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Getbig Main Boards => Politics and Political Issues Board => Topic started by: Bindare_Dundat on April 08, 2008, 11:07:29 PM
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Long read but interesting. Full article is here: http://www.globalresearch.ca/index.php?context=va&aid=6239
How did today’s looming tragedy come to pass?
Looking for causes is like peeling an onion. What we are really seeing are the terminal throes of a failed financial system almost a century old. It’s happening because, since the creation of the Federal Reserve System in 1913—even during the period of the New Deal with its Keynesian economics aimed at full employment—our economy has been based almost entirely on fractional reserve banking.
This means that under the regime of the world’s all-powerful central banking systems, money is brought into existence only as debt-bearing loans. Interest on this lending tends to grow exponentially unless overtaken by real economic growth.
Remember that every instance of bank lending, from purchase of Treasury Bonds, to credit cards, to home mortgages, to billion-dollar loans to hedge funds for leveraged buyouts or sheer speculation, must eventually be paid back somewhere, somehow, sometime, by somebody, with interest. In the end, it all comes back to people who work for a living, whether in the U.S. or elsewhere, because that is the only way the world community ever creates real wealth.
In an anemic economy like that of the U.S., growth cannot catch up with interest in a deregulated financial marketplace where interest rates are high. Rates may not seem high compared with, say, the twenty percent-plus rates of the early 1980s, but they are high in an economy with, at best, a two percent GDP growth rate.
And they have been high on average since the 1960s, as the banking industry became increasingly deregulated. Interestingly, since 1965, the U.S. dollar has lost eighty percent of its value, which tends to validate the contention by some observers that higher interest rates not only do not reduce inflation, as the Federal Reserve contends, but actually cause it.
The situation today is worse in many respects than 1929, because the debt “overhang” vs. real economic value is much higher now than it was then. The U.S. economy was in far better shape in the 1920s, because so much of our population was gainfully employed in factories or on farms.
The question is not when will the system start to come down, because this has already begun. It’s shown most clearly by the fact that according to Federal Reserve data, M1, the part of the money supply most readily available for consumer purchases, is not only lagging behind inflation but has actually decreased in eleven of the last twelve months. This means that the producing economy is already in a recession.
The federal government is trying to figure out what to do. Their biggest concern is that foreign investors have started to pull out of dollar-denominated markets.
The government’s “plunge protection team”—known officially as the President’s Working Group on Financial Markets—is trying to engineer what they call a “soft landing.” It’s been likened to the process by which you cook a frog in a pot where you raise the temperature one degree a day. The frog doesn’t hop out because the heat goes up gradually, but before long it’s too late. The frog has been cooked.
Even if the plunge protection team succeeds, and the frog cooks slowly, there will be a massive de facto default on dollar-denominated debt and a long-term degradation of the U.S. standard of living.
The worst off will be people locked into retirement funds which have a heavy load of mortgage-related securities. Entire investment portfolios are likely to disappear overnight.
The banks, along with the bank-leveraged equity and hedge funds, are preparing for the biggest fire sale in at least a generation. Insiders are going liquid to get ready. If you think Enron was “the bomb,” you won’t want to miss this one.
WHAT CAN BE DONE?
There are so many flaws in the system that it’s time for real change.
As I have been pointing out in articles over the last several months, the key to a rational solution would be immediate monetary reform leading to a fundamental shift in how the world conducts its financial business. It would mean taking control of the world’s economy out of the hands of the private bankers and giving it back to democratically elected governments.
I spent twenty-one years working for the U.S. Treasury Department and studying U.S. monetary history. For much of our history we were a laboratory for diverse monetary systems.
During and after the Civil War (1861-5) we had five different sources of money that fueled our economy. One was the Greenbacks, an extremely successful currency which the government spent directly into circulation. Contrary to financiers’ propaganda, the Greenbacks were not inflationary.
Another was gold and silver coinage and specie-backed Treasury paper currency. The third was notes lent into circulation by the national banks. The fourth was retained earnings—individual savings and business reinvestment of profits—which was the primary source of capital for industry. The fifth was the stock and bond markets.
After the Federal Reserve Act was passed by Congress in 1913, the banks and the government inflated the currency through war debt and destroyed most of the value of the Greenbacks and coinage. The banks never entirely displaced the capital markets but eventually took them over during the present-day era of leveraged mergers, acquisitions, and buyouts, while the Federal Reserve created and deflated asset bubbles.
