Monday, December 29, 2008


(Week 21 - Monday, Dec. 29)

It is timely and apropos in this landmark 100th column that the basis for understanding be taken to a bit higher level. To accomplish that, two concepts new to this discussion need to be introduced. These are already commonly referred to in the realm of economic theory, but not observed in a consistent way in the world of finance and banking.

As a beginning student aspiring to enter the realm of economics one is required almost invariably to take a course titled "Economics 101." From there the coursework divides into two streams, those being "micro-economics" and "macro-economics" (Econ. 102 & 103). Almost anyone who has found his life's work in dealing with money in a central way, whether as economists, fund managers, stock brokers, bankers or whoever, was introduced into the theoretical world of economics through this regimen of courses.

I took the Econ-101 course when I was 48 years old with the attitude of seeking answers to the dilemmas about money I had already encountered in my life. My life experience provided a basis for questioning, and not simply accepting, the premises of the course (an advantaged position few students experience). In the text out of which I was taught ("Economics", Case & Fair, 1989 ed.) the two streams of the economic discipline were defined as follows:

"Microeconomics – The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units, that is, business firms and households."

"Macroeconomics – The branch of economics that examines the economic behavior of aggregates – income, employment, output, and so on – on a national scale."

I would offer my own definition of these respective terms as follows:

Micro-economics is the science of how people provide for each other's needs in the context of the various influences they are subject to from without, and impulses that arise from within. Ideally such activity is an expression of cultural, spiritual and entrepreneurial freedom. Participants include individuals, businesses, corporations and governmental bodies, except for the Federal government.

Macro-economics is the science of how a society organizes itself to create an equitable context in which its citizens can conduct their micro-economic affairs. Resolving issues of societal equity are a natural function of the political realm, and for the way our society is constituted at present (around the nation-state), this means that the central arena of macro-economic life is the national government.

To lend a picture to these somewhat dry definitions, a micro-economy (the object of which micro-economics is the study) is related to the macro-economy in much the same way that the trees are related to the forest.

To offer a sports analogy, a micro-economy is related to the macro-economy in much the same way that the sports teams are related to the league they play in. Ideally, the league does not make any of the plays, accrue any of the points, or take a partisan position with respect to any team. Its function, rather, is to set up a matrix of rules, resources and arbitration whereby the teams can strive to make plays, earn points and be confident that it will be done on a "level playing field." It is alike in the interests of all teams that the league perform this service in a consistent manner, as it will provide a setting for the optimum expression of the talents of the players, and the maximum enjoyment of the games spectators.

If the distinction between the micro and macro aspects of the game were lost sight of, and one of the league's teams assumed the functions of the league itself, then trust in the integrity of the game would be lost. Indeed the business of the league would tend to be conducted in such a way that it was favorable to whatever team was given control.

The root problem with our economy is that the distinction between its micro and macro dimensions has been lost, and one of the teams (the banking industry) has been put in control. Consequently, the rules by which points in the economic game are allotted (via money) have become skewed in favor of the team in control (the private banking system). Now the micro-players in the economy (individuals, businesses and governmental bodies other than Federal) labor not only to work out the allotment of financial credits vis-à-vis each other, but also pay tribute to the league for the very playing of the game. It is as if there were a third posting on the scoreboard where for every "touchdown" scored by one of the teams, one of its points had to be donated to the league. In any individual contest the points tallied to the league would be less than the total points earned by the teams, but the league would accept its tribute on every scoreboard, and so come out with the dominant total with respect to everyone else.

This is a pretty silly situation, of course, and it is hard to imagine any sporting league that could live with such a nonsensical arrangement, but the question has to be asked, "Why do we arrange our monetary affairs in such a manner?" There is one team, the banking team, that has been given control of the game. The argument has been made that this is the way to keep politics out of money. It might also be suggested that this is the way to ensconce the fox in the henhouse.

I would add that what I am saying here is not an indictment of banking per se. After all, bankers have been put in the impossible position of having to serve two masters to even do their job; i.e. both the commonweal, and the private interests that would profit at the expense of the nation as a whole. This is a wholly inappropriate mixing of the private (micro) and public (macro) spheres.

The creation and issuance of money is a macro-economic function, and should be returned to the national government. Mixing money issuance and private enterprise in the way currently configured is in itself a corruption, and the system survives at all simply because the people involved in it (including bankers) have not allowed themselves to be wholly given over to corrupt influences on a personal level. That said, it is unrealistic to expect them to overcome the inherent inconsistencies involved in discharging their fiduciary responsibilities in ways that are in keeping with both their private for-profit, as well as public for-the-common-good missions. Can we expect, then, that these micro-economic players (bankers), who have been placed and continue to be maintained in this untenable position, to provide the macro-economic leadership that will lead this nation, and the world, out of the "debt"-crisis wilderness? Some may indeed emerge, but they will need help.

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Friday, December 26, 2008


(Week 20 - Friday, Dec. 26)

The lead-up to the winter solstice, the darkest time of the year, has come to be illuminated by a fantastic profusion of bright lights heralding holiday festivities. This is ostensibly to celebrate the advent of the brightest spiritual light ever to incarnate in the earth over two millennia ago. What follows for many is a season of "Holy Nights" (Christmas to Epiphany) that is marked by a turning inward to meditate upon the outer events and inner experiences of the preceding year, and a prayerful contemplation of the new year to come.

There is understandably a tendency to shy away from devoting further attention to the subject of money in this soul-searching, especially given the fit of holiday shopping and material consumption that has come to precede Christmas, but, I would suggest, this is precisely the time when it would be well to meditate upon money in its deepest and most spiritual sense.

To seed the process, I have offered below a fresh perspective on the Garden of Eden story common to Christianity, Judaism and Islam. The late Joseph Campbell, renowned American mythologist, observed that in creation myths from all around the world mankind began his earthly sojourn in a Garden-like setting from which by virtue of his own rebellion he became estranged. My feeling is that there is a foundational universality to this story that speaks to people whether they are of the Christian, Judaic or Islamic faiths, or not. I leave it to the reader to judge whether this is so. In any case I would offer, to be taken howsoever one would, the following thought:

* * * * * * * * * * * * * ** * * * * * * * * *

In the primordial Garden Man was charged with the responsibility to "Be fruitful, and multiply, and replenish the earth, and subdue it." The state of Man was destined to unfold from a purity of innocence, into a full consciousness of knowledge of the dark and the light, under the harmonious guidance of an all–wise, all–knowing spirit. His purity, however, was fatally sullied as he failed to wait upon God, but willfully reached for powers he was not yet fit to receive. As the wages of this rebellion he was ejected from the Garden, and henceforth obliged to labor by the sweat of his brow to earn his comfort and keep.

The travail of subsequent effort took on a coordinated form which replicated roughly the divinely symbiotic material and energy flows of the Garden. The evolving matrix of relationships thereby established became an aspect of the social body known as the "Economic Life," while the vitalizing spirit of that body took on the guise of "Money." Money, then, is a proxy for the spirit that imparted a burgeoning harmonic order to the Garden, while the Economic Life became the vehicle in the material world by which Man would seek, upon requisite redemption of personal goodness and completion of social evolution, to return home to the unspoiled state of the Garden; this time in the full consciousness of the dark and the light, but also with a purity of spirit that partakes of the innocence of Man's original state.

In the interim, though, the spirit of Money, and in turn the Economic Life, has been hijacked by forces that would seek to derail human evolution. Humankind has descended into abject materiality; estranged from one another and seduced by the shadow forces of false dominion; all orchestrated by the spirit of opposition that has co–opted Money. The woes thereby unleashed are legion. Brother has been pitted against brother in a false competition for livelihood. Mankind's Mother, the earth, is counted as a body to be ravaged and consumed. Tyrannies of number haunt Man's sleep. Clearly the redemption of Economic Life in the material world is called for.

The path to economic rectification is threefold:

(1) – To strive for redemption in oneself and others from the spiritual dissonance that was the cause of Man's alienation from a harmonious relationship with God in the earth,

(2) – From which it becomes possible to transform Money and rectify the Economic Order to a condition which reflects truly the state of providence in human evolution at present,

(3) – Which would, finally, redeem the Economic Life as a fit vehicle for the reassertion of Man's fruitful, replenishing and faithful dominion over the creation.

Thus would the Kingdom of God materially in the earth be at last established.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Thursday, December 25, 2008

Column #98 NOW IT'S TOYOTA

(Week 20 - Wednesday, Dec. 24)

A headline on the front page of the Monday, December 22 edition of the New York Times proclaimed, "Car Slump Jolts Toyota, Halting 70 Years of Gain," elaborated in the subtitle with "Huge Decline In Sales." Does not this announcement have the effect of casting the troubles of the American automakers in a new light? What does it say about the conditions under which the auto industry is laboring if even Toyota, widely regarded as its most successful venture, is expecting to report "…that it will lose money this fiscal year on its vehicle business for the first time in seven decades"?

