Saturday, August 30, 2008


(Week 5 - Saturday Aug. 30)

In Monday's column I described the four forms by which the "national debt" manifests at present: the Federal deficit, Federal debt, balance of trade deficit (with foreign countries) and money supply. By tracing the emergence of the so-called the "national debt" from the private-bank-loan transaction by which our money is created, I tried to show that it is not a genuine "debt." It is, rather, a fee in the guise of a compounding "interest" charge attached to our money at its point of creation. It was never anything "loaned," and it cannot therefore be "repaid." It can, however, be eliminated in an orderly manner by changing the basis on which the monetary system operates.

(1) – The "Federal deficit" is the amount of money borrowed by the Federal government in a given year to make up for the deficiency in tax revenues collected. If it simply issued the additional money it needed through the U.S. Treasury there would be no need for borrowing, and therefore no "deficit."

(2) - The "Federal debt" is the ongoing sum of yearly "Federal deficits." With a yearly "deficit" no longer being added to its total, the "Federal debt" would obviously cease to grow, but what would happen to the "debt" already on the books?

This "debt" is in the form of bonds that are being held by the public, both domestically and around the world. They will, at their date of maturity, have to be redeemed at a value that is greater than the amount of money the government got for selling them originally. The difference is due to the "interest" charge attached to the bonds.

Since the Treasury is only borrowing (not issuing) money at present, its only option is to pay the "debt" represented by these old bonds by printing and selling yet more bonds that, in turn, represent an even greater "debt" that will have to be paid when they are redeemed in the future.

If, on the other hand, the Treasury were allowed to issue money, then these old bonds could be redeemed with new money (not more bonds), and the cycle of compounding "debt" would be broken. Over time (about three decades) all outstanding bonds backing the "Federal debt" would be turned in for redemption with public money, and the "Federal debt" itself would cease to exist.

Perhaps the last great champion of a free public currency in our national government was Congressman Wright Patman from Texas. He was member of the House Committee on Banking and Currency for forty-seven years, and its chairman for twelve. Among his pronouncements on the subject of "Federal debt" are:

"The dollar represents a one dollar debt to the Federal Reserve System. The Federal Reserve Banks create money out of thin air to buy Government Bonds from the U.S. Treasury . . . and has created out of nothing a . . . debt which the American People are obliged to pay with interest."

"In many years of questioning high experts on the matter, I have yet to hear even one plausible answer to the question (of) why the Government should extend money-creating powers to the private commercial banks to be used, without cost, to create money which is lent to the Government at interest."

As far as I know, Congressman Patman's question remains unanswered.

In the next column I will move on to the solution to the "balance of trade deficit."

Richard Kotlarz

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

Friday, August 29, 2008


(Week 5 – Friday, Aug. 29)

In yesterday's column we walked through the private-bank-loan transaction by which our money is created, issued and controlled to show that the "national debt" does not refer to money that actually exists, is loaned out for a time, and is then paid back. It is not "real," therefore, in the dictionary or common-sense meaning of the word "debt." The question naturally arises, "How then can this "national debt" be "repaid" (whatever "repaid" might mean in this case)?"

The quick answer is, it cannot be "repaid." It can, however, be eliminated in a systematic manner by changing the basis on which the monetary system operates. Thomas Jefferson said, "But follow the principle, and the knot unties itself." If the operation of the monetary system were returned to sound principle, the so-called "national debt" would disappear in an orderly way over time, virtually of its own accord.

The present Federal Reserve System operates according to what might be called the "private-debt-money" principle. Our money is created by a private banking system, and "loaned" out at "interest," thus creating a supposed "debt" of society to that system. The money required to pay back such "loans" is available because it circulates in the money supply, but the money needed to make the "interest" payments is not because it was never issued. This means that participants in the economy must, in the aggregate, "borrow" increasingly more money into circulation in order to keep making the principal and "interest" payments on old bank loans, while maintaining a money supply. This is another way of saying that the "debt" associated with older money must be redeemed (rolled over) with "debt" attached to new money, with the result being that the total "debt" the nation "owes" to the banks builds up continuously in a snowballing manner.

If the present system issued money directly out of the U.S. Treasury, it would be operating according to what might be called the "public-debt-free-money" principle. Our money would be created by our own government, and then spent or loaned interest-free into circulation. This public money would for a time be used to make the principal and "interest" payments on old bank loans, and maintain a circulating money supply. The crucial difference is that in the new system, more money would not have to be "borrowed" into circulation from a private banking system to accomplish that. Old "debt money" would be redeemed with new "debt-free money," resulting in an ongoing reduction of the total amount of money in circulation for which the people "owe a debt" to the banks.

With the "private-debt-money" principle, the life of the nation serves money. With the "public-debt-free-money" principle, money serves the life of the nation. The contrast is that stark.

As bank loans were paid off with public money, the bubble of "national debt" that is attached to the nation's money supply would be deflated without default or economic disruption. By this process the "national debt" would be retired over time in an orderly way, and fade naturally out of existence.

This states the matter in principle, but the next step is to describe how, specifically, this would work out with respect to what I described in Col. #25 as the four forms of the "national debt"; i.e. the "Federal deficit," "Federal debt," "balance of payments deficit" and "money supply." I will pick up on that task in the next installment.

Richard Kotlarz

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

Thursday, August 28, 2008


(Week 5 - Thursday, Aug. 28)

When we talk about a “national debt,” does this expression refer to money that actually exists, is loaned out for a time, and is then paid back? Is it “real” in the dictionary or common-sense use of the term “debt”? I would offer a description of two outwardly similar loan transactions, and perhaps through them we can discern the answer to the question.

(1) – A Loan from a Friend:

Suppose I needed to borrow some money, say $1,000. I might approach a personal friend and ask for a loan. He checks his bank account to see if he has the money to lend, and makes an assessment of whether I am likely to pay him back. Let us suppose that he has the money and is willing to lend it, but on one condition; that I agree to pay him more than I borrow (i.e. interest on the loan). After all, is he not foregoing the use of that money for a year, and is there not a risk that I might not pay it back?

We agree that he will lend me $1,000, and I will pay him back the $1,000 principal of the loan, plus a $200 interest charge (for a total of $1,200) at the end of a year. He writes up an I.O.U. on a slip of paper, and I sign it. He then writes a check for $1,000 out of his account, and hands it to me.

At the end of the year when I give him the $1,200, he marks the I.O.U. “paid,” and the loan is deemed by both of us to be satisfied.

(2) – A Loan from a Bank:

Now suppose that instead of borrowing the $1,000 from my friend, I decide to go to a bank. After all, is that not what banks are for? I approach the banker and ask for a loan. Like my friend, he checks what he has in his accounts, but not because he is planning to loan me any of that money. Instead, his intention is to create the money he will “loan” to me out of “thin air” by virtue of his authority as a banker. The reason he checks his accounts is to make sure that he has enough money “on reserve” to create the new money according to the “fractional reserve formula” by which he is governed.

