Web Letters | The Nation

Web Letter

Am I missing a crucial reversal here, or is Greider earnestly spelling out for Nation readers the reactionary logic of Smoot-Hawley foolishness?

Such shameful excess of neoliberal incoherence!

Jared Lister

New York, NY

Jan 31 2009 - 7:21pm

Web Letter

Counter Objections:

1. The Fed will buy the debt.

2. The someone holding the debt will be us.

3. The future debt service will crowd future budgets... but it will be more tolerable if we have a functioning macroeconomy.

4. Lots of smart people already have workable plans in mind. Many people saw this crisis coming a long time ago, including Mr. Greider.

Clete Garriott

Greene, RI

Jan 24 2009 - 2:12pm

Web Letter

Credit is defined as a positive monetary account at a banking institution.

The basis of the banking crisis is that the the origin of most credit is debt.

The origin of credit can come from three sources of funds:1. currency (a small fraction of accounts)
2. fractional reserve loans and direct credit from the central bank created when it buys government securities or other debt instruments (loan credit--most accounts)
3. direct credit from the central bank in return for non-debt assets and services or even nothing (fiat credit--currency and federal reserves).

To solve the "tight" money crisis, mortgage crisis, bank insolvency and government debt we need to eliminate loan credit and replace it with fiat credit. The US government should nationalize the Federal Reserve and the whole national banking system. It buys and capitalizes the whole banking system with its own directly created fiat credit. This is like having the Fed credit all banks with enough reserves to cover all their deposits and loans and recalling all reserve government securities. There is now no longer credit created by debt because there is no reserve banking (reserve ratio is 100 percent). There is no inflation because the money supply has not changed. All credit accounts are fiat credit accounts. All further loans are transfers of fiat credit.

The government injects fiat credit into the system by crediting its own government accounts with fiat credit and then spending it. It also uses the nationalized banking system to inject fiat credit. If the banking system needs to make more loans than there is available bank capital, the government can create more capital with fiat credit. Credit injection and withdrawal is done by the government and does not involve debt, interest or leverage. All credit in the system is created without debt. A loan does not create credit. It is the direct transfer of credit from one account to another, along with a contractual obligation to repay the credit with interest.

All fiat credit is created by the government and the government is the fiat credit transfer agent. All fiat credit is in a central database indicating the current registered owner. Little is ever converted to currency. This enables the government to better monitor economic activity and hinder illegal activity. Fiat credit information is only available for top security and law enforcement activities. Currency is marginalized and there is little money that exists outside the banking system. All money is fiat credit in a central database. The government can keep track of all the fiat credit it issues. Interest rates can be very low or nonexistent as the government is mandated to regulate credit and government borrowing so there is no inflation or deflation.

The federal debt is unmanageable and the banking system is based on a convoluted and out-of-control leveraging system. Money flows in the ways defined for it. Let's define just and simple ways for money to flow.

Next step is a globalized non-fractional reserve fiat credit banking system administered by a representative world body.

Russ Gustafson

Redwood City, CA

Jan 22 2009 - 4:20pm

Web Letter


1. Who will buy the debt, has the money and the willpower?

2. Is this whoever someone (collectively) that we can toleratee having a stranglehold on the US economy?

3. Won't the cost of this debt crowd out other things we might wish to do with our future resources?

4. Is it possible to design a workable system for the proposed bailout without years of careful planning?

John D. Froelich

Upper Darby, PA

Jan 20 2009 - 10:45pm

Web Letter

With all due respect to Mr. Greider, I am astounded by the shocking display of economic ignorance on his part. The smattering of fallacious and socialist ideas such as bank nationalization, Keynesian theory and the imposition of "emergency" tariffs amounts to assured disaster. It doesn't take much of a scholar to realize that some of these ideas were perpetrated some eighty years ago and failed then. If we impose tariffs on our nation, as did the first "New Dealer" Herbert Hoover, then we are only left with less international competition, higher prices and quite presumably goods of poorer quality. This in turn leads to lower wages. If President Obama is to help re-energize America's atrophied international relationships, then choosing to heavily tax certain choice imports from trade partners is certainly a poor tactic. This is a great way to quickly destabilize the economies of our respective trade partners and potentially cause irreparable damage in foreign relations. In addition, when we completely cut off a foreign industry's access to our markets, then we prevent any dollar exchange. Thus, they will be unable to purchase our goods and their industries will suffer in direct proportion to our own as a result! One doesn't have to look much further than The Nation's old editor Henry Hazlitt in his economic masterpiece Economics In One Lesson to find that when Americans purchase the more expensive, tariff-protected goods, then they are left with less money to buy other goods. So there is no net gain to industry as a whole due to the contrived high prices of domestic products. Yet Greider amongst others suggests this as a plausible approach.