Much has been written about how the "big three" American carmakers have declined supposedly due to astronomical executive compensation, bloated union contracts and inferior or out-of-tune-with-the-times products. Such criticisms do indeed have merit (and to be fair there are many positive things that could be said about the American auto industry), but the fact that Toyota is being sucked into the red-ink vortex also is telling evidence that on some level the problems of the automotive industry are universal. This is not to say that issues of executive compensation, labor costs and product quality don't matter. On the contrary, they do matter, vitally, and Detroit could indeed be criticized for undermining its own position in many ways.

That said, the crux of the problem the industry is faced with now is not primarily business in nature, but monetary. In fact, this is a factor that undermines the prospects for all sectors of the economy to endure in the long run. Stated simply, the productive part of the economy in the aggregate cannot attract enough money to pay its cost of production due to the buying power that is lost to "interest" charges attached to the bank loans by which money is created and issued into circulation. The result is that a portion of its product must go unsold, unless, that is, people are able and willing to go to the bank and take on more "debt" in large numbers. The effect of this is hitting the auto industry especially hard right now because people are reluctant to borrow large sums of money under current financial conditions, and the banks are reluctant to lend in any case.

This can only be remedied when the buying power of the consumer sector lost to "interest" charges is restored, and when the confidence of the car-buying public can be restored because people can see how this is so. Government borrowing of ever greater sums of "debt-money" into circulation willy-nilly via the "bailout" packages currently being enacted may, or more likely may not, get the economy moving again in the short run, but at best it will only put off to a more terrible reckoning the day when this simply does not work anymore.

The measure that will be effective, in my view, is to restore the money-creation franchise to the public sector; that is to have the US Treasury issue the nation's money supply for the public good, and not a private banking system for private profit. This is common cause for all segments of the economy, including the banking system itself (are not banks presently going bankrupt without government intervention at a fearful rate?).

The issue of money has long been used to divide the different segments of society, one from the other. We can readily see in the media how the interests of management, labor and the consumer have been pitted against each other over who will get the cash. This is happening because we are trying to carve up an economic pie that inevitably does not have sufficient funds to satisfy the need to make the financial ends meet for all three sectors without someone having to take on more "debt." If, on the other hand, the discussion were to turn to the idea of returning society's own money-creation power to the public sector, the availability of enough aggregate buying power to fully purchase the fruits of production would be assured. Business factors aside, this is the basis for the auto industry's (and all industry's) salvation.

Under such a condition, it is possible that the monetary issue could be transformed from one that is divisive with respect to any social fissure that could be exploited, to one in which everyone, from the highest banker to the most destitute street-person, could engage in a unifying transcendent dialogue. I have spent two-plus decades pursuing such a dialogue, and have seen much on this path to give me reason to think that it is perfectly possible, and indeed natural, to be able to speak to matters of money with an assortment of folks of whatever mix or stripe, in such a way that the conversation resonates positively with all parties. To be sure, this is not automatic, and it remains an elusive goal in some cases, but in my experience the potential and/or reality is palpably there.

This is a conversation that we as a society urgently need to have, or our civilization is going to continue to degrade and fly apart over the very issue of money. The key to transcending matters of money is to break free of our habitual "debt-money" acculturation long enough to let new ideas enter in. There is no leap of faith involved, only a moving forward with an open mind, spirit of brotherhood and genuine communication. The alternative is to keep floundering in our present ineffectual way until the economy deteriorates to the point where even the most innovative, savvy and successful enterprises in the business world (i.e. the Toyotas) cannot make it.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Monday, December 22, 2008


(Week 20 - Monday, Dec. 22)

The people is a beast of muddy brain
That knows not its own force, and therefore stands
Loaded with wood and stone, the powerless hands
Of a mere child guide it with bit and rein.

One kick would be enough to break the chain;
But the beast fears, and what the child demands,
It does; nor its own terror understands,
Confused and stupefied by bugbears vain.

Most wonderful! with its own hands it ties
And gags itself – gives itself death and war
For pence doled out by kings from its own stores.

It own are all things between earth and heaven,
But this it knows not; and if one arise
To tell this truth, it kills him unforgiven.

Tomasso Campanella
From the Italian poem, "The People,"
Translated by John Addington Symonds

* * * * * * * * * * *

To whom it many concern, this note of hand
Is worth a thousand ducats on demand,
The pledge wereof and guarantee is found
In treasure buried in the Emperor's ground . . .

. . . the charming mob all grabbing rush,
They almost maul the donor in the crush.
The gems he flicks around as in a dream,
And snatchers fill the hall in greedy dream.
But lo, a trick quite new to me:
The thing each seizes eagerly
Rewards him with a scurvy pay,
The gift dissolves and floats away.
The rascal offers wealth untold,
But gives the glitter, not the gold.

Mephostopheles, the king's jester.

From Phillip Wayne's translation of Goethe's Faust (Part II), Penguin Books, Ltd., London, 1959

Both poems as quoted in "Unforgiven: The American Economic System SOLD for War and Debt", Charles Walters

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Friday, December 19, 2008


(Week 19 - Friday, Dec. 19)

The operating premise of the "debt-money" system is that money is created when a banker "writes a check" against no funds (i.e. "out of thin air") to a "borrower" (i.e. private individual, corporate entity or civic body) when they bring into the bank some form of collateral (already possessed tangible property) as "security" for the "loan."

The need to continuously borrow more money into circulation creates an ongoing necessity to put up ever greater amounts of collateral. This leads to resorting to less substantive forms of collateral, until its realizable cash value becomes more uncertain. Eventually it is perceived as fictitious, at which point confidence in its value collapses. Then people stop borrowing, banks stop lending, and the economy enters a precipitous contraction (as it has at present). In the last column I describe the stages of this degradation of collateralization as follows:

Commensurate collateralization - The loan is within the bounds of a realistic valuation of the property put up as collateral.

Inflated collateralization - The loan is beyond the bounds of a realistic valuation of the property put up as collateral.

Paper collateralization - The loan is not secured by tangible wealth, but by the liens or "debt" paper written against such.

Phantasmic collateralization - The loan is no longer secured by even the pretense of existent wealth or wealth creation, but rather by the illusions of the socio/political/financial culture that invariably emerges to justify a "debt"-based monetary regime.

To this list enumerated in the last column I would add:

"Debt"-creation collateralization – The loan is no longer secured by anything, except the ability to create more "debt-money" in the future.

In a certain sense, this has been the effective logic behind the "debt-based" system all along. There is, for all practical purposes, never enough money in circulation for people to clear their "debts." This is true whether the grade of collateralization generally offered is commensurate, inflated, paper, phantasmic or simply "debt"-creation collateralization. In fact, regardless of the quality of collateralization, the "debt" numbers compound-on in essentially the same mathematical progression. Strictly speaking, the continuation of the monetary game does not depend upon there being real goods behind it (no one ever stuffs goods into an envelope and sends them off to the bank when a payment is due), but only that there are registered somewhere (these days usually in cyberspace) in someone's name, sufficient monetary credits to satisfy the "loan" account. This process is by nature less about managing wealth than "keeping score." The reality is that the economy has come to resemble less-and-less a partnership between production and finance, and more-and-more a video game in which the enterprises are little more than names and logos.

Recently I spent a day with a stock market "day trader" (freelancer). He works in a room surrounded by an impressive wrap-around array of computer screens that alerts him to fast-moving trends amongst thousands of stocks being traded, and displays virtually every parameter of interest in real time. What the software is looking for is movement in the market (up or down), because that is where a trader makes his money. I can only describe what I witnessed as lightening-fast, high-stakes video gambling.

It is hard to imagine that it is humanly impossible for anyone to know enough about any more than a tiny fraction of these firms being traded to make considered decisions based on their actual physical and human realities. Essentially, they are just names, names and more names. It is hard to tell from most of them even the nature of the enterprise they are engaged in. After what has happened with GM, Ford and Chrysler, it might be fairly asked whether it would make much difference even if one did.

For a sense of this, I would invite the reader to spend some time watching the major stock market shows on TV (I find CNBC to be the best example). The screen is filled continuously with a multitude of rapidly-moving names, numbers and graphics that I cannot imagine a viewer (even a stock broker) relating to meaningfully in a real-world way.

Nonetheless, the video game goes on, and hundreds of billions of new dollars are being rapidly pumped into it. Essentially, it has taken off on its own, and left the real economy behind. The monetary system has demonstrated an astounding ability to continue on its dizzying way literally as a game (as can a good game of Monopoly, whether Board Walk and Park Place even exist or not). This is not an absolute statement, of course, but it conveys too much truth to call it a metaphor.