He makes an assessment of my “creditworthiness,” and the loan is “approved.” We agree that he will lend me $1,000, and after a year I will pay back the $1,000 principal amount of the loan, plus a 20% interest charge ($200). He writes up a contract which states that I promise to pay back the loan, and I sign it. He then writes a check for $1,000 out of his authority to create money, and hands it to me.

At the end of the year when I pay him the $1,200, he marks the loan contract “paid,” and the loan is assumed by us, and deemed by the legal authorities, to be “satisfied.”

On the surface there are many similarities between these two transactions. In fact, the operative words of the discussion (“loan,” “interest,” “debt,” “payback” and “satisfaction”) are used in what appears to be identical ways. If one filmed each session, except for the incidental settings (one across a kitchen table and the other a banker’s desk), one would be hard pressed to detect any substantive difference between the transactions.

My experience has shown that when people go into a bank and borrow money, they generally assume that they are involved in an upfront common-sense transaction (like with their friend), whereby the banker is loaning them some money that he will no longer have on deposit in his bank for a time, and that he therefore needs the interest charge to compensate for the risk that he will not be paid back, and further, that when he is paid back all the conditions of the loan will have been satisfied without any residual debt to the borrower, banker or society as a whole. This is mistaken all counts.

If we carefully track the steps of the bank loan transaction we can see that:

● It was not essentially a process to “loan” money, but to create it.

● The banker did not charge “interest” on the “loan” because he was “at risk” of losing something substantial that he had entrusted to the “borrower.” Rather, the compounding “interest” charge was a fee that he was privileged to attach to the principal of the “loan” as the agent of a private banking system that had acquired the power to control the terms by which society would gain the use of its own money.

● This “loan” at “interest” is not a “debt” in any true meaning of the word. The money created and issued was done so out of a prerogative of sovereignty that was unlawfully (in my view) appropriated from the social order of which the borrower is a part. How can we the people be “in debt” for borrowing something that rightfully belongs to us, with an attached compounding “interest” charge to boot?

By logical extension then, the “national debt” is not a real debt.

I would hasten to stipulate that I am not in any way advocating the tearing down of the banking system, or even defaulting on the “national debt.” Rather, I would redeem it, the banks, and the nation’s financial life, by returning the way this country creates, issues and regulates money to sound principle. This, I can imagine, may sound strange now, but the idea will be fleshed out as we go.

Richard Kotlarz

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

Wednesday, August 27, 2008


(Week 5 - Wednesday Aug.27)

Yesterday I offered the view that the reason we have a "national debt" is that we as a people and a nation have allowed our sovereign prerogative to create our own money supply to be usurped by a private banking establishment. This raises the question, "To whom is this 'national debt' owed."

It would be easy to assume that because the "national debt" arises from transactions in which money is "borrowed" from banks, it must be to these banks that this "debt" is owed. If we trace carefully the course of the bank-loan-and-payback cycle we will discover that this is not the case.

I have described in previous columns how the banker is not really "loaning" money in the common sense use of the term. He is, rather, creating it out of his authority to do so as an agent of the banking system.

I have also described how, when a "borrower" makes a payment on a bank "loan," the payment is divided into two parts, with one portion being used to the pay down the amount of the "loan," and the other applied to "interest." The money credited towards the pay-down of the "loan" is extinguished back to "thin air" in a process that mirrors its creation out of "thin air."

The part that is credited towards the "interest" payment goes instead (after the bank subtracts its operating expenses, that is) into the account of a speculator in "financial-debt" contracts, usually described as an "investor," whose interest typically in the transaction is not to be a financial partner to a productive enterprise, but to be the recipient of the "interest" payments.

It is these "investors" to whom the "national debt" is owed. So who are these "investors?"

This is a big question that can be answered on many levels. At the highest level of finance, they are the persons who have both the means and the privilege of being in a position to act as the first link in the buying and selling of "debt."

For example, the quantity of money borrowed by the Federal government that is allowed to circulate in the economy (the so-called "high-powered money" that serves as the basis for how much money banks can create according to the "fractional reserve formula") is regulated by the buying and selling of U.S. government bonds through the "Open Market Desk" of the Federal Reserve Bank of New York. This "open market" is in reality a strictly limited market, in that the privilege of buying and selling these bonds is restricted to certain few dealers.

After the bonds are bought by these dealers, they are generally sold to "investors," by whom they may or may not be resold. Theoretically, they can wind up in the financial portfolio of anyone in society, even the world, and in fact they do get widely dispersed.

It is not, however, an equitable distribution. The system is set up in such a way that those who are privileged to be the primary bond dealers and their customers (or are otherwise strategically positioned in the system), as well as others who already possess an excess of funds to "invest," have a distinct and often insurmountable advantage in the game.

To illustrate, if one person manages to move into the financial position of being the receiver of "interest" payments (e.g. by buying mortgage contracts), and another finds himself obliged to be a regular payer (e.g. by making payments on a mortgage), then generally, while the latter works to be a producer of wealth (i.e. earns a paycheck), the first will become wealthy without further expenditure of effort. I would caution the reader that this illustration can be simplistic if one tries to apply it dogmatically to real human situations, but it remains a reality in the overall picture that the private-bank-loan transaction by which our money is created is the great engine of inequitable wealth redistribution.

While much has been said in the public discourse about the inherent greed of "the bankers" because they are supposedly getting the benefit of all this money that they "create out of nothing," it is evident from the financial section of the newspaper that the banks too are experiencing difficulties. In fact, many are on the brink of bankruptcy. That is because they are not sovereign entities, but instead have been co-opted themselves as the agents of a perverse principle at the heart of the monetary system which would tempt persons to use the control over money to satisfy their desire for undue private gain, and to exercise control over humanity itself.

To be sure, there are to all outward appearances people who act as this principle's particular promoters, facilitators and even conspirators, but I think a suspension of judgment is necessary if we hope to divine all the way to the core of the "national debt" matter. In truth, the acquiescence to this obverse monetary principle has become culture-wide. Directly or indirectly, in big ways or small, virtually all of us are at least partly responsible for the "national debt." Would it be too much to say that we are all part of the problem, and, potentially, the cure?

While we need not and should not ignore the gross injustices of the monetary system that do arise, it behooves us also to be aware that none of us is wholly blameless. This is a topic that will be explored in an incisive, but dispassionate manner as these columns unfold.

Richard Kotlarz

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

Tuesday, August 26, 2008


(Week 5 - Tuesday Aug. 26)

In yesterday's column I defined "national debt" as any monetary "indebtedness" that is taken on by the society or nation as a whole, and I then listed four ways in which this "debt" manifests. The issue of "national debt" suggests a series of questions, which can be stated in a fivefold manner:

(1) – What causes a "national debt" to arise?
(2) – To whom is this "national debt" owed?
(3) – Is the "national debt" a real debt?
(4) – Can the "national debt" ever be "repaid?"
(5) – What is the solution to the "national debt?"