And secondly, the left's march toward socialism is clearly made evident by Greider's suggestion of nationalizing our banks, as if no other options exist to fix this crisis. For one, purging the market would be the most effective means to correct things. It would be painful if prolonged by interventionist policies à la FDR. However, things would rebound quickly if left alone, as demonstrated by the numerous contractions of the nineteenth century. Something that strikes me as alarming, as well as telling of Keynes's personality, was that he was still on the board of directors of the British Eugenics Society in 1946, even after the innumerable Nazi atrocities committed in the field of eugenics. And yet he is revered, despite such serious moral failings. Anyway, the idea of an already expansive bureaucracy taking over our banks does not promote efficiency and freedom but less of both. The problem lies in our fractional reserve banking system and not in Greider's "globalization" boogeyman.

Furthermore, where will the roughly $2.4 trillion proposed by Greider to resuscitate our economy come from? Will we print more fiat currency and borrow more from China? Hopefully not, but what choice do we have but to spend more, save less and walk straight into the same abyss as we did under Herbert Hoover in 1929 when we are oblivious to the lessons that Americans have collectively forgotten? One only needs to study the commonly ignored or misrepresented period of 1929-1932. The fact that during this time Hoover's foolish experiment in artificially stabilizing commodity prices was hailed by Keynes as a triumph demonstrates the foolishness of Keynesian thought. For by the end of the Hoover administration, regardless of how much money was used in a desperate measure to curb the devaluation of commodities, the combined loss in both wheat and cotton alone totaled over $300 million. Even wool received over $31 million in loans by the Federal Farm Board, only to end up with over $12 million in permanently lost loans. Sadly, William Greider disregards history and logic and chooses to unabashedly crack the whip for more government and more spending without even considering the alternative. If any of Greider's ideas are put into action by Obama. then the last remaining vestiges of America will surely topple into the the dustbin of cultures.

Ian Robertson

Nashville, TN

Jan 19 2009 - 7:20pm

Web Letter

The Luddites did have a point, as well as John Henry. When you deny people the feeling that they have "skin in the game," they close down and become insular and do in fact turn to guns and religion. I do, anyway. George Wills, this morning, still expresses the same old sentiment that we have a constitution that interferes with progress. Why, is it because the Constitution asks that national wealth and rights belong to "the least of these," as well as to the wealthy? Ten percent of us own 80 percent of the country's wealth--we do have an unsustainable situation. When people who collect our garbage and make our nuts, bolts and sewing needles are made to feel less human than the wealthy and famous, they predictably rebel, and no gated or walled community will make the chosen safe. The Luddites obviously did not succeed in stopping the progress of weaving looms, but they did make the debate on shorter work weeks more palatable. The elitist and exclusionary crowd have had their twenty years, now let's try the Obama inclusionary crowd... Hell, it may even work.


Caribou, ME

Jan 18 2009 - 11:43am

Web Letter

Your analysis is correct, but you cannot solve the world's economic problems because "free trade" means, in theory, unregulated trade. In practice, it means economic anarchy! You are not going to get every nation in the world to agree to a "fair trade" policy. As I have written before, it is like herding cats. While you cannot fix the world's economy, you can show them how to do it by fixing the American economy. This means redeveloping our national economy behind trade barriers. Children, this is how we became an industrial powerhouse.

We need employment to sustain the American market. It is ordinary people that support two-thirds of the American market. No jobs, no market! We need to make things in order to provide jobs so people can afford to buy things. The reason the American market is collapsing is because jobs and industries have been outsourced oversea or across the border. What is particularly ironic is that you have outsourced everyone's job, whatever their immigration status. Immigrant pickers use to get $9 an hour in California, and they now get $11 a day in Mexico working for the same "American" farmer.

The US cannot buy imported goods because we do not have the jobs and income to buy anything. The same is true all over the formerly developed world. People are being laid off, or they are working f0ur-day weeks, with unpaid holidays. Obama is going to fail if he continues with this "free trade " nonsense.

Pervis James Casey

Riverside, CA

Jan 16 2009 - 2:17pm