This raises some fundamental questions. How long can the monetary economy persist and grow as a numbers game, while leaving real people behind to survive any way they can? What are the implications of an economic order where essential correlation between productive enterprise and finance is lost? How long can this "debt" continue to compound? What kind of new socio/political/economic order is this leading to? Will civilization continue? It would be easy to write a lengthy analysis exploring each of these and many other conundrums, but I believe that they would not arrive at any definitive answers. We live in an unprecedented time, and there are no models from the past that will tell us how this will all work out. I fear, though, that the end will not be well if we let ourselves drift without coming to a conscious mastery over money.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Wednesday, December 17, 2008


(Week 19 - Wednesday, Dec. 17)

With the current "debt" crisis we are witnessing the economy move beyond the partnership of wealth creation and money creation (i.e. beyond "capitalism"). Let us trace out how this has come about.

The premise of the "debt-money" system is that if participants in the economy need money, they can borrow it by putting up some form of "collateral" (already acquired tangible wealth) that the banker can hold as "security" (saleable item from which he can recover the monetary value) in case the borrower fails to pay back the loan. The banker obtains the funds to "lend" out of his privilege to create money "out of thin air" granted by the Federal government to the Federal Reserve System via a legislated corporate charter.

This has resulted in a peculiar situation in that the money to repay the principal proceeds of a loan is thereby issued, but the money required to "pay back" the "interest" is not. The proponents of the system do not deem this to be a problem because they assume that the "economic growth" financed by new loans will be the basis out of which interest payments can be made. Supposedly, the necessity of having to cover interest payments of itself spurs the economy on to greater heights of activity, and also serves as a needed discipline to insure that such money is borrowed only for enterprise that is truly productive.

This method has worked for the almost-a-century since the passage of the Federal Reserve Act, but, according to critics, not without terrible human and environmental cost. Whatever the merits of the current system, it is clear that a physical economy cannot forever keep up with the demands of exponentially expanding "debt" paper. A limit will eventually be reached, and it appears that that may be what is happening now.

To be sure, it has not been experienced as the crossing of a bright white line, but rather as a stretching out of the substantive quality of collateral. This has manifest in many ways, including the increasing issuance of money based on revolving consumer "debt" taken on to obtain the necessities of life (e.g. groceries, gas, etc.), the proliferation of loans against inflated housing values, and the effective reliance on war (hot and cold, overt and covert) as engines of "debt-money" creation. Currency issued for such purposes becomes less of a seed for further enterprise out of which "interest" payments can be made, and more of a net drain on the already existent productive capacity of the economy.

The relentless imperative for new money creation within a "debt-money" system makes it inevitable that a resort to ever-less-substantive forms of "collateral" will take place. This unfolds in a natural progression that could be described as follows:

Commensurate collateralization - The principal amount of a loan is within the bounds of a realistic valuation of the property put up as collateral considering the cost to create or replace it. An example is a home mortgage for which the amount of money borrowed is reasonably affordable within the parameters of prevailing wages.

Inflated collateralization - The principal amount of a loan is beyond the bounds of a realistic valuation of the property put up as collateral considering the cost to create or replace it. An example is a "sub-prime" home mortgage for which the amount of money borrowed is not affordable within the parameters of prevailing wages.

Paper collateralization - The loan is not secured by already acquired tangible wealth, but by the liens or "debt" paper written against such. An example is money issued to finance the widespread practice of bundling home mortgages as "investment packages" or "structured investment vehicles" in the international financial markets. Borrowing "on margin" to finance stock market speculation is a similar sort of activity.

Phantasmic collateralization - The loan is no longer secured by even the pretense of existent wealth or wealth creation, but rather by the illusions of the socio/political/financial culture that invariably emerges to obscure the speculative nature and stubborn anomalies of a "debt"-based monetary system. Examples of this are supported by mindsets that can see as justified monies raised or issued to finance hostile corporate takeovers, default credit swaps, commodity speculation, currency manipulation, all manner of derivatives, social contracts that can't be met (e.g. unrealistically structured pensions), and the promises of politicians (albeit well-meaning) who assure us that they will make certain that the $700 billion in "bailout" money will be paid back.

As an illustration of how disconnected from substantive wealth the monetary system has become, Bernard Lietaer (former Belgian central banker, and widely regarded authority on money) reports in his book "The Future of Money" that the world trading order has become a "…global casino where 98% of the transactions are based on speculation." This means that of the money that crosses international boundaries, only 2% of it can be accounted for as financing trade in goods and services (food, pharmaceuticals, cars, electronics, media, tourism, oil, weapons, and anything else tangible). The rest is essentially non-productive gambling in speculative financial instruments.

As extreme as the situation has gotten, the degrading of collateralization has gone a critical step further. I will describe that in the next column.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Monday, December 15, 2008


(Week 19 - Monday, Dec. 15)

With the current "debt" crisis, the economy is turning towards a new mode of operation. If we define whatever form it has taken on heretofore as "capitalism," then we can say that it is moving beyond capitalism. "Capitalism" has become a term that is used in myriad ways by different people, depending on their point of view. For many it is an emotionally and/or ideologically charged expression. I don't wish to take any part in those arguments. For purposes of this discussion I will define capitalism as the economic practice of linking physical capital with monetary capital in a symbiotic relationship that allows trade to be conducted and the enterprise pursued without undue resort to barter. The choice between the public or private creation and issuance of money, therefore, is essentially about which mode more truly serves this relationship.

In the last few columns I have described how, within the present system, money is created and issued when a borrower brings something of value into a bank and puts it up as security (collateral) for a loan. The only practical way this can be made to work over time is for people to bring ever greater amounts of collateral into the banking system against which new money can be issued, thereby expanding the monetary pool so that "interest" payments on old "debt" can be made and an adequate money supply maintained in circulation.

Proponents of the current system will say that there is no problem with this arrangement because an expansion of economic enterprise financed by new loans will create more wealth out of which interest payments can be made. They picture the loan proceeds as seed money, which will in due time beget more seed, much like the plantings of a farmer. Furthermore, supposedly, the necessity of having to cover the interest payments spurs the economy on to greater heights of economic activity, while also serving as a needed discipline to insure that such money is borrowed only for enterprise that is truly productive. They point to the fact with the private-bank-money system in place, the nation has lived through almost a century of what has been on the whole a period of explosive economic growth in real terms.

Critics of the system may say that while the contribution of modern banking practice has indeed made money available in unprecedented amounts, and has therefore played an important role in modern economic development, a high cost in human and financial trauma has been extracted because of the "debt"-based nature of the process. Furthermore, they say, there is no practical mechanism built into the system for limiting the compounding of "debt" paper (save a partial deflation of the "debt" bubble attached to the currency occasioned by bankruptcies), and the real physical and human economy cannot be expected to keep pace with the need to service compounding "debt" forever.

What this current financial crisis is telling us, evidently, is that the "debt"-expansion process has reached its limits. In fact, it may have reached its natural limits some years ago, as indicated by the expansion of borrowing to finance the daily necessities of living (e.g. groceries and gas) via revolving consumer "debt" (particularly credit cards), and the proliferation sub-prime lending schemes. Investment in new production is in precipitous decline, and so monetary increase based on a symbiotic expansion of real enterprise (the defining characteristic of capitalism as given above) is no longer possible.

This leaves it up to the government to be the borrower of last resort to keep the economy from collapsing, a role which it has evidently taken on. I suggested in the previous column that the effective collateral for this huge "debt" expansion is the very land, lives and progeny of the People, and that this raises troubling questions as to what a future government might feel compelled to do to keep the monetary system from collapsing.

As the "debt" bubble against the economy continues to compound, however, even this concept of "collateral" becomes more than a bit abstract. The numbers have become so huge that correlation with any physical and human reality is becoming difficult to picture. It is at this juncture that what is commonly called "capitalism" is moving beyond itself into a new form. I will call it "debt-ism." By this I mean the "debt"-based monetary system has effectively left the real economy behind. It has embarked on a new course where any pretense of seeding productive economic enterprise has been all but forgotten.

As a case in point, how much of the $700 billion "rescue plan" is contemplated as seed money for new productive activity? As far as I can see, virtually none. President Bush has indicated that perhaps a small portion of these funds should be dedicated to rescuing the auto industry, but even in that case it is questionable as to whether the money would be used to create any new product, or merely to shore up the industry's tottering financial structure. Similarly, I find it difficult to identify much new productive capacity that was seeded by the "tax rebate" program earlier in the year, or the proposed "stimulus package" that seems to be gathering political support.

This raises the question, if this immense amount of new borrowing is not secured by economic collateral that is substantive, how can it be supported? The answer is that it no longer needs to be. The "debt"-based financial infrastructure itself has taken on a life of its own to such an extent that it has effectively broken away from the real physical and human economy, and in a certain sense no longer needs it. Money, in effect, has come to do business of its own account. The "debt"-based workings of the money-creation machine have become so complex and inexorable that they have effectively escaped human control. "The system" is leaving behind, not only the laborer, but also the banker. This is why both ""Main Street" and "Wall Street" are being decimated, with no one coming forward that seems to know quite what to do about it.