For this column let us focus on point #1 - What causes a "national debt" to arise? (1) – A "national debt" arises when an elite private group (or person) manages to usurp the power of the sovereign to create, issue and control a nation's money. In earlier periods of history this power was usually vested in a monarch, czar, emperor, dictator, or other authoritarian ruler. The American experiment represented something new in that sovereignty was deemed to reside in the people themselves, and exercised through their elected representatives within the rule of democratically determined law.

Since the beginning of civilization there have always been private parties (as opposed to rulers or executors of the political life) who have sought to co-opt society's money power, because in doing so they could effectively gain control over the whole nation. Indeed, in important ways it was better than ruling a nation in an overt political sense. The "money-lenders" got to skim-off the cream of the wealth of the country, while pulling the strings of power and staying safely in the shadows. The monarchs and politicians, on the other hand, were obliged to endure all the exposure, risk and abuse of being in public office.

Much could be said about the human motivations that cause people to seek such an extremely advantaged position in society (some would say, a stranglehold over it), but whatever the case, it is sufficient for now to state that whenever a person or group is successful in capturing the power over a country's money, it has gained effective control over the nation itself. That is what Mayer Amschel Rothschild (founder of the Rothschild banking dynasty) meant when he said, "Give me control of a nation's money and I care not who makes the laws."

Once the control over a nation's money has been handed to private persons, a "national debt" will arise, virtually as night follows day. This is because they will invariably use their power to supply the nation they purport to serve with money on such terms that, not only individuals, but the society as a whole will become, and remain, perpetually in their "debt."

This is not necessarily a simple case of avarice. Those with control over money may believe that they have been handed this privilege for good reason, or even as a sacred trust (and many have articulated a case for their view). The way this has unfolded in human history is extremely complex, and we should not be too quick to judge issues of motivation. Nonetheless as a practical matter, private money goes hand-in-hand with "public debt."

In the American experience, the crucial power of sovereignty (the power to create, issue and regulate money), has been abdicated by the elected representatives of the people in favor of a private banking cartel that issues the nation's money supply through a form of "private-bank-loan" (actually private-money-creation) transaction, by which a compounding "interest" fee that realistically cannot be paid is attached.

Therefore, this nation has a "national debt." It is a straightforward matter of cause and effect.

Richard Kotlarz

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

Monday, August 25, 2008


(Week 5 - Monday Aug. 25)

There is, in my view, a very direct and completely effective way to address the problem of the "national debt," which is, by my definition, any monetary "indebtedness" that is taken on by the society or nation as a whole, and not in particular by any of its members or sectors. We can list four forms by which the "national debt" manifests at present. These are:

(1) – The "Federal deficit" – This is the amount of money borrowed by the Federal government in a given year from the nation's semi-private (some say quasi-public) central bank (Federal Reserve) to make up for the deficiency in tax revenues collected, which causes it to come up short in meeting its budgetary obligations.

(2) - The "Federal debt" - This is the ongoing sum of yearly "Federal deficits," which constitutes the total amount of money borrowed by the Federal government from the Federal Reserve.

(3) – The "balance of payments deficit" - This is a net monetary imbalance caused by this country buying more goods from foreign nations than we sell. When we sell goods to foreign countries we receive a net inflow of money, or stream of "national income." When we buy goods from foreign countries we spend part of that income. If we buy more than we sell, then there is a net outflow of money from the U.S. to foreign lands, which is referred to in the current economic discourse as a "balance of payments deficit."

(4) – The "money supply" - This is the amount of money that the participants in the social order or nation as a whole, including both public and private sectors, "owe" to the private banking system for the system's having made available the supply or pool of money which society requires to conduct its commerce.

The first three of these forms of the "national debt," and the arguments about them, no doubt look like familiar features of the national debate over money, and the descriptions that I have provided above are essentially the conventional ones. I would assert, however, that they are not what they commonly appear to be. In my experience, the terms "Federal deficit," "Federal debt" and "balance of payments deficit" are misnomers. That is, the phenomenon that each ostensibly refers to is not what the words themselves would seem to indicate. They are all abstract figures of speech that effectively serve to cover up the real nature of what is happening in the financial affairs of the nation, though, I dare say, very few people realize it. Typically, these expressions pass for what a literal interpretation of their words would tend to indicate, and that, in turn, is the cause of untold dysfunction and misery in the economic life.

Item #4, the "money supply," is one I have never heard identified as being an aspect of the "national debt," but previous columns in this series may give the reader some basis for understanding what I mean by identifying it as such.

In the next few installments I will offer very specific thoughts about how, in principle and practice, these aspects of the "national debt" were formed, and how they can be eliminated (to be clear, I am not proposing eliminating the money supply, but rather eliminating it as "debt"). In the end, we will discover that the very expression "national debt," when used in a monetary sense, is a contradiction in terms.


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

Saturday, August 23, 2008


(Week 4 - Saturday Aug. 23)

Some people have asked me, "What about the Greens and Ralph Nader?" As America's "third-party" alternative, many have looked to the Greens as a pivotal movement around which a force for fundamental change could possibly gather. In my view, there has been some basis for this hope.

The Greens have for the most part not been involved in the movement for monetary transformation on the Federal level. They have attracted a fair number of activists for local currencies, barter networks, land trusts, and the like, but they have largely stayed clear of taking on the issue of national currency reform.

I was for a time a member of the Green Party, and found the people there to be a fine and dedicated group of souls who talked a great deal about economic issues, but the conversation rarely extended to the nature of money. My Green friends would tell me that this obscure "banking issue" I seemed to be so obsessed with was all very interesting, but right now we have starving people to feed, wars to stop, and a planet to save, so it would just have to wait. I was never able to get them as a group to consider that perhaps this "banking issue" was in fact the very engine that was driving all those problems, and to leave it unaddressed would only insure our ultimate inability to effect transformative change.

The Greens would do well to reclaim the historical roots of their own party. They have an antecedent namesake in the Greenback Party, which was, in fact, a key player in the anti-bank-money populist movement of the late 19th and early 20th centuries. There is an evolution that has proceeded from the populist parties, through the farmer/labor movements, to the progressive/liberal/grassroots politics of more recent times, of which the Green Party is a prime beneficiary. They have a genuine heritage on the monetary issue, if they will awaken to and embrace it. It represents their authentic vehicle to break out of the perceived disgruntled-left-wing-of-the-Democratic-Party ghetto.

The Greens at this point are sometimes deemed to be a radical left-wing import, and not fully American. By re-invoking the true issues of the American Revolution, as opposed to the conventional jingoistic mythology, it could move to the very highest and most patriotic ground. From that pinnacle there is no major constituency it could not speak to. There is no argument from the "major parties" it could not trump. This is a historic opportunity.

