banks buy government bonds). Further large amounts of non-bona-fide money are created when banks make loans to finance purchases of consumer goods and real estate (see my books for details). This is a violation of the principle that money should be created on the basis of goods and services on the market or soon to arrive there, which includes promises of established producers who are ready, willing and able to sell for money the things they ordinarily offer.

The bottom line remains: the present global, interest-based, debt-money system, is dysfunctional and destructive.

The creation of money on the basis of interest-bearing loans is the cause of the growth imperative, and the creation of non-bona-fide money is the cause of inflation.

If we are to achieve a sustainable society and assure the survival of civilization, we must transcend the present money and banking paradigm and reinvent the exchange process.  – t.h.g.

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October Newsletter and Fall tour itinerary: Europe & UK

In this edition

Fall Tour Itinerary – Europe and the UK

The Wealth of the Commons now in print.

Recent posts

  • QE3
  • Riegel essays:
    • Right-wing Socialists
    • Breaking the English Tradition

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Fall Tour

My fall tour agenda has filled out nicely and includes an exciting assortment of presentations, workshops, and consultations.

On October 1, I will begin a five week tour that will take me to Switzerland, Greece, and the UK.

Here is a chronological list of events. If you wish to participate in any of them, please go to the indicated website or get in touch with appropriate contact person.

3-6 October. Geneva. Presentations and conferences with Community Forge. “CommunityForge is a non-profit association that designs, develops and provides complementary currency systems and tools.” (Use the “Contact” button on the website to connect with Tim Anderson). This stop will probably include a presentation at the UN Palais des Nations, Human Rights Social Forum, on October 3. My topic will be “Strategies for community empowerment and the creation of economic democracy.”

7-14 October. Crete, Greece.

On October 10 and 11, I will be a presenter at the International Sustainability Summit, to be held at the European Sustainability Academy (Sharon Jackson, Director ).

The segment on Strategic shifts in prevailing systems includes a 2 day workshop that will focus specifically upon Community Exchange Systems and Alternative currency systems for Sustainable Communities. On October 10, I will give a presentation on The Emerging Butterfly Society: Making the shift to a steady-state economy and a world that works for all. Details and registration materials can be found at: http://www.eurosustainability.org/en/esa_summit4.htm

15 October to approximately 21 October. Mainland Greece

During this time period, I will be traveling to Thessaloniki, Volos, and Athens. Specifics are still developing.

25 October. York, UK

I will be speaking at the York LETS Conference on the topic, “Why local exchanges and currencies fail to thrive, and what is required to take alternative exchange to scale.” Booking at, http://yorkaltcurrencies-efbevent.eventbrite.co.uk/ . Info at Facebook.

October 27-28. London. Events on Money and Alternative Currencies are being planned by Mary Fee of LETSlinkUK, http://www.letslinkuk.net/. Details will be posted here when available.

30 October. Ambleside (Lake District). Cumbria University, Presentation, Beyond Money, Banks, and the Left-Right Divide.

31 October. I will be delivering a free public lecture, A New Approach to Community Economic Development at Cumbria University in Lancaster, UK.

1 November. I will conduct a workshop titled, Complementary Exchange Systems: Design, Organization, and Implementation, at The University of Cumbria in Lancaster( Room AXB003) from 2pm to 5pm.

Details of both events at: http://www.localwealth.co.uk/tom-greco/

Register for either at http://www.localwealth.co.uk/booking-for-tom-greco-events-in-lancaster/ .

I will return to the U.S. from London on November 5.

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The Wealth of the Commons

Following my participation in the Commons Conference in Berlin two years ago, I was asked to contribute a chapter to an anthology titled, The Wealth of the Commons: A world beyond market & state. This book is a “new collection of 73 essays that describe the enormous potential of the commons in conceptualizing and building a better future.” At long last, the English edition has now been published and can be ordered from Leveller’s Press,

I think the chapter I wrote for this book is one of the most succinct and information-rich essays I’ve ever written, so I’ve posted it here on this site at Reclaiming the Credit Commons.

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QE ad infinitum (QE3)

“Quantitative Easing,” commonly referred to as “QE,” is a euphemistic expression for currency inflation, i.e., the creation of money on the basis of junk securities and empty promises. On September 14, Ben Bernanke announced that the FED would continue to inflate the dollar on an ongoing basis for “as long as it takes.” A week earlier, European Central Bank president Mario Draghi announced a similar plan to save the Euro by buying the bonds of euro-zone governments, notably Spain and Italy. “There will be no “ex ante limits on the size” of the purchases, said Draghi.” He sugar-coated the bitter pill by saying, “governments that want the ECB to buy its bonds must agree to a program of reforms and oversight by the bailout funds and possibly the International Monetary Fund.” We know what that means for the ordinary person. Two of my recent posts address these announcements (https://beyondmoney.net/2012/09/20/qe-ad-infinatum/, and https://beyondmoney.net/2012/09/21/et-tu-ecb-inflating-the-euro/).

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Recent posts

In recent weeks, I’ve been re-reading some of E. C. Riegel’s essays. I’ll be posting the more important ones from time to time. Here is one that, although written more than 60 years ago, seems especially timely: The Right-wing Socialists.

Another important Riegel essay is, Breaking the English Tradition, which years ago I embedded, with my comments in a post to my other website Reinventingmoney.com. That post titled, The Politics of Money, can be download at here.

Hoping to see some of you along the way,

Thomas