To be sure, this is a relative, not an absolute, statement, but the extent to which it is true is sobering to contemplate. It is in the vital interests of both the worker and the financier to open up a conversation on this matter. What we are witnessing in the economy is a movement beyond the partnership of wealth creation and money creation (i.e. capitalism) from whatever perspective one might be inclined to think about it. I will begin to describe what I see as the basis and workings of this transformation in the next column.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Friday, December 12, 2008


(Week 18 - Friday, Dec. 12)

It has been a full seven generations (at about a third of a century per generation) since the American Colonies declared their independence from the mother country, inspired in large part by the determination to exercise the sovereign power of their society to create their own money supply, and thereby take responsibility for the development of their own potential; as opposed to submitting to having their money lent to them by a private banking system, backed by the British state, on such terms that they would remain forever indebted and subject to "the moneylender." Understood fully, this was not so much a contest of state vs. rebellious colony, as it was between two great ideas about how money should be created, issued and controlled, that had fought for centuries for dominion over the minds of men. The battle had been intensifying for many decades within Britain itself, but came to a head in the North American Colonial experience.

The Colonies having prevailed in the military conflict, the new nation failed to maintain vigilance on the monetary front, with the result that its subsequent history has been a protracted struggle between the proponents of public vs. private money, with the private-bank-money partisans having emerged (for now) victorious. The "seven generations" period since the Revolution has provided a historical baseline from which the result of having turned away from our commitment to public money in favor of a gradual acquiescence to private bank money can be judged. Today's headlines would seem to indicate that such an assessment is urgently needed.

I stated in Monday's column that the need for the participants in the economy to take on in the aggregate ever greater amounts of "debt" to make "interest" payments on old "debt," while maintaining an adequate money supply, has created a situation whereby virtually all significant physical wealth in the society is eventually brought into the banking system to serve as collateral for the borrowing of more money into circulation. This has progressed to a point where virtually the entire combined worth of all physical assets in the country is matched approximately by the amount of "debt" written against it.

What is more, the need for compounding amounts of money to be borrowed into circulation has not only consumed the worth of the country, but has of itself become a major driver for economic activity. The participants in the economy are obliged to seek out ever greater fields of economic exploitation to be able to make the ends meet in their financial cash flows. While it is true that much human need has been met in the course of such activity, and our society has in many ways achieved a measure of economic prosperity, the financial need for "economic growth" ("debt-money expansion) has come to supercede genuine human need, and now dominates the imperatives and forms of economic enterprise, whether such are in the true interest of human welfare, or not. Increasingly, they are not.

The endless "debt"-driven urgency for expansion makes the "growth" of such questionable areas of human benefit as wasteful consumption, sub-prime lending schemes, borrowing for war and many others, virtually inevitable. As the game gets stretched out, the true worth of the "collateral" generated by such enterprise becomes of dubious worth. It does, in a sense, induce economic activity that can be borrowed against, but consumer trash in the landfill, deflated real estate bubbles, expended military ordinance, and the like, leave behind little, if any, cumulative capital base for further "debt-money" expansion. Eventually the bubbles of imagined wealth begin to pop, and the monetary system is left without a source of new tangible wealth with which to "secure" its "debt" contracts.

This is the point that American capitalism has reached, and it is this inability of the human and physical economy, even in its most wasteful, illusive and speculative terms, to keep up with the mounting "debt" paper that is behind the collapse of the monetary system. Nor is the situation likely to improve any time soon, especially with such economic bulwarks as the auto industry beginning to implode. The question then becomes, what do we do now?

In my view, we as a society have already answered the question. That is, we have decided to keep borrowing more money into circulation anyway. This is not at this point a conscious decision, but rather the reflex of a culture that has almost completely lost touch with any basic understanding about money. This may sound like a strange statement to make in an era of extreme financial sophistication, but I would make the case that it is a presumed "financial sophistication" and a losing touch with common sense that has landed us in our present straights. This is something to contemplate for everyone, not only people of finance.

The productive participants in the economy have lost the ability and confidence in the system that would allow them to them to continue to take on new "debt" at a pace sufficient to keep the financial (fractional reserve) formula that governs the banking system from collapsing. This has become true even for public borrowing within the context of normal "emergency" imperatives. The collapse of the credit structure is now so precipitous that we have little choice, it seems, except to throw all but a thin pretence of deliberation to the wind, and let those who have "guided" the macro-economic ship into this predicament, open the floodgates of yet more "debt-money" in the wistful hope that they can float it again.

I would raise the question, what is the collateral for all this new "debt"? The spokespersons for the rescue "assure" us that it is the "troubled assets" (i.e. already unsupportable "debt" contracts and failed enterprises) that the government is taking over. I find that explanation to be untenable. When the Federal government takes on new "debt," its collateral is the "full faith and credit of the United States." Supposedly, this is another way of saying "future tax proceeds." The problem is that the Federal "debt" is a monetary phenomenon, not a fiscal one, and there is no way that future tax proceeds can close the gap.

This brings us back to the question, what in reality is the collateral for such loans? It is the very assets, enterprise and life's blood of the whole nation. It is our land, our lives and our children; nobody in the end excepted. Our future is being signed away for a "debt" that is not payable. I find it peculiar that the same Secretary of the Treasury that we as a body-politic cannot seem to find the good-will to trust to use his signature to endorse the People's own money is allowed to sign our future away to this gargantuan "debt."

It has become a hallmark of personal success in the current financial culture to be able to get into an investment, make one's money, and then get out, debt free. We should be mindful, however, that when the Treasury Secretary puts his name to a "debt" contract on behalf of the government, he is actually signing it on behalf of all the People, both those nominally in "debt," and those who imagine themselves to be out of "debt." He has obligated the government to make good on that contract, even if (many fear) it influences its leaders to feel compelled to insure the continuing value of our currency by sending an army of our sons and daughters (of those in "debt," and those not) half-a-world away to enforce the "rule" that the trade for oil in the world remain exclusively in the domain of dollars. The questions raised by this matter of "national debt" can become very heavy.

All this said, the monetary game has now evolved a critical step further. I will describe that in the next installment.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Wednesday, December 10, 2008


(Week 18 - Wednesday, Dec. 10)

In yesterday's column I talked about the Great Law of the Iroquois Confederacy which states, "In our every deliberation, we must consider the impact of our decisions on the next seven generations," and suggested that, by our society's failure to examine the monetary underpinnings of the current financial crisis, we are by default effectively making a decision that is untenable within the seventh-generation principle. If we were to step back for a broader historical look at the situation, the case could be made that we as a nation turned our collective backs on our own monetary heritage, and in effect already made the decision, some seven generations ago.

In earlier columns (#10 - 12) I described briefly how the American Revolution arose mainly out of the determination of the Colonies to exercise their own sovereignty and set their own course, starting in 1690 when the Colonial Assembly of Massachusetts became the first government in the Western world to issue its own paper money with the intention of providing a pool of circulating currency to serve the productive enterprise of the People. The other British North American Colonies adopted the practice, which, in turn, precipitated a protracted struggle between them and the Crown over who had the right to issue the Colonies' money. This led to the Declaration of Independence, the first two itemized grievances of which are references to the stonewalling of Colonial monetary initiatives for which ratification by the Crown and Parliament was required.

The Colonies ultimately prevailed in the military phase of the struggle, but not in the monetary. This is what prompted Alexander del Mar, the great monetary historian of the 19th century, to write:

"Never was a great historical event (the American Revolution) followed by a more feeble sequel. A nation arises to claim for itself liberty and sovereignty. It gains both of these ends by an immense sacrifice of blood and treasure. Then, when the victory is gained and secured, it hands the national credit (the authority to create money) over to private individuals, to do as they please with it."

The result was that, led by Alexander Hamilton, the first Bank of the United States (effectively a private central bank, much like the Federal Reserve) was established through a corporate charter issued by the first Congress in 1791. The history of our nation since then has been a litany of the protracted struggle between the proponents of the two principles (public vs. private) for creating, issuing and controlling the nation's money. Judging by the form of our monetary system, the private-bank-money contingent has clearly prevailed, at least for now.

Sincere arguments have been put forward over the decades by both sides, but whatever their relative merits I think it fair to say that our evolution as a nation over the "seven generations" since the Revolution (assuming a generation is about 30 years) has provided a historical baseline from which the result of having turned away from our commitment to public money in favor of a gradual acquiescence to private bank money can be judged. Today's headlines would seem to indicate that the outcome has been much less than satisfactory.

To be sure, this column is for the most part a recap of thoughts that have been enumerated in previous installments, but I think it important at this critical historical juncture, especially given the current financial crisis and the changing of American political administrations, to slow down, take stock of where we are, and try to gain a fresh perspective on what is happening. The seventh-generation rule is a quintessentially American artifact of cultural/spiritual life. It is perhaps not entirely surprising to discover that it has a reflection in our own experience.