The groundwork that has already been laid down by Ralph Nader should be taken a critical step further. He is in the eyes of many the most famous, expert and eloquent (though sometimes a bit demagogic) spokesman on the predations of corporate practice, yet I have never heard him say a word about the ruler of them all, the corporation (Federal Reserve) which has been unconstitutionally granted the charter for money creation. I can't be sure he has never done so, but clearly it has not been the centerpiece of his efforts. Without making it so, the rest of his heroic labors may find limited success on particular issues, but are doomed to overall futility, as it will leave corporate money power still "enthroned" (as Lincoln had warned about).

If Nader and the Green Party had truly picked up on the monetary issue, they would have had the formula for a truly revolutionary program that could transcend all regions of the political and ideological spectrum. The money-creation franchise is the linchpin of the entire globalist corporate order, and it would all come undone if it were removed.

With Ralph Nader as its presidential candidate, the Greens emerged briefly as a force to be reckoned with in American politics in the late '90s. Since then the party has declined, and Nader has moved on to independent runs for the presidency in 2004 and 2008. It would appear that whatever opportunity the Greens and Nader had to be that political force for monetary redemption in America has been largely dissipated. Still, for the sake of the country, one can only hope that it could return?

Richard Kotlarz

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

Friday, August 22, 2008


(Week 4 - Friday Aug. 22)

Some people have asked me – "What about Dennis Kucinich?" Has he not also addressed the monetary issue in the course of his campaigns? My answer it yes, but not in the deep, central and consistent manner that is required to plant it effectively in the American consciousness (overcoming, in the process, his marginalization in many people's minds as a politician of the "extreme left").

As someone who followed the political scene, I had taken notice of Kucinich's career from his days as boy-wonder candidate for the office of mayor of Cleveland. He was for a time a national curiosity. His slight stature, impish looks, outspoken views and tender age (elected to city council at age 23, to mayor at 31; youngest ever for a major American city) earned him the moniker "Dennis the Menace" from the media, who seemed determined to not take him seriously.

In the first year of Kucinich's term he ran afoul of the financial establishment by refusing to sell the Muny Light, the publicly-owned electric utility, to a private competitor (whose directorates and finances were thoroughly interlocked with the banks) as a precondition for the extension of credit to the city to roll over its previously abused finances. The result was that Cleveland's loans were called in, and the city entered into default.

Kucinich was, to all appearances, committing political suicide in the early stage of a most promising career, and he did in fact lose his bid for reelection in '79. Worse still, he became a pariah in his hometown, couldn't find a job, nearly lost his home, and commenced on an inward journey that took him into the deserts of New Mexico.

He emerged fundamentally changed, and eventually returned to the political fray in Ohio, where the wisdom of his principled action, and courageous nature of his sacrifice was starting to be appreciated; so much so that he adopted as his campaign symbol a light bulb. His vindication was complete when in 1998 the city council gave him an award "in recognition for his courage and foresight." He was elected to the state Senate in '94, and to the U.S. House of Representatives in '96. Since then he has become a leader on the national stage, and made runs for the Democratic nomination for President in 2004 and 2008, from which he has established a modest, but dedicated, base of political support across the nation.

By wildly serendipitous circumstance, Kucinich met and married Elizabeth Harper, the close aid of Steve Zarlenga, who just happens to be by some accounts (mine included) the preeminent monetary scientist and historian of our time. Now Kucinich, who had demonstrated his instincts and proved his metal by facing down the banking system, had formed a close relationship, through his wife, with the person who could perhaps teach him more about money that almost anyone else on the planet.

Kucinich learned much from Zarlenga, and became the keynote speaker at a monetary conference sponsored by his American Monetary Institute in Chicago in 2005 (a link to the video can be accessed on the AMI website).

This is a dream situation. All the pieces are there. In my estimation, however, the potential of the situation has not (yet anyway) been realized. I don't know all the reasons why. It seems to me that Kucinich has the character, knowledge and brilliance to effectively introduce the monetary question into the political scene in a profound way, but for some reason he has not as fully embraced and embodied the issue as he might. It remained a marginal and infrequently-mentioned topic even in his 2008 campaign, and it was not fully developed or adequately featured on his website.

I still have hope that Dennis Kucinich will one day emerge as one of the key voices that will reintroduce the issue of money to the American political discourse.

Richard Kotlarz

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

Thursday, August 21, 2008


(Week 4 - Thursday Aug. 21)

Many people have asked me – "What about Ron Paul?" Is he not talking in a fundamental way about the monetary issue you are saying is missing from the political discourse? Indeed he is, but his proposed answer to the monetary question would, in my view, only make the situation as bad, or worse.

Ron Paul is a congressman from Texas, and until very recently was a candidate for the Republican nomination for President. He is unique in that he is extremely knowledgeable and articulate about the monetary system, and has built much of his campaign around his proposal to repeal the Federal Reserve Act, and re-establish the monetary system on a different (in his view "constitutional") basis.

On a personal level, he impresses me as someone who is genuinely committed on the issue, and has the courage of his convictions. I find his informed outspokenness to be a breath of fresh air in the gaff-averse, talking-point-oriented modern political scene.

He is something of a throwback to an era when there were many learned and eloquent voices in the political arena who carried on a classic debate about what ought to be the basis for how this nation creates, issues and controls its money, and how it all relates to the ideals of the American Revolution. That debate has so completely disappeared from the scene that Paul comes off to many as an anachronism (one whose time has passed).

The notion that he is somehow passé is belied by extraordinary grassroots support he inspired during the campaign, especially from young people. He was beyond doubt a political phenomenon. Paul espouses many strongly held positions that together are characteristic of what is often described as a Libertarian worldview (he was in fact the 1988 Libertarian candidate for President).

He is adamantly pro-life, anti-gun-control, opposed to all but the most minimal involvement of the government in private matters, a foe of the Patriot Act, against the entanglement of the country in the affairs of other nations, and a staunch opponent of the War in Iraq. There are many analysts on the political scene who attribute Paul's surprising appeal to his unabashed and principled stance on these issues, and no doubt there is an element of truth to that. In my experience, though, the congressman has also touched a deep nerve in the American psyche about money. For this reason I heartily welcome his contribution to the political discourse.

That said, there is also an aspect of his program that I find highly problematic, and that has to do with the specific change in the monetary system he proposes. Stated succinctly, he feels that the true alternative to a currency based on "debt," (i.e. borrowed into circulation from a private banking system), is one in that is "backed by gold."

The debate over whether the currency of a nation should be based on gold, or the fiat of the sovereign (in the American case the sovereign being we the people through our government) is one that goes back to ancient times. This is obviously too big a story to tell in detail in this short article.

