Web Letters: Dismantling the Temple

I think Mr. Greider is on the right track, but I would just take it a step or two further. If the US Treasury can print bonds, then why can it not print currency as US Treasury notes? It has in the past. The current system of selling bonds to the Federal Reserve, a private international banking cartel, delivers a paycheck in the form of interest to them without them having performed any service, other than a few keystrokes.

If, on the other hand, the US Treasury prints the notes, the Federal Reserve notes could be retired in a few years without the need for interest payments to the Treasury. The same amount of cash would be in circulation, but without the need to pay a premium to the Federal Reserve and its owners for the use of the money.

I belive that the new US Treasury notes should not be backed by gold or silver. I belive that is a slippery slope, because the international banking families/cartel already own most of the gold, and would prove to be an insurmountable obstacle to any move in that direction. Besides, any paper currency requires faith by the people, not a mythical storehouse of gold somewhere.

Banking laws should also be changed, gradually raising the capital requirements from the present 8 percent to 100 percent when the Federal Reserve notes are fully retired. Why should bankers have the special privilege of multiplying our money supply and collecting interest on something created out of nothing, when no other institution has that privilege?

As need for capital for capital projects arises, Congress, or the states for that matter, with Congressional approval, could simply authorize the additional cash to be created for the projects. And the money supply could be grown gradually over time as required by the growth of the ecconomy.

Within a year or two at most, the need for the private banking cartel known as the Federal Reserve could be reduced to the perfunctory tasks of handling check-processing or some other nominal functions--or, better yet, eliminated altogether, with any remaining duties or functions transferred to the US Treasury.

By this method, we will reduce our need to pay interest on the outstanding bonds, as they will have been paid off with the new US Treasury notes, not requiring interest payments. And, more important, our government's insatiable need for cash to make those interest payments will be reduced to zero. It is even possible that we will be able to reduce our tax liabilities in the process. Now, would not that be a novel idea?

Of course, there are many nuances to be considered, but in essence, it would not be at all painful or disruptive, or jeopardize our standing in the world financial markets, if we were to make this fundamental change. After all, China has rejected the idea of a private central bank. Why can we not do the same?

We just need to do it! And not let the international banking families/cartel scare us away from taking the necessary actions.

Robert E. McCoy

La Canada, CA

It's not really a matter of reforming the current system, because it is in the process of self-destruction. The simple fact is that capital is subject to the laws of supply and demand. The lender is supply and the borrower is demand. Since supply is effectively infinite, it is demand that ultimately sets the limits of how much capital can be effectively created. Behind all the blather about government debt, subprime mortgages, derivatives, etc. they all serve one over-riding function: to provide demand for capital. The problem is that they are not stable and sustainable. While the real estate bubble has burst, the even larger juggling act of derivatives and black hole of government debt are still growing. When they detonate, the tech and real estate bubbles will seem mere firecrackers.

We will be starting over fresh.

Money functions as both a store of value and a medium of exchange. These work at cross-purposes, because as a store of value it is a form of private property, while as a medium of exchange it is a form of public utility, similar to a road system. Most people focus on their own wealth in comparison to others and thus think of it as private property. The reality is that the system belongs to whoever guarantees its value. We do possess the money we hold, in the same way we possess the section of road we are driving on. You own your car, house, business, etc., but not the roads connecting them. Money is a similar medium. It was one thing when money signified some commodity you had stored or traded and its value was entirely based on that underlaying commodity, but now the money supply far exceeds the underlaying value of the real economy and so its value is maintained by the ability of the government to support it through taxation.

Consider how it would change public perception of monetary wealth if we were to come to the realization that the monetary system really is now entirely a form of public commons? The practice of hoarding excessive amounts would lack logical justification, so savings would be taxed progressively. This is not to discourage individual effort but a necessary recognition of the effect of excess savings on a functioning monetary system. If people understood monetary value constituted public property, then they would be far more reluctant to drain value out of their social networks and environment to put into a bank in the first place. We all like having roads, but there is little inclination to pave more than we need. In this situation, the same would apply to monetizing our lives. Other avenues of trust and reciprocation would have the space to develop, which would strengthen communities and their relationship to the environment.

Political power started as private initiative and eventually grew into monarchy. Monarchists railed against mob rule, but we eventually learned how to make politics a public trust by allocating power where it was most responsive. Why not do the same with the banking system? As the currency is a public utility, so profits from its administration could be public income. A public banking system would not be one huge behemoth but consist of institutions incorporated at every level of governance, so individuals could bank with the ones that funded the services they are most likely to use. Different communities would seek to provide the best services with these funds, otherwise they would lose business and citizens to other communities. As it is, banking doesn't need the inventiveness for which private enterprise is most suited but the stability that is the strength of the public sector. Call this the public option.