In my view, American capitalism has played out its seven-generation providence and is now making a turn towards another form; one that has immense implications for this nation and the world. With yesterday and today's installments as a basis for understanding, I will endeavor to describe what precisely I mean by that in the next column.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Monday, December 8, 2008


(Week 18 - Monday, Dec. 8)

The Great Law of the Iroquois Confederacy states, "In our every deliberation, we must consider the impact of our decisions on the next seven generations." This passage is often quoted and widely admired in our culture for its farseeing wisdom, especially among those who are concerned with the human and environmental "cost of doing business," but I find it dismaying that it is rarely invoked with respect to the monetary question.

Those who "invest" with the idea of making money with money (i.e. look for opportunities to buy up the contracts that secure "debt") will naturally expect to "earn a return." Otherwise, why would they "invest"? The factors that determine the "yield" (increase) will vary, but let us assume that the "market expectation" is that one should be able to double one's money (adjusted for inflation) at least once per generation to make the process worthwhile (a very modest expectation by historic standards). For simplicity of discussion let us assume that one generation is twenty-four years, which is the period of time it would require for an "investor's" money to double at a compounded three-percent rate of return.

Let us suppose that someone took out a loan of $1000 from a bank that was repayable as a "balloon payment" (principal and "interest" due all at once) of $2000 dollars in twenty-four years. The borrower brought $1000 into circulation with his loan, but he will have to gather up $2000 at that time, and remit the money to the bank. This scenario will be replicated throughout the economy with millions of loan-and-payback-with-"interest" transactions. Each will require that there be more money than was borrowed available for payments as they come due. If we assume that on-average the money supply is maintained through loans taken out at three-percent "interest," the quantity of currency in circulation must also grow at a three-percent annual rate to maintain a constant ratio between funds available and money owed. This is what is required to keep old loans from going into default, and maintain an adequate supply of circulating medium.

Banks do not lend out significant sums of money without collateral, and so the financial requirement that there be twice the money in circulation at the end of each twenty-four-year generation must be matched by twice the amount of wealth or economic activity in existence against which money can be borrowed.

We as a society have reached the point where our entire capital wealth, as measured in dollars, is roughly equivalent to the amount we "owe" to private "investors" through the banking system for the privilege of having a money supply. This means that if the "fractional reserve formula" pyramid scheme by which the monetary structure is governed is not to collapse over the next generation, the level of economic activity at the end of the next twenty-four years must be such that for every car manufactured and sold this year, there must be two in that year, for every gallon of gas burned this year there must be two burned then, for every unit of human service performed now there must be two, and so forth. It is not strictly necessary that such doubling be accomplished on a product-for-product basis, but the Gross Domestic Product (GDP) must in some way be multiplied by a factor of two.

The more germane question is, what are the implications of this monetary "necessity" for human life and the earth itself? Much human need may indeed be taken care of in the course for pursuing the satisfaction of this monetary imperative (there may even be a great deal of "green" enterprise that is included), but at what human and physical cost? It should be noted that the GDP, like bank collateral, is essentially a quantitative measure of economic activity, not a qualitative index. Ambulance rides, pollution cleanup, building prisons, and war materiel do wonders for the numbers, and that may explain, at least in part, why such "enterprise" has become a larger part of our economic picture.

So far we have looked at only the first generation. To make it to the second while avoiding monetary collapse, the size of the physical economy must be doubled again, to four times the original level. Nor does it stop there. Taken to the seventh generation the physical economy would have to grow by a factor of 128 (2 raised to the 7th power). Is there any way one can look at the world today and imagine an economy on the earth that is, materially speaking, 128 times its present size?

I think it safe to say that this is not going to happen. Admittedly, the analysis I am running through here is in itself an abstract numbers game that correlates very imperfectly with life, but it is the game that we as a financial order are still trying to make work. The reliance on "economic growth" (i.e. the creation of collateral to borrow more money into existence) to keep the monetary system pumped up with "debt-money" is reaching its practical limits. The tragedy is that it has made "necessary" such dubious modes of "enterprise" as wasteful consumer consumption, sub-prime lending schemes, and borrowing for war as engines of money creation to keep what is essentially a pyramid scheme in the guise of a monetary system from collapsing. We have reached the point where even that is not enough; hence the spate of "bailouts."

By our society's failure to examine the monetary underpinnings of the current financial crisis, are we not by default effectively making a decision that is utterly untenable within the seventh-generation principle? Clearly, to persist on our present course will overwhelm human and environmental capacities. This is not to say that life does not still hold the possibilities for manifold growth in a multitude of directions, but to yoke that potential to the doctrine of the compounding material exploitation requisite to supporting "debt-money" expansion is, in my view, to effectively negate the possibilities for any future world we would care to contemplate.

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Friday, December 5, 2008


(Week 17 - Friday, Dec. 5)

The "Big-Three" American automakers have come to Washington as the latest applicants for financial "bailouts," these in the form of loan guaranties in the aggregated amount of some $34 billion dollars. Much has been said about the supposed mismanagement of these corporations, the unrealistic demands of organized labor, and the effects of foreign competition as being contributing factors in the seeming inability of these companies to continue on their present course. Relatively speaking, I find merit in almost all of what has been said, but have heard virtually no dialogue (except to a minimum extent in the non-mainstream media, mostly on the internet) that goes to the heart of what has caused the financial position of such a huge industry and virtual American institution to become untenable.

The myriad issues of manufacturing efficiency, new technologies as they relate to environmental realities, model-development decisions, arriving at Senate hearings via corporate jets, executive compensation, workforce benefits, and the increasing ambivalence about automobiles in the culture as a whole, are, to be sure, all worthy topics for discussion, but there is one aspect of the automotive question that, in my view, is conspicuously missing from the discourse. That is, how is the industry's financial crisis affected by the very nature of the money that is the life's blood of its financial life?

The fundamental problem at the heart of the apparent insolvency of the automotive industry is the fact that the money that finances its operations is issued in the form of loans from a private banking system, to which is attached a compounding "interest" charge. This means that the executives and workforce who are responsible for bringing the wares of industry as a whole (of which the automotive industry is a major part) to market are losing buying power out of their profits and paychecks before they can spend them, to "interest" payments on bank loans, for which they receive no value. This means that the "cost of production" for goods brought to market, which consists entirely of money paid to people responsible (directly and indirectly) for bringing those goods to market, is not matched in the marketplace by consumer buying power.

This sets up a chain of cause and effect whereby goods will pile up as unsold inventory, orders for new goods will be reduced, and workers will be laid off. Fewer goods will be produced in the next round, but even this reduced level of production will not be able to be sold because the paychecks of those fewer workers also will have their purchasing power depleted by interest payments before they can spend them, and so will not be able to purchase even the reduced equivalent of what they produce. This causes a further reduction in orders for new goods, creating more layoffs, and so forth. The tendency for the economy, then, is to sink into a spiraling economic contraction.

The way this can be counteracted is for the economic players in society (whether private individuals, corporations, or civic bodies) to take on ever increasing amounts of "debt." Until recently the citizenry has been, for the most part, able and willing to do that, but the numbers associated with that "debt" have become astronomical, their ability to take on more has been tapped out, and their confidence in being able to pay off even what they owe now (let alone after taking on more) has declined precipitously.

For the automotive industry this has had a particularly devastating affect because cars are what economists call "durable (long term) goods" that are for the most part not in immediate need of replacement (one can almost always get a few more miles out of the car one already has), and replacement for most people requires the taking on of major new "debt." Their reluctance to do this has been exacerbated by other factors, such as the sudden disinclination of the public to buy the large fuel-thirsty vehicles the industry is offering in this time of ballooning gas prices. It is true that gas prices have plummeted recently, but confidence that they won't come back in the long term has been shaken.

Added to this is that the almost utter dependence upon the automobile that we have effectively cultivated has come into question. This society has now lived through the effects of a century of automotive proliferation, and many people are asking fundamental practical and moral questions about that dependency.

The upshot of these and other converging factors is that the Big Three of the American automotive industry are experiencing great difficulty in selling their wares. This has become, not only a business problem of unsold automotive inventory, but also a financial crisis that threatens to draw the larger economy into an imploding monetary vortex. Financing for new vehicles is one of the great mechanisms for "debt-money" generation, and when people decide for a time to make do with their old vehicles and concentrate on paying off their loans at the bank, this causes a net contraction of the money supply, which in turn fuels a deepening crisis of confidence.

The question is, what can be done to halt this vicious spiral? Much of the discourse that is going on related to efficiency, new technologies, model choices, executive compensation, workforce benefits, and the reliance of our society on automobiles is healthy and will lead to new answers in many respects, but the monetary question needs to be brought into the dialogue. In my view, there is no resolution without it. If all the other factors are addressed effectively, but the monetary question is not, then the industry will be back again asking for more money. The syndrome of inadequate-purchasing-power-available-to-cover-the-cost-of-production-caused-by-"interest"-payments-on-the-money-supply will not be broken.