Suffice it to say that the question had a formative effect in the emergence, shaping and preservation of the American nation. For example, as the Civil War was breaking out President Lincoln was pressured to borrow the money to fight it from the banking system, reportedly at interest rates ranging from 24 to 36%. Lincoln wisely rejected that advice, and instead had the U.S. Treasury issue United States Notes, a currency that came to be known as the "greenbacks."

The policy was deemed so successful, and proved to be so popular, that the nation emerged from the war with a solid majority of the people favoring the greenback as the basis for the money supply. By many accounts this led to a great deal of intrigue by which the will of the people was allegedly subverted, and the nation was denied its preferred money due to the influence of bankers who advocated that the currency be based on gold ("hard money" they called it).

This so outraged the public that a host of "populist" parties emerged (some becoming very influential and scoring major electoral victories), plus major pro-greenback factions coalesced in both the Democratic and Republican parties. Indeed, in the half-century after the Civil War the dominant issue on the political scene by a wide margin was who was going to have control over the creation, issuance and regulation of money, and on what terms.

At the 1896 Democratic convention in Chicago a relatively unknown senator from Nebraska, William Jennings Bryan, gave what is widely recognized one of the most eloquent and impassioned orations in the annals of American history. Known now as the "Cross of Gold" speech, it ended with the words – "Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold."

The thunderous approval that arose from that hall catapulted Bryan from being an obscure "prairie populist," to the Presidential nominee of his party that year, and in two subsequent election cycles. Has Ron Paul forgotten this chapter of our history? I would love to hear his thoughts on the matter.

Richard Kotlarz

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

Wednesday, August 20, 2008


(Week 4 Wednesday Aug. 20)

In yesterday's column I said that there is no combination of taxing and spending priorities that will remedy the Federal "debt" problem. This statement is contrary to conventional economic wisdom, to put it mildly. To make my case I would direct the reader's attention to the private bank loan transaction by which our money comes into being.

We as a sovereign nation have the right, power and responsibility to issue our own money supply as a public good and an essential feature of the commons. The public body to whom this task naturally falls is the Federal government. Unfortunately the people who compose the Federal government have long since been pressured into abrogating that essential trust to private interests, and we the people have not held them accountable because, to a great extent, we too have been influenced in ways that are contrary to our true welfare.

Now if the nation needs a money supply with which to conduct its commerce, it cannot turn to its government, but is obliged to go to the banks. As private businesses, banks work for a profit. They are happy to "loan" to the nation its circulating medium, but on the condition that they get paid back more than they "loan." If a nation (as for a person) borrows at "interest" the money it needs to live on, it follows that it can only slide ever deeper into "debt."

It makes little difference to the banker whether the "borrowing" is done by persons from the private or the public sector. The overriding fact of life within our present system is that someone has to bite the bullet and take on more "debt." The struggle over who that will ultimately be is the hidden engine that drives the fractious nature of our political life. There are compelling factors that make it virtually certain that it will fall to the Federal government to do much of the borrowing. The taxing and spending policies of a President can affect this balance, but realistically only to a limited extent.

It should be noted that private banks within the Federal Reserve System are controlled by what is called a "fractional reserve formula." This is a pyramid scheme that is too complex to describe in detail in this short article, but one of its features is that the money borrowed into circulation by the Federal government and deposited in banks forms the "fractional reserve" base upon which the banking system can create new money. This means that there has to exist a Federal "debt" for the system, as it is designed, to even function.

It is not mandatory that the Federal government assume as large a share of the taking on of national "indebtedness" as it has done, but it remains a fact that the private and public sectors combined must take on more "debt" at a continuously increasing rate for the nation to avoid a contraction of the money supply, which can only lead to economic recession, and eventually depression.

The rate of Federal "debt" aggregation does in fact increase or decrease from time to time, as when deficit spending increased for theReagan/Bush/Bush years, and decreased during the Clinton presidency. It should be noted, however, that there were underlying social, monetary and political cycles that were driving the numbers associated with these periods, and the relative size of the Federal deficit had little to do with how quickly the country as a whole was sinking into "debt."

For complex reasons, during the Clinton administration the private sector took on "debt" at a rapid rate, and so the government did not have to. During the Reagan/Bush/Bush years, in contrast, private borrowing decreased and the government found itself in the position of having to step in as the borrower of last resort to keep the economy supplied with enough money.

None of these Presidents, as far as I can see, ever gave any indications that they understood the economic wave that they in their turn were riding. Instead, their spokespersons spent their energies manufacturing spin by which they attempted to take credit for whatever favorable numbers emerged, and explain away those that put them in a bad light.

In the meantime, the nation continued its uninterrupted combined private and public descent into "debt," and has arrived now at a point of reckoning where the situation can no longer be denied or papered over. This is what McCain and Obama need to be talking about.

Richard Kotlarz

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

Tuesday, August 19, 2008


(Week 4 - Tuesday Aug. 19)

There is an area of critical public concern that John McCain, Barack Obama, and the entire lot of candidates for Federal office (Congress, Senate, Presidency) will no doubt hold forth on endlessly, but it is also true that virtually none of them have a clue as to how to resolve it. "It's the economy, S#*/@d!" The form this issue most commonly takes is an obsession with how to deal with the yearly Federal "deficit" and mounting Federal "debt." The range of other economic issues will be derivatives, more-or-less, of the alarm over the rising national tide of red ink.

We will be admonished by each candidate that the government is taking in too little revenue and/or spending too much money. With virtually a single voice they will tell us that when we come to our senses and start running the Federal government more "like a business," then we will get our economic house in order. Typically, each will claim to have discerned the taxing and spending priorities that will allow us to "grow the economy" so we can "turn the corner" and "start paying down the debt" so "our children won't have to."

This is truly a laudable intent, but an utter mischaracterization of the problem. There is no combination of taxing and spending priorities that will remedy the so-called "debt" problem. The "debt" does not come from "taxing-&-spending," and no variation thereof will fix it.

Our unquestioning attachment to this framing of the "national debt" issue, and the whole array of ideologies, notions and interests that have grown up around it, is the great rock upon which the political process, ship of state, and best intentions of we the people are foundering. If that were not so, why has no generation of elected public servants virtually in the last century succeeded in "turning the corner on debt"? Is the answer as simple as saying that the category of human beings we call "politicians" (and whom we elect and re-elect) is uniquely corrupt beyond any capability of answering their calling, or does blaming politicians too often excuse us from having to think more deeply on the matter?

We the electorate are frequently admonished as to how we can't pay down the "debt" because we have not achieved enough "economic growth." In the century-almost since the establishment of the Federal Reserve System, the U.S. economy has in real terms experienced an ongoing explosion of economic production that quantitatively dwarfs the increase of any nation (perhaps all nations combined) before it, and now threatens to overwhelm the capacities of the earth on which we depend. Why, then, has not this "growth" enabled us to "grow" out of the "debt." Why does the "debt" evidently increase in lockstep with the "growth." Is more "growth" the answer?