The banking system which rules the economy through the Federal Reserve System has produced the crushing debt pyramid of today. The system is a travesty. Banks, which can be useful in facilitating commerce, should never have this much power. Many intelligent people have called for the Federal Reserve to be abolished, including former chairmen of the House banking committee Wright Patman and Henry Gonzales and current Republican presidential candidate Ron Paul.
Some might call such a program a revolution. I prefer to call it a restoration—of national sovereignty. Central to the program would be the elimination of the Federal Reserve as a bank of issue and restoration of money-creation to the people’s representatives in Congress. This is what our Constitution says too. It’s the system we had before 1913.
THE MONETARY PRESCRIPTION
The fundamental objectives of monetary policy should be to secure a healthy producing economy and provide for sufficient individual income. The objectives should not be to produce massive profits for the banks, fodder for Wall Street swindles, and a blank check for out-of-control government expenditures.
Note I referred to income. I did not say “create jobs.” That is the Keynesian answer, because Keynes was a collectivist, and the main thing collectivists like to come up with is to give everyone more work to do, even if it’s just grabbing a shovel and digging ditches like they did with the WPA during the Depression.
It’s what President Clinton did with his welfare-to-work program that threw hundreds of thousands of mothers off the welfare rolls and into a job market where sufficient work at a living wage did not exist. It’s another reason the government is constantly borrowing more money to fuel the military-industrial complex by creating more military, bureaucratic, and contractor jobs.
Back to income. The idea of “income,” as opposed to “jobs,” is a civilized and humane idea. When are we going to realize that everyone doesn’t need a paying job in order for an industrial economy to provide all with a decent living? When are we going to realize that the productivity of the modern economy is part of the heritage of all of us, part of the social commons?
Why can’t mothers have the choice of staying home with the kids like they could a generation ago? Why can’t some people choose to do eldercare? Why can’t others comfortably go into lower-paying occupations like teaching or the arts? Why can’t some just opt to study or travel for a while or learn new skills or start a business without facing financial ruin as they often must today? Why can’t retirees enjoy their retirement instead of having to stay in the job market or worrying about Social Security going broke?
The U.S. and world economies are on the brink of collapse due to the lunacy of the financial system, not because we can’t produce enough.
Contrary to so many doomsayers, the mature world economy is capable of providing a decent living for everyone on the planet. It cannot because the monetary equivalent of its bounty is skimmed by interest-bearing debt.
These are things that monetary reformers have known about for decades. The first steps within the U.S. would be 1) a large-scale cancellation of debt; 2) a guaranteed income for all at about $10,000 a year, not connected to whether a person has a job; 3) an additional National Dividend, fluctuating with national productivity, that would provide every citizen with their rightful share in the benefits of our incredible producing economy; 4) direct spending of money by the government for infrastructure and other necessary costs without resort to taxation or borrowing; 5) creation of a new system of private lending to businesses and consumers at non-usurious rates of interest; 6) re-regulation of the financial industry, including the banning of bank-created credit for speculation, such as purchase of securities on margin and for leveraging buyouts, acquisitions, mergers, hedge funds, and derivatives; and 7) abolishment of the Federal Reserve as a bank of issue with retention of its functions as a national financial transaction clearinghouse.
While these proposals are basically simple, the overall program is so different from what we have today with our financier-controlled system that it takes careful reading and a great deal of thought to understand exactly how it would work. One way to approach it is to look at the likely effects.
These measures would immediately shift the basis of our economy from borrowing from the banks to a mixed system that would include the direct creation of credit at the public and grassroots level. The size of government would shrink, our producing economy would be reborn, debt would come down, economic democracy would become a reality, and the financial industry could be right-sized. Finally, the international situation could be stabilized because we would no longer be driven to a constant state of warfare to seize other nations’ resources as with Iraq and to prop up the dollar as a reserve currency abroad.
Such a system would work by creating indigenous sources of credit needed to mobilize the natural wealth and productivity of the nation. There are people who could implement this program. Systems to do so could be installed within the U.S. Treasury and the Federal Reserve within a matter of months.
Fundamental monetary reform implemented to restore economic democracy is what America’s real task should be for the twenty-first century. One thing is for certain. The out-of-control financial system that has wrecked the U.S. and world economies over the last generation cannot be allowed to continue.
How the outcome will play out may well depend on whether there is a Jefferson, Lincoln, or Roosevelt waiting in the wings. The success of each of these great leaders was due to one critical factor: their ability to implement monetary reform at a time of national emergency