What the Big Three automakers really need, I suggest, is precisely what all segments of the economy need (including the auto executives, the automotive workforce, and the customers they serve); that is, a return of the money-creation franchise to the public sector so that the pool of money upon which we all rely will not be drained of value by "interest" payments, with the result that we as a community of participants in the economy cannot buy what we produce. With a publicly-issued money supply, an adequacy of funds to cover the aggregate cost of producing goods will be guaranteed, and the more specific problems of the automotive industry raised in the public dialogue at present can be addressed in a truly effective manner.

Richard Kotlarz
1904 1st Ave S, #12
Minneapolis, MN 55403

The complete set of columns from this series is posted at the following websites.

Wednesday, December 3, 2008


(Week 17 - Wednesday, Dec. 3)

Charles Dickens opened his classic novel A Tale of Two Cities with perhaps the most famous of all literary curtain risers (after "In the beginning . . ." that is); i.e. "It was the best of times, it was the worst of times . . ." He was referring specifically to the nascent-industrial England of the late 18th century, but the same can be said of the present epoch. Indeed, contemporary global civilization has stretched this dichotomy to the most extreme polarity possible.

It can be said that a large portion of humankind at present lives in a cornucopia of unfolding progress, possibilities and richness that fairly beggars the imagination. In the historically-brief last century or two it has plumbed the depths, spanned the heavens, opened the floodgates of material abundance, developed vast technological capabilities, shrunk the world into a global village, exploded the boundaries of artistic expression, enacted sweeping social and political reforms, unlocked the atom, mastered incredible techniques for healing, and approached the mysteries of the creation of life itself.

Yet, in spite of all of that, it may be fairly asked if we are not approaching the brink of the incomprehensible suicide of civilization, or even the destruction of earth itself, through any number of possible avenues; be it the spontaneous unraveling of the ecosystem; the overwhelming of the last barriers to infectious pandemics; the revitalization of class, ethnic, racial or religious intolerance; the grinding realities of agricultural, industrial and service labor; snowballing monetary indebtedness; the ever more maddening pace and dehumanization of modern life; the exhaustion of material resources; the collateral consequences of an imperialist New-World-Order hegemony; nuclear holocaust; or the wrath of an angry creator.

What are we to think of this impossibly contradictory state of affairs? The juxtaposed "best" and "worst" of times is in actuality not a contradiction, but rather an expression of the poles of the overarching paradox. What, then, is the paradox? This may be expressed many ways, but in an outward sense it surely is reflected in the reality that humankind, in this era of vastly expanded financial activity, has not mastered money. In what life does money not exist as the most polarized of love/hate, embraced/condemned, or sought/feared elements? It is indeed the essential riddle of our time.

The fact that the subject is money dictates that the discipline of banking be brought most particularly under the green shade of scrutiny. The problem, though, is by no means limited to those involved overtly in the banking or financial professions. In this modern era, we are all economic creatures, and do in fact mould the form of the economic life with our thoughts, feelings and actions. If the economic cake were sliced along a different cross section, any number of other walks or categories of life could be held up for similar treatment.

If there is a 'bottom line' to this story it is that, while different "classes" (a divisive word, to be sure) of society may indeed have their respective economic issues, there is ultimately no us-vs.-them factor in their resolution. This premise is held forth adamantly in the fullness of the narrative represented by the unfoldment of these columns. As fellow sojourners in the earth we are all in this together; both as agents for the problem, and as hopes for the cure. If there is any distinction to be said for people of finance it is that theirs is a special calling in an age when the full blossoming of the economic life is coming providentially to the fore.

In the course of performing any economic activity within the present system I suspect that we virtually all experience on some level an existential split, and stand in our respective ways in the need of liberation and healing. In this time of great historical reckoning and economic unfoldment, the chasm occasioned by matters of money, both between people and within them, can no longer be accommodated. It behooves each of us to engage in soul-searching as to our truest and deepest relationship to money. The space for a free dialogue between people of finance and the body of the social order must be opened up for a bracing, but empathetic discourse. Clearly, the truth cannot be spared, but in our quest there can be no place for attitudes of condescension or recrimination.

Rather, it is our task in this time to seek in brotherhood the transformation of the economic order from one premised on scarcity (i.e. there is only so much money because someone has to borrow it into circulation, and pay the "interest" on the loan), to one of abundance (i.e. we as a people and a civilization can do as much as we in freedom elect, and the money to finance it is available in whatever quantity needed out of our sovereign power to issue it). This will change everything.

Richard Kotlarz
1904 1st Ave S, #12
Minneapolis, MN 55403


The complete set of columns from this series is posted at the following websites.

Monday, December 1, 2008


(Week 17 - Monday, Dec. 1)

Every year about this time, it seems, the mavens of economic prognostication hold their collective breath until the returns begin to come in on how willing and able people are to show up at retailers, money in hand, ready to engage in Christmas shopping. This year in particular, they are waiting with bated breath. Will the people flock to the stores, and thereby demonstrate a "show of confidence" in the economy (despite losing jobs, savings and home equity), or will their malaise and beggared circumstances be too great for the usually festive air (or patriotic spirit of shopping) to overcome?

This year the early returns are, it seems, "encouraging." A few minutes ago I heard a newscaster on Public Radio report that retail sales on Black Friday (the shopping day after Thanksgiving) were reportedly up three percent from last year. The next benchmark will be "cyber-Monday" when the initial wave of shopping over the Internet is expected to take place.

That this is good news for the retailers and suppliers who produce the profusion of gift items is obvious, but holiday shopping is also billed as a bellwether for the overall economy. If sales are up, so the thinking goes, then the economy is sound; if they are down, it is an indication of "structural weakness." If the grim economic indicators that we have been hearing in the news belie any notion of soundness in the economy, the willingness to shop, especially for non-essential items, is taken as a barometer of "consumer confidence," which in the end, supposedly, is the key to turning the overall economic situation around. Within the context of the present monetary system and culture, there is perceived to be an effective economic imperative for Holiday shopping.

This raises the question, how does this seeming need for shopping reflect upon real economic health? Is it a sign of a genuinely robust economy, or the reckless indulgence of a narcissistic consumerism?

The question needs to be answered in the context of the monetary realities that influence overall consumer behavior. In a "debt-money" based economy there is a constantly felt need for "economic growth" (i.e. borrowing more money into circulation) to expand the economic base against which more money can be borrowed. Without it, an imploding monetary spiral can indeed set in, and present a threat to the economy as whole. The perception of such a need, therefore, is not entirely without cause. If not enough merchandise is sold during the annual shopping binge, the effect will be to cause a net contraction of the economy, and the unpleasant effects of that will indeed ripple out, in whatever relative measure, through all sectors.

Monetarily speaking, the system does not care who does the borrowing, or for what purpose. It could just as well be for the citizenry taking out a Holiday Season loan or laying their credit cards on the store counter for Christmas gifts, as for municipalities building schools, the Federal government requisitioning tanks or the well-healed consumers purchasing luxury vehicles. Holiday shopping is a major factor in the Gross Domestic Product (GDP), and if it is down the economy as a whole does indeed take a hit, the fact that much of the shopping does not make sense in terms of human welfare, or even true giving, notwithstanding.

The question arises, "What sense does this all make in terms of genuine economic life?" I would answer, "None!" As in virtually all other areas of economic life, the imperatives imposed by "debt"-based money have turned genuine economics on its head. From a common sense perspective, it is most advantageous in terms of human life to accomplish the most with the least expenditure of resources. Within a system where money is created and borrowed into existence from private banks, that logic is reversed; i.e. the economy is deemed the healthiest when it does the least with the greatest expenditure of resources.

To illustrate, common sense would say that an automotive vehicle is most economical when it goes the greatest distance on the least fuel. The "problem" is that this is also the condition that contributes the least to the GDP. If a given vehicle burned twice as much gas to go the same distance, that activity would produce, monetarily speaking, twice the economic activity, and therefore contribute twice the amount to the GDP, and therefore cause economic indicators to rise. The net effect of our society's dependence on "debt-money" is to encourage a wasteful use of resources. Indeed, as the amount of "debt" increases the "health" of our economy comes to rely in a peculiar way on gratuitous consumption. That is why, for example, the proliferation of vehicles that cover people's transportation needs via a maximum consumption of resources has been encouraged by the financial order.

Of all patterns of spending, holiday shopping tends (arguably) to be among the most frivolous, and yet it is widely touted as a great engine of consumption that is counted upon to give the economy a yearly boost. This has nothing to do with real human welfare, or even genuine gift-giving, but everything to do with the monetary "need" to borrow more money into circulation so that "interest" payments required to maintain the money supply and keep it growing can be satisfied.

My purpose here is not to be a Scrooge. Indeed, much seasonal shopping is conducted mindfully in the spirit of true gift-giving and satisfying each other's needs. Many people, if not most, would likely agree that this laudable intent has given way to a rampant materialism that has overtaken the original spirit of the seasonal observance. This is a complex issue, and it can be looked at from many perspectives, but I would suggest that the monetary imperative for people to continuously take on more "debt" is major factor that has driven it in the "rampant materialism" direction.