The United States is a sovereign nation with the right to issue its own money supply. There is no cost in doing so, regardless of the amount issued (except for the incidental material cost of handling whatever medium of currency is deemed to be most convenient).

To say that the overall economy of a nation that has the power to issue its own money supply, can also be in "debt" within the circle of its own domestic production-&-consumption cycle is a contradiction in terms. People within an economy can be in debt to each other, but how can an economy be in "debt" to itself? How can a free people who are conscious of what they are doing hold themselves in "debt" bondage? Stranger still, why, supposedly, is it necessary to sell bonds to foreigners so that we can get enough money to circulate as purchasing power in our own domestic marketplace to cover the cost of the products we ourselves make? Stated more succinctly, why are we not richer for all our wealth, instead of poorer by all this "debt"?

These are the questions that McCain and Obama need to be able to answer. I will offer my own suggested answers in very succinct terms as these columns unfold.

Richard Kotlarz

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

Monday, August 18, 2008

Column #19 McCAIN & OBAMA

(Week 4 - Monday Aug. 18)

On Saturday evening the nation was presented with its first one-to-one encounter between the presumptive Presidential nominees for the two major parties, John McCain and Barack Obama. It was a unique "faceoff" in that the two candidates never actually sat across from each other, but came to the stage in alternate one-hour sessions (decided by the luck of the draw), each answering an identical set of questions from the same interviewer, Rick Warren, pastor of Saddleback Church in Lake Forest, California.

The form of the event lent itself to a direct comparison of the two men, but without the posturing and sparring that dominates the dynamics of more conventional political debates. In their respective ways each acquitted himself well. Each delivered what I perceived to be intelligent and heartfelt responses, and the reception by the audience appeared to be genuinely warm for both. The event was, it might be said, the American political pageant at its challenging, but congenial, best.

Within the context of their respective worldviews, I found the words of both to be credible in all categories except for one; i.e. almost anything having to do with money and the economy. My remarks here are in no way motivated by a desire to cast a shadow on the abilities and good faith of these two men. On the contrary, on issues related to the economy, as on others, they seemed to be bright and sincere. What then, the reader might fairly ask, is this writer talking about?

It is my experience that when it comes to money and economics, virtually the whole of the American political discourse lives within a strange through-the-looking-glass realm where nothing is what it is purported to be (readers may by now have gotten a feeling for what I mean in the columns that have preceded this one).

This may seem to be a bold statement, but, I suggest, it is easy to document from the newspaper headlines of the present, and of the last half-century or more. Candidates for Federal office (Congressman, Senator, President) claim, election cycle after election cycle, that if the nation would only adopt their particular nuance of taxing and spending priorities, we would at last turn the corner on "the deficit," and in turn the other intractable economic dilemmas of our times. Some combination of those presented get elected, but when the next cycle rolls around, the problems are still there, only worse. We hear, in repackaged form, the same purported remedies and earnestly delivered promises all over again. I would suggest that we as a nation cannot afford to go much further without coming to a realization of what is wrong.

Candidates for office, almost without exception, treat the economic question as if it were fiscal (i.e. budgetary) in nature; i.e. as if its problems could be remedied by adopting some particular combination of taxing and spending policies; be they liberal, conservative or any variation thereof. I would suggest that this is an illusion. The "deficit" is not a fiscal problem. It is a monetary problem; i.e. related to the way we as a society create, issue and control our money. Prudent budgetary practice is well, but if by the very mode by which our society gets its money it always comes up short in the ability to pay its bills, then no conceivable combination of taxing and spending parameters is going to remedy the shortfall.

Neither McCain or Obama give any indication whatsoever that they understand the true nature of the problem, which is not surprising since almost no other candidate on the American scene in the last half-century has done so either (there was a time when many, and the mass of the electorate, clearly did). The extent to which the economy was addressed in the Saddleback event was disappointingly brief (Obama hardly touched upon it), but the candidates' positions are easily ascertainable from other sources, and the candidates' websites themselves.

So, what specifically is it that the McCain and Obama need to become aware of to be effective with respect to their economic intentions? We will address that in the next column.

Richard Kotlarz

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

Saturday, August 16, 2008


(Week 3 - Saturday Aug. 16)

This week's series of columns about the credit card phenomenon was inspired by an article in Sunday's (August 10) edition of the New York Times titled "Credit Cards Tighten Grip Outside U.S." It was a report on how this American 'innovation' is spreading rapidly throughout the world, to the point where "More than two-thirds of the world's 3.67 billion payment cards circulate abroad."

The article goes on to provide anecdotal tales testifying to both the terrible effects and seeming benefits of this burgeoning trend. I do not dismiss the value of such a discussion, but it overlooks a vastly more fundamental story.

In the second week of this series of columns (particularly #'s 10, 11 & 12), I introduced the idea that the American Revolution was the result most specifically of the British refusal to agree to the colonists' demand that they be permitted to issue their own money through the public sector (the colonial government), instead of having to borrow their money supply from foreign bankers, thereby putting themselves perpetually in "debt" to and under the control of foreign creditors. This was a truly revolutionary concept that, I believe, was the critical factor that enabled the American colonies to bind together and form a powerful nation, while, for the most part, the other former colonial territories became what is today commonly called the "third world," which still struggles to escape its dependency status and ongoing revolving-door "debt."

The American experience demonstrated a shining way out from under the imperialist boot, but, it seems, we as a nation have forgotten our own authentic heritage and gift to the world; i.e. the example of a nation that could truly exercise its sovereignty and freely develop its own potential through assuming the power to issue its own money.

It is perhaps providential that the American monetary system even now reaches out into the world as a transformative force, but it is utterly paradoxical that it does so as the agent for spreading the financial machinery of money creation based on "debt." Even the Times article picked up on the underlying sense of contradiction when it observed wryly, "As the American blessing of credit cards became widespread, so did the American curse of debt."

Most of the article focused on Turkey, a largely Islamic nation that connects the East and West. The Islamic world still holds fast, relatively speaking, to the ancient prohibition against "usury" (using money to make money at the expense of one's fellow man), which is a foundation stone of the Judeo/Christian tradition also.

The people of the Islamic world, as well as other emerging nations, have a rightful interest in sorting out on their own terms how they would choose to adopt, or not, the material blessings of the Western world, but thoughtful consideration of such is increasingly overshadowed by the fact that "moving into the modern world" is effectively accompanied by the obligation to embrace American modes of finance. At this juncture this translates into having to accept virtually whole a system based on usury (as embodied in the private bank loan transaction). To many in the developing world this amounts to a profound betrayal of their deepest values, and seeing everything they hold dear in their lives becoming swallowed up in a tidal wave of commercialism and "debt."