This may not be a perfect solution, but then Winston Churchill said of democracy that it's the worst form of government, except for all the others.

John Merryman

Sparks, MD

One way to begin the process would be to let each state create its own state bank, as North Dakota has done since 1919--specifically to keep out the grubby moneylenders on Wall Street and New York. ND has a record surplus this year, and has had a surplus every year since 1919. They have little inflation--mostly imported from the larger American economy--and an unemployment rate about half the national average, and non-defaulting mortgages.

The place to start is in California, whose recent budget resolutions won't be the end of the story, but might be the end of California if its bond rating (which effect its borrowing rate) doesn't improve.

Join Ellen Brown and 368 other citizens (so far) in e-petitioning Gov. Schwarzenegger and other California electeds.

Scott Baker

Op Ed News
New York, NY

Abolishing the Fed will do little to solve the crisis. Most people do not understand the nature of the problem. The crisis can only be solved if the root causes are recognized. These are usury (interest on money) and credit (the creation of money out of nothing).

If someone brought a 1/10 oz. gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4 percent, the amount of gold in the account would have been 3.6 * 10^31 kilograms of gold. This is 1.9 * 10^27 cubic metres of gold, weighing 317 times the complete mass of the Earth. This example demonstrates that interest on money is unsustainable and leads to crisis.

Credit and interest on money make it possible for an economy to grow above potential during a boom phase. In the boom phase investors add leverage using credit which further intensifies the boom, creating shortages of materials and labour resulting in rising prices. Interest on money entices banks to lend money to leveraged investors. Credit makes it possible to create money out of thin air, which enables the banks to fuel the boom. When the cycle turns into bust, investors start to deleverage, which intensifies the bust, creating surplusses of materials and labour resulting in falling prices. What most economists do not see is that credit and interest on money are the root causes of economic booms and busts.

If you see the root causes of the problem, it becomes possible to end the depression in a few months, to have constant economic growth at maximum potential without crisis forever without unemployment or government intervention. You can read more about it online.

Bart Klein Ikink

www.naturalmoney.org
Sneek, Netherlands

Nobody has to wonder any longer where the Fed's money is coming from. Mr. Greider states it creates it out of thin air. This is a fact, and this article is not the first to state it. How could all the members of Congress not know this? Our financial system is based on legalized fraud. It is a conspiracy, and anybody who doesn't see it is in denial and a coward not to admit it when they do see it. The genie is out of the bottle and there is no putting him back in. After everything that's happened recently more people than ever before are looking for answers as everything they have worked for has been destroyed and taken away by the systems that are designed to corrupt everybody.

Lynn Bard

Kennewick, WA

William Greider omits a major detail: the imperial foreign policy of the US and the military costs of trying to implement it. These costs will continue to require the "printing" of money by the Fed, bleed the savings of citzens and turn productive talents to the production of armaments.

In discussions of the economy and the internal needs of our country, the demands of our empire are never considered a factor in our difficulties. It's as if that were another world and untouchable.

The only exception I know is the writing of Chalmers Johnson, the former State Deparment, Far East expert and distinguished author of the "Blowback" trilogy.

The US financial establishment is not separated from the imperial adventures of the US, and its Federal Reserve Bank and Treasury Department help to fuel that engine of destruction by printing or borrowing the trillions required.

Kirt Girdle

St Petersburg, FL

William Greider has once again produced a groundbreaking article. If you have only read it once, read it again, and again. The reporting, facts and ideas are a breakthrough in mainstream media.

Once again Greider has taken the Powers That Be to task.

Michael McKinlay

Hercules , Ca

A well-written informative article, I only have a few quibbles. At some points, the author seems to suggest that the Fed was derelict in its regularatory duties--allowing unfettered capitalism to damage the finanacial system. This is really not the reason for the development of CDOs and other shenanigans. It was not the lack of regulations. It was the Fed's irresponsible lowering of interest rates (for the last twenty-five years, but especially since 9/11) coupled with the "Greenspan put" that spiked the punch bowl (cheap money) and said to the Wall Street partyers, "Don't worry, the US taxpayer will be the designated driver for your excessive risk-taking." Bonds were also not being graded properly because the bond-graders were not liable. Lending standards went out the window, courtesy of government carrots. The list goes on and on.

A true free market where the competent modest risk-takers are rewarded while the incompetent gamblers fail is the best prescription going forward. Giving super-regulatory powers to the ones who are most responsible for this mess is at best foolhardy and at worst criminal.

John Huckans

State College, PA

It would appear to me that the money created by the Federal Reserve should be named "diktat dough."

I am sure that we could riff on the theme of "naughts and crosses" or Xs and Os. Is money nothing more than imaginary stuff (fiat bux) created by the masters of the universe for their aggrandizement and our suffering?