If we were to adopt a public monetary system, the "debt-imperative" fuel would be removed from the holiday-shopping fire. To be sure, merchants and suppliers would still be interested in peddling their wares, but even for them lower overall levels of "debt," much of which they now account for as a cost of doing business, would reduce the urgency of their situation. This would open the door to seasonal celebrations that were sane and not nearly as driven by the need to sell superfluous goods.

Concerning the monetary soundness of the economy as a whole, the yearly holiday-shopping boost itself would become a non-issue. With adjustments in the quantity of money in circulation, the society's buying and selling could be allowed to expand or contract according to real human needs and desires, including whatever level of holiday shopping and gift-giving people might deem to be good and natural for its own intrinsic reasons.

Richard Kotlarz

The complete set of columns from this series is posted at the following websites.

Friday, November 28, 2008


(Week 16 - Friday, Nov. 28)

On June 22, 1775, the Second Continental Congress meeting in Philadelphia assumed the power of sovereignty by issuing the first currency that was common to all the Colonies, the "Continental Currency". This act could be deemed to be the effective break with England, though it preceded the Declaration of Independence by slightly over a year. This was a publicly-issued currency, not tied to precious metals, commodities, land banks, or other forms of "backing".

There is a common "wisdom" that assumes that the eventual failure of the Continental Currency proves that the issuance of money should be left to private banks. In fact, the oft-repeated phrase "not worth a Continental" arises from this period. This phrase is, in turn, routinely picked up and repeated by those who argue against the public issuance of currency. The historical record, however, indicates quite a different story. The Continental Congress authorized and printed $241 million, but after accounting for the redemption of worn bills, there were never more than about $200 million in circulation at any one time. The British spared no efforts at trying to render the currency worthless by counterfeiting and distributing this amount many times over (estimated at one to two billion).

It has long been recognized that to debauch their currency is an effective way to undermine the power and will of an adversary, and the Revolutionary War period was not the only time that this principle was used by the British to further its interests. In the 1790's they engaged in a counterfeiting campaign to destroy the Assignats, a publicly-issued currency of the French Revolutionary period. When contesting the Dutch over New Amsterdam (New York) they even flooded the colony with Indian wampum (beaded sea shells used for ceremonial purposes), which the Dutch had adopted as currency.

The British counterfeiting campaign was massive and sophisticated. Benjamin Franklin, an advocate of paper money, noted:

"The artists they employed performed so well that immense quantities of these counterfeits which issued from the British Government in New York, were circulated among the inhabitants of all the states, before the fraud was detected. This operated significantly in depreciating the whole mass."

They ran an ad in a British-occupied New York paper which read:

"Persons going into other Colonies may be supplied with any Number of counterfeit Congress-Notes, for the Price of the Paper per Ream. They are so neatly and exactly executed that there is no Risque in getting them off, it being almost impossible to discover, that they are not genuine."

This "unparalleled piece" prompted George Washington to comment, "... no Artifices are left untried by the Enemy to injure us." In spite of this, Continental Currency continued to function reasonably well. After three years of war it was still exchanged at $1.75 against $1.00 of coinage. This led and exasperated General Clinton to complain to Lord Germaine (cabinet secretary in charge of war in the American colonies), "The experiments suggested by your lordships have been tried, no assistance that could be drawn from the power of gold or the arts of counterfeiting have been left untried, but still the currency . . . has not failed." The currency did finally collapse, but not before seeing the new nation through its birth pangs, prompting Thomas Paine to write, "Every stone in the bridge that has carried us over, seems to have a claim upon our esteem. But this (Continental Currency) was a cornerstone, and its usefulness cannot be forgotten."

Evidently its usefulness has largely been forgotten, and what remains in the culture to commemorate its critical importance is the phase "not worth a Continental". The eventual collapse of the Continental Currency is very frequently cited as evidence that the issuance of money cannot be trusted to the government, and should instead be left to private banks, but these sources virtually never mention the massive counterfeiting of the currency by the British (as well as private counterfeiters encouraged and protected by the British). How often this is a willful omission is hard to say, but I have many times heard it repeated reflexively even by those whose intention of the moment was evidently not to make a monetary argument. This is an example of how our culture and founding national mythology has been co-opted into an effective, though largely unconscious, conspiracy to cause us to forget our true monetary heritage.

Richard Kotlarz

The complete set of columns from this series is posted at the following websites.

Wednesday, November 26, 2008


(Week 16 - Wednesday, Nov. 26)

The U.S. economy itself is essentially a gambling house managed by a financial corporation (Federal Reserve) that manages the game according to "house rules" that assure that those who own the House get their "return on investment", while those who labor in the productive sector and are responsible for all wealth creation are expected put up their hard-earned money for the game, and to cover all losses. We could picture the way it operates as follows:

Suppose that a gambling house offered to host a group of poker players, and that their game would be subject to only one house rule; that is, that the House would collect five percent of every pot. As the game commenced the fortunes of the players relative to each other would rise and fall however they might. The single outcome of which we could be certain, however, is that due to the one governing house rule, the money that the players brought to the game would disappear at an inexorable five-percent-per-pot rate into the bank accounts of the owners of the House.

Eventually the players who fared relatively poorly would begin to run out of funds, but no matter. The House would "graciously" offer to lend them money so they could stay in the game. The House would of course need more than the word of a gambler as security for such a loan. It could perhaps demand a contract signed by the gambler that promised that if he failed to pay back the money, the House could collect its "debt" in the form of some item of value held by the player, like say the title to his car or the deed to his house. If a player were foolish enough to continue his participation on such terms, this money would eventually go back to the House also, and his only option for continuing would be to borrow still more. It would not be long before he, and indeed all his fellow players, would lose virtually all their wealth and become indentured servants to the House.

This poker game analogy is an accurate image of the U.S. economy at present. The players are the workers in the economy who produce all wealth. The dollars they bring to the game are like the poker chips that serve as its currency. The playing table is the marketplace where they risk their money. The "pots" are represented by the monetary wealth subject to changing hands in the course of a fiscal year. The percentage of the action due the House is reflected in the yearly "interest" charge that accrues to the use of the dollars. The House itself is the Federal Reserve System.

Let us suppose that the banks of the Federal Reserve System attached, on average, a five percent yearly "interest" charge to the use of their Federal Reserve Notes. That means that at the end of one year, for every one thousand dollars in the game, the banking system will have drawn out $50, and the players as a whole would still be holding $950. After two years the House's cumulative take would be $97.50 ($50 + [$950 x 5%]), and the players would be left with $902.50. After three years the split would be $143.63 and $857.37, respectively. In subsequent years the distribution (rounded to the nearest dollar) would be as follows:

Fourth - $185 vs. $815
Fifth - $226 vs. $774
Sixth - $265 vs. $735
Seventh - $302 vs. $698
Eight - $337 vs. $663
Ninth - $370 vs. $630
Tenth - $401 vs. $599
* * * * * * *
Fifteenth - $537 vs. $463
* * * * * * *
Twentieth - $642 vs. $358
* * * * * * *
Twenty-fifth - $723 vs. $277

We can see that after twenty-five years (one generation) the amount of money still in play is only about a quarter of the original total. If we continued to follow this progression we would see that the take of the House would approach 100 percent.

Often, when I outline this poker-game analogy, people immediately recognize that anyone who submits to playing under such terms is being very foolish indeed. Is it not obvious, they wonder, that however well one might fare in the short run, the prospect of coming out a winner diminishes inexorably with each play of the game? Of course, there are many people who do play in casinos under house rules while imagining they will "beat the odds" and become rich, but if they are compelled to do such under a spell of addiction and denial (as opposed to accepting their losses as a cost of entertainment, and, some would argue, even then) we say that they are deluded.

This begs the question, why do we as a civilization that imagines itself to be sophisticated in matters of finance continue to submit our lives and fortunes to just such a game in the casino that the Federal Reserve economy has effectively become? Why is the affect of the "house rule" represented by the "interest" payment on our money supply hardly even mentioned in the public dialogue about the current "debt" crisis? Why have I virtually never heard it spoken about directly by the politicians and experts who have been paraded before us in the media as the ones, it is presumed, who are going to lead us out of the "debt" wilderness?

The answer, I believe, is that we also, as individuals and as a social order, are acting out of an addiction to the illusions of the "debt"-money game, and are in a denial of that condition. This is something that we, individually and collectively, need to come to grips with. I mean no blame or criticism by this assertion, as a lack of consciousness about money is a condition of culture at this juncture of human evolution. I continue to struggle with it in my own life. The providential task before us is to wake up to what we are doing, and at long last walk away from this rigged game.

Richard Kotlarz

The complete set of columns from this series is posted at the following websites.