I do not mean this as a blanket proscription against credit card use, or even export. In the right context, they could be a genuine benefit to those who use them wisely (as debit, credit union, and other non-money-issuance cards often are now).

At a time when some of the most powerful financial institutions are struggling to stay afloat, the Times article reports that VISA and MasterCard have become "Wall Street wonders," with VISA recently making the largest stock offering in American history, and the value of MasterCard's shares going up almost 500 percent since 2006, both largely due to their success in expanding operations to foreign lands.

It is an irony of breathtaking (and, dare I say, tragic) proportions that for the nation that fought a glorious revolution to establish in the world the right of a people to issue their own money, perhaps its most "successful" export has become a credit card industry, whose mode of operation is the very quintessence of the private-bank-loan transaction that is driving the world into dependency and "debt."

Richard Kotlarz

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

Friday, August 15, 2008


(Week 3 - Friday Aug. 15)

So far this week I have described the credit card phenomenon as a great engine of money (and therefore "debt") creation that has been handed over to (some say foisted upon) the common citizen, and is pressuring many into an unmanageable "debt" burden. In my view, this remains true, but there is another side.

There is a great loophole in the credit card scheme. That is, if one pays off one's balance in full when the bill arrives at the end of the month, then one does not have to pay any charges for "interest," fees or penalties. That means that by borrowing money from a bank using a credit card, and then paying off the full balance at the end of every month, one is causing to be issued into circulation money on which an "interest" or other charge is never paid (admittedly for only a month, but when multiplied by millions of such cardholders the numbers add up).

This is the only significant source of "interest-free" money currently entering into circulation that I know of, and it comes directly from the use of the instrument of finance that is greasing the slide of the less fortunate and the nation as a whole most speedily into "debt."

This loophole has not gone unnoticed by the banks and credit card companies. In fact, there was talk in the industry about lobbying for legislation that would shut down this obvious free ride, but that has abated largely because its beneficiaries tend to be of the wealthiest and most politically-connected segment of the population. So, naturally, the cost of the system would just have to be borne by those in the middle or near the bottom of the economic totem, especially the one's that experience the need to rely on the card for necessities.

This apparently disproportionate burden would be exacerbated by the passing of a new bankruptcy law (in 2005) that would insure that even the relief offered by that extreme measure would become more expensive and difficult to access.

By the way, the credit card profession has a name for those who pay up their debt every month - "deadbeats." For customers, they very much prefer the late-paying-trying-to-survive-on-their-way-to-bankruptcy"revolvers" (those struggling to make minimum monthly payments). From what I have seen, card-company practices are evidently designed to nudge as many of their "deadbeat" customers as possible into the "revolver" category.

This adds a twist of irony to the words of a credit-card industry spokesman I once saw on TV testifying to a congressional committee about the proposed industry-sponsored "bankruptcy reform bill." He said, in effect, that it was needed to protect their reliably-paying customers from the costs occasioned by the irresponsible behavior of those that were having difficulty in 'meeting their obligations.' (i.e. to protect the "deadbeats" from the "revolvers").

Lest I leave the impression that I am being moralistic, permit me to give the issue another twist. I would say that for those "deadbeats" that can afford to charge on their card and pay off their living expenses every month, let them do it (I did when I could afford it). The money that they bring into circulation thereby will help not only their personal finances, but also serve to bring into circulation the only significant sum of currency in the money supply for which nobody in the society is paying an "interest" charge to keep it there. That could be deemed as a boon to everyone.

To wrap it up let me say that I am not offering anyone moral or financial advice. That is not what I do. What I am trying to accomplish is to draw a picture that will bring into focus the profoundly paradoxical effects and implications of credit card use as currently practiced, and how the credit-card phenomenon is a microcosm of the monetary system itself in the present era. Tomorrow's final column of the week about the credit card will examine what is perhaps the greatest paradox of all.

Richard Kotlarz

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

Thursday, August 14, 2008


(Week 3 - Thursday Aug 14)

There have been many reports in the media which document the financial distress in people's lives that often accompanies the use of credit cards. Is there perhaps, dare I call it, a "redemptive" side of the credit card question? If we can approach our experience with their use with sufficient awareness, it is possible, in my view, that it may yet be turned to good account.

The emergence of credit cards in people's lives can serve as personal view into the inner workings of the financial system. In earlier times people lived a daily existence that was far less immersed in the details of money. The business of banking was some mysterious affair that took place behind the temple-like facade of a building downtown. The average person made only a rare visit there to borrow a few dollars when times were tight. Many lived out there lives without making the trip at all. They mostly grew corn, built their houses and raised their families.

Now we carry around the keys to the banking system itself in the plastic cards in our wallets. At one time, the decision to create and issue money was made by gray men in paneled rooms after sober deliberation. Today, we the consumer routinely cause vast quantities of money to be created and put into circulation very quickly, often on mere impulse, at the cashier's counter. That we don't realize it doesn't change the fact of its occurrence.

If we take care to track the effects of our use of the card through our monthly statements, it is not difficult to see that the high charges for "interest," fees and penalties on that newborn money quickly absorbs future potential buying power, thus creating a self-fulfilling need to create and bring into circulation ever more quantities of money (increasingly not for discretionary items, but for gas and groceries). The vicious cycle of "debt" expansion is thereby accelerated, and its workings laid bare before our eyes.

At length we are drawn into the revolving-door trap of making minimum monthly payments. Now we are working to pay only the "interest," fees and penalties, and making little, if any, headway in paying down the loan. When we finally stumble and fall on the minimum-payment treadmill, bankruptcy is the next step. This financial dead end has been the natural tendency of the money-issuance-by-private-bank-loan principle all along, particularly since its formal institutionalization in the Federal Reserve Act of 1913.

Much economic travail has transpired under its influence, but until recent decades it has been prevented from running completely amok by the humanity of bankers themselves. This will be a strange saying to some, and it is not to suggest that bankers have always been beyond reproach in their dealings (certainly they have not), but it is significant that at the point of the credit card loan transaction (and other practices in modern banking) the banker is no longer there. The human element has been removed, and now it is between us and the machine.

The credit card phenomenon is running amok as one aspect of finance that is conducted virtually completely via electronic means. Both the financial profession and the people it serves have been shoved equally aside, but it is alike in both their interests to get back together and start talking to each other. That is the critical lesson to be learned from our experience with the credit card.

If we have the wit to see it, the credit card crisis constitutes a unique opportunity for people to get a close look into the workings of the adverse principle at the core of the monetary system from their own experience, and come to a reckoning with their own part in it. We all have something to take responsibility for. The respectful dialogue that could rise out of that epiphany is the first step in implementing a solution that goes to the heart of the system.