Douglas McKillop

Sudbury, ON, Canada

This article is dangerous because it proposes throwing to the wind the last leg holding up the US economy: the unique privilege America possesses of creating money out of thin air in the reserve currency the world recognizes and uses. This privilege has been denounced by Mitterrand and de Gaulle on several occasions. Nowadays it's sadly the only thing the US economy really produces.

william steinert

Werder Havel, Germany

Right now, a bill of the utmost importance languishes, blocked in committee by a procedural move, even though it has accumulated broad bipartisan support and an astonishing 270 co-sponsors in the House of Representatives. Unlike so many bills that go through Congress, it does exactly what its name says. This bill is H.R. 1207, the Federal Reserve Transparency Act of 2009. This bill would allow and require the Government Accountability Office to do a full and complete audit of the currently unaudited and unaccountable Federal Reserve, the United States' central bank and the most powerful financial entity in the world. Upon completion of the audit, the GAO would present a detailed report to Congress along with such recommendations as the director of the GAO may deem appropriate. The bill does nothing more and nothing less. That the Federal Reserve must be made accountable for its actions is undeniable.

A recent article in Der Spiegel, one of Europe's most respected magazines, demolishes the notion that the catastrophic financial meltdown last October could not be predicted far enough in advance to avert it. The article, "Global Banking Economist Warned of Coming Crisis," tells how the Bank of International Settlements monitored the toxic brew building up inside our financial system and how the BIS's chief economist briefed the Federal Reserve about it six years before the crisis hit. The Federal Reserve did nothing to try to prevent the cataclysm of "nuclear mortgages" and "powder keg" of toxic securities that Chief Economist William White warned about. Dr. White's predictions came to pass with startling accuracy, and we are now all paying the price.

The Fed demonstrated how little it understands this financial crisis by flatly denying there could be such a thing as a housing bubble. Moreover, its former chairman, Alan Greenspan, extolled the virtues of subprime ARMs on multiple occasions and publicly advised people to buy houses with them at exactly the worst possible time. This same Fed, albeit with a different chairman, now thinks it has the institutional knowledge to take extraordinary action to try to contain the damage.

While the public brayed about the relatively paltry AIG bonuses, the Fed expanded its balance sheet by a completely unprecedented $2 trillion. How the Fed got that money or where it went is unknown to anyone outside of the Fed, except that it has been used to bail out Wall Street through an opaque alphabet soup of credit facilities. Moreover, the Fed has bought up massively leveraged toxic mortgage securities and CDS derivatives from AIG that dwarf the bonuses by several orders of magnitude and secreted them off its balance sheet in two of the Maiden Lane facilities. The three Maiden Lane facilities contain the financial equivalent of black holes, the absolute worst of the toxic securities and derivatives that brought the world's financial system to its knees and that devour every effort to bail it out. Urge your Senators and Representative in the strongest possible terms to audit the Fed, thereby making it accountable to Congress and the American people. Your children will thank you.

Addendum:
The GAO is expressly forbidden from auditing the following four areas of the Federal Reserve's operations, which when taken together comprise basically everything of importance that the Fed does in its role as the United States' central bank:
(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;
(3) transactions made under the direction of the Federal Open Market Committee; or
(4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1)-(3) of this subsection.

David J. Persky

Chester, VA

I read a Washington Post article a couple of months ago about how although the Congress only had the power to appropriate funds and tax the citizens, Senator Dodd, chairman of the Banking Committee--the same chairman who in February confessed he had inserted a couple of lines in a huge statute permitting those scandalous AIG bonuses in the 1990s--had also inserted a couple of lines in another huge status giving the Fed the power to also collar tax payers, a run around the Constitution. The Constitution gave tax powers to Congressmen who had to face the voters every two years, but Dodd gave it also to the Fed. He keeps running for president and seems to have no problem raising funds. So yes Congress has the power, but are they any more trustworthy? Let the people take the power back responsibly

roderick seeman

Davao, Philippines

Abraham Lincoln had Congress print the greenbacks and it had nothing to do with the Federal Reserve, that’s why it worked. It didn’t have to be paid back. The fact that today the United States continues to borrow money from the Fed is the problem. Why are we borrowing money when we could print it?

I would prefer that Congress print money and loan it to the Federal Reserve; then taxpayers would be earning money from the banks instead of the other way around.

As Greider says, some money could be printed and bypass the banks altogether, going directly to public works projects, infrastructure; to create jobs for the little people (the rest of us); the veterans returning home that have nothing to do, the seniors that need to work an hour or two a day, the new graduates who need work, the homeless, etc. etc. etc.

Gary Amstutz
Kern Valley Progressive Alliance Committee

lake Isabella, CA