Monday, November 24, 2008


(Week 16 - Monday, Nov. 24)

I would pose a question. Let us imagine that a young worker, say twenty-five years of age, wanted to find a prudent way to insure that he would have enough money when he retired forty years hence. Let's suppose further that he subtracted money out of his paycheck to provide for that eventuality, which would, of course, amount to a foregoing of the benefit of already earned purchasing power for those intervening decades. Would it be reasonable for this worker to hand this money over to a casino gambler based on the assurance that he could be trusted to gamble with it "prudently" and return these funds in due time, with interest, out of his winnings?

Would we not say that this worker was naïve at best, foolhardy at worst, to accept such terms for the supposed safekeeping and management of his heard-earned money? Yet, that is essentially the arrangement people agree to when they allow their money to be given over to retirement portfolio managers to hold in trust and, hopefully, grow the value of their accounts.

I am not saying that retirement portfolio managers are in their own minds willful gamblers with other people's funds, or necessarily dishonest. On the contrary, they may very well be honest brokers who take seriously their fiduciary responsibility to hold in trust and manage wisely their clients funds. The problem is that such pools of deferred earned income act essentially as slush funds out of which "investors" (financial interests looking for ways to earn money with money, as opposed to investing in actual economic enterprise) draw capital to use in speculative financial activity.

We have been through a period of some decades when this scheme seemed to work. After all, have there not been millions of people who have had money deducted from their paychecks or made voluntary contributions to retirement accounts and pension funds who have in due time drawn out the benefits promised? Indeed, this has happened (though not nearly in all cases, to be sure). It should be noted, however, that we have in recent decades lived through an unprecedented era in which real economic output has for many reasons multiplied many-fold. This is true especially since the 1930's, which saw the advent of Social Security and the beginning of the proliferation of privately funded retirement accounts, in large part due to the successes of organized labor at the bargaining table. This burgeoning economic activity has made it possible to keep up with paying benefits promised out of current cash flows. This could not have been done otherwise since, within a "debt"-based monetary system, there is no way that monies supposedly sequestered for decades could actually have been held out of the flows of the money supply without causing catastrophic economic contraction.

The possibilities for continuing in the pretense that income withheld decades ago is somehow the source of funds being drawn upon to maintain current retirees can no longer be maintained. The actual physical economy can no longer double and redouble on a regular basis to keep up with continually compounding promissory paper. That is why retirement accounts are presently losing massive amounts of supposed value, or going broke altogether.

The prerequisite for a solution to the retirement account crisis is to return the money-creation-and-issuance franchise to the public sector, after which it would be possible to maintain the quantity of money in circulation at any level desired as a matter of public policy.

The size of the monetary pool could be set such that a large portion of it could indeed be put away in retirement accounts without creating the need to borrow money into circulation at "interest" to make up for the amount so sequestered. Some of it could even be invested in bonafide economic activity. With the existence of an adequate money supply assured, opportunities for making "investments" that are essentially schemes to "earn" money with money would be greatly reduced, and those who would be inclined to invest their retirement savings would be obliged to seek their opportunities in the role of financial partners to productive enterprise. Thus the genuine activity that current "investment" strategies purport to be would become a reality.

This said, I would recommend that the putting away of monies for funding our "golden years" be deemphasized. Even if this arrangement is supportable within the context of a publicly-issued money supply, it is a bit of a ruse. This is because material wealth generation that is dedicated to supporting needs in any given period of time is actually financed by money flowing in that same time. Injecting funds that have been inactive for decades into that flow would introduce monetary distortions that would have to be compensated for with a great deal of extra "paperwork", both to manage payouts in present time, and to maintain such funds over the years. To be sure, the numbers could be made to work, but why accomplish the same end by a more laborious route?

A better way to handle the situation, I would suggest, is by the establishment of social contracts to manage the distribution of resources to meet real needs in real time. In effect, that is what we are doing anyway, the extra mental gymnastics required to maintain the illusions of money-put-away notwithstanding. A hybrid of the money-put-away and social-contract techniques would be to set up arrangements whereby abstract credits could accrue to work history, the ultimate value of which would be determined at the time benefits were drawn upon.

As a further evolution in our thinking, I would suggest a relatively lesser dependence on financial arrangements, and a greater emphasis on investments in the material and human realities, to provide for our later years. The idea of the myriad members and sectors of society mutually supporting each other across every stage of life, as opposed to each of us competing to have our needs covered individually through financial nest eggs, needs to be explored. One factor that would expedite this evolution would be the removal of the threat to the family homestead caused by property taxes. In my view, property taxes are unwarranted, illegal and anti-ethical liens against already paid-for personal property. Their elimination would be a major factor in enabling people to secure their personal estate in old age.

Finally, I would suggest that we think of the provision for those of advanced years, not so much in terms of special "retirement" benefits, but as an integral part of the securing of the material adequacy and personal dignity of every person. Such a social ethic would contribute to the regarding of our "retirement" years as a period ripe with life and the possibilities of elderhood, rather than a social institution for the presumed idleness and "pensioning off" of those no longer deemed "economically useful" in the labor force.

Richard Kotlarz

The complete set of columns from this series is posted at the following websites.

Friday, November 21, 2008


(Week 15 - Friday, Nov. 21)

In the last two columns I have described the problematic financial nature of how retirement accounts are currently conceived and set up. In the case of Social Security it is not realistic to expect that deductions from paychecks would be monies put away on behalf of retirees until the day when they can begin to draw them out. In actuality they constitute a tax that finances current revenue flows, out of which benefits are paid. As for private retirement accounts, money put away, whether by involuntary payroll deductions or voluntary contributions, are effectively transformed from being purchasing power earned in present time, into funds that are used to make financial "investments". These "investments" will, most commonly, be in the form of "debt" contracts that people are obliged to take on in their lives by the very fact that the deferring of purchasing power represented by these retirement accounts will deprive the economy of the ability to complete its own market cycle, and so make such borrowing necessary.

In both of these scenarios the benefit sought through the putting away of money for retirement is ultimately not realized. Such arrangements may have seemed to have worked for the last two or three generations, but that is because the shortchanging of purchasing power could be covered by the taking on of more "debt" to cover current financial flows, and their workings obscured by deceptive concepts and language. Now that cost is coming due, as indicated by the massive losses in the supposed value of retirement funds, or their going bankrupt altogether. The mounting indebtedness of the economy is now reaching the point where even the basis for Social Security appears threatened.

The prerequisite to resolving this crisis is to take back the money-creation franchise from the private banking system, and return it to the public sector. This can be done through a legislative act that would repeal the corporate charter of the Fed, purchase its outstanding stock from member banks, and bring its capabilities under the direction of the U.S. Treasury. From that point, money would be either spent or loaned into existence directly out of the Treasury.

With respect to Social Security, beneficiaries would, as now, receive checks from the Treasury, but the difference is that the Treasury would not itself have to "borrow" the money to cover them, and thereby add to the Federal "debt". It would instead create the money "out of thin air" with the writing of the checks (as banks do now for the money they lend to the government). Monetarily speaking, their ability to do this is unlimited, so the mental ruse of thinking that there must exist some fund out of which the money is being drawn would be less tenable. The only real limit to what can be funded is determined by the physical actualities of the resources available to the society as a whole to provide for the needs of the elderly. An assessment would be made (much in the manner that any budgetary process is conducted now) that would determine what part of the national income would need to accrue to seniors, and then legislated into law. That sum, apportioned between eligible recipients by whatever formula is used, would be what each would receive.

Alternately, within a public monetary system, it would also be possible for the Treasury to maintain enough money in circulation so that deductions could be made from paychecks and put away in a Social Security Trust Fund against the day when it would be drawn upon. This would work in this case simply because money issued publicly would not be obliged to "earn interest". There would be no cost associated with letting such funds lie idle, for decades even, because the additional money that would be needed to compensate for their withdrawal from general circulation could be issued by the Treasury and spent into existence.

That said, I recommend that it not be done this way. This is because to do so would effectively begin to put conditions on the allocation of resources that wound be available when these monies are eventually paid out, which, in turn, could create issues of equity and adequacy that could not be anticipated. As a compromise solution, it would be possible to assign social credits to money earned (instead of subtracting money to be put away), the value of which would be determined at the time of retirement, but this would create additional paperwork and also introduce possible complications with respect to the equities of distribution.

In any case, if we went to a public monetary system all of these options, or combinations thereof, could be made to work on a sound and consistent monetary basis. We as a society would have opened up the possibility of working out provision for the elderly that was reliable, understandable and based upon the physical ability of the economy at the time to provide it.

A question naturally arises concerning whether this inflow of "cost free" money into the economy would balloon the money supply, and thereby cause inflation. If it were managed well it would not, simply because any excess buildup could be removed from circulation through taxation, and retired. Thus would the quantity of money in circulation be maintained at the level required to monetize (lend a monetary dimension to) any activity in the economy that needed to be accounted for, including putting away funds to cover Social Security, if that were what is called for.

In the next column I will describe how a return of the monetary franchise to public control could open the door to resolving the problems associated with private retirement accounts.

Richard Kotlarz

The complete set of columns from this series is posted at the following websites.