Richard Kotlarz

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

Wednesday, August 13, 2008


(Week 3 - Wednesday Aug. 13)

I recently watched the Frontline report on PBS titled "Secret History of the Credit Card" (available online). I found it to be a well produced piece that presented the story of this new fixture in our financial lives from its corporate beginnings in South Dakota, to the plastic phenomenon that has spread to every level and niche in society. It was a balanced and well-researched presentation that, as far as I could see, strove to include voices from all sides of the credit card question.

That said, there was one factor that was, to my mind, conspicuously missing. That is that nowhere was it mentioned that when a consumer uses a credit card, he is, in conjunction with a bank, causing new money to come into existence. Nor did I detect any indication that such a thought was even a glimmer in the minds of the producer, or any of the people in the film.

There were experts that offered sober advice about how to use credit cards responsibly. We do live in a time when they appear to be part of our financial lives (for better or worse), so how could one argue against being prudent in their use? I certainly could not. There seemed to be an underlying assumption, however, that if only we could use them "responsibly" we could keep them under control. This seems reasonable if one takes a short term view of the matter. It is problematic if one takes the longer view.

The truth is that any level of usage (assuming one does not pay off one's balance each month before charges apply) unleashes, given enough time, financial pressures into the lives of people (both the cardholders and others) that tend to drive them ever deeper into "debt." This is true especially given the astronomical rates of "interest," fees and penalties that credit card companies tend to charge.

The source of this pressure is, as for all bank loans (which a credit card transaction is), that the money to pay back the principal of the loan is issued with the loan and retired with the payback, but the money dedicated to "interest," fees and penalty payments is recycled through the financial markets and reemerges as yet more consumer "debt." If we are to think through to the end the full implications of credit card use, this is a factor that must be fully taken account of.

None of this is meant as a criticism of the Frontline producers or their show. On the contrary, I thought it was an excellent, informative and entertaining presentation, and I would not hesitate to recommend it to others. I say this despite the fact that this most central element of the credit card transaction went completely unmentioned in the report, and as far as I could tell, unnoticed.

My remarks are intended, rather, as a commentary on the irony of a culture that is utterly immersed in money and "debt," and yet does not see the private-bank-loan elephant in the room. Viewed with fuller awareness, this Frontline documentary can serve, not only as an excellent chance to learn more about the credit card phenomenon, but also as an object lesson for what our culture has become blind to in our financial lives. When we integrate the two, we will start to come to answers about the credit card dilemma.

Richard Kotlarz

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

Tuesday, August 12, 2008


(Week 3 - Tuesday Aug. 12)

I invite the reader to return to the image I drew in yesterday's column of the person paying for a garment with a credit card. The card is swiped through the register and approved in a preprogrammed electronic process, after which a number appears on the monitor. This number represents new dollars that are being created in that moment by the bank that issued the card. The card holder then signs a printed "receipt," which is in reality a contract with the bank by which the cardholder promises "pay back" the money, plus an "interest" charge, if he does not do so in full within the first month.

The new money that was just created ($50 in the case of our example) is passed electronically into the bank account of the store owner, and now becomes part of the funds he has available to pay his cost of merchandise, wages, building rent, lighting, etc. As he does so, that $50 enters into general circulation as part of our public money supply.

Let us assume that the consumer makes other charges to the card on a regular basis. He will receive a statement from the credit card company at the end of each month that lists the amount of each new charge. The total for these items is precisely the amount of new money he, along with the bank, created and spent into circulation by the use of his card.

Looking over the monthly statement, the consumer will also notice that the credit card company is demanding to be paid back considerably more money than it "lent." There would be an "interest" charge that can run as high as 39.99%, plus, likely, other fees and penalties. If he is carrying a significant balance, the cost of these extra charges can mount to a level where he has all he can do to pay only the interest and fees, without reducing the balance owed.

He may elect to make what is noted on the monthly billing as the "minimum payment," which often covers little more that the "interest," plus fees and penalties. On a $10,000 balance this can add up to $300 dollars for the month, which, in turn, diminishes by that sum the amount of money the card holder has available to make payments against the balance owed. Let us suppose, as is common, he falls into the routine of making only the minimum payment month-after-month, and the balance remains essentially the same (even if he does not make any new purchases). He enters what is called in the credit card industry the "revolving door." He makes hefty payments, but makes little, if any, progress on paying down the loan.

The important question for this discussion is, "What are the larger implications of falling into the revolving-door trap?"

In Col. #5 ("Where Does Our Money Go?") I described how, when one makes a payment on a bank loan, it is divided into two parts. One portion of the money is applied to retiring the principal of the loan, and is extinguished. The other passes into the account of an "investor," who has obtained the privilege of receiving the money that is paid in as "interest" by buying the rights to the "debt" contract by which the loan was secured. Such an "investor," typically, will not put that money back into circulation by spending it, but will instead withhold it from circulation until he finds a place to "reinvest it" (i.e. finds someone to re-loan it to). The "interest" payment is thereby transformed into more "debt," and released back into circulation. This constant recirculation of "interest" payments through the "private-investor" mill, then, is the very engine that is driving the economy ever further into overwhelming "debt."

The point to be noted here is that, with the widespread advent of credit cards, the predatory practices associated with their promotion, and the ever more usurious terms of their use, the speed with which we the people are descending into "debt" has quickened to a dizzying pace. What is more, the practice has become so widespread that almost anyone with an economic life in the modern world has engaged in it, increasingly with a degree of regularity. I would pose the question, "How many of us ever take thought of the full implications of what we routinely do so unthinkingly with this one simple act?"

I would hasten to add a caveat. It is not my intention here to make moral judgments about anyone's use of credit cards. Truth be told, I use them also. My purpose is to raise our awareness of what we are doing in this act, as in all financial matters, to the point where we can penetrate to the heart of what is actually transpiring when we perform it. This will, I believe, helps us discover a way to move forward into our economic future with a real solution to our "debt" crisis.

Richard Kotlarz

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

Monday, August 11, 2008

Column #13 The Credit Card Swipe

(Week 3 - Monday Aug. 11)

In Column #3, "Where Does Our Money Come From?", I made the statement that ". . . virtually every citizen of the country has had a direct personal experience of the process by which our money comes into being. Indeed, many of us participate in one or more of its various forms almost daily, and yet remain completely unconscious of what we are actually doing. The process I am talking about is the deceptively simple act of borrowing money from a bank."

This statement begs the question, what form of borrowing money from a bank is so common that many of us participate in it almost daily, and yet remain completely unconscious of what we are doing? It is the act of using a credit card to buy something, or to get cash.

To illustrate, I would invite the reader to imagine a person in a clothing store taking a garment they wish to purchase to the cashier's counter. Let us suppose further that they are using a credit card to pay for the item. The customer will get out the card and swipe it through a register. If the card is accepted, the price of the item (let us say $50) will appear on a monitor. A machine connected to the register will print out a small slip of paper that lists the terms of the purchase. Typically, the customer will sign it, and then go off about his or her business without taking much thought about what has just transpired.

The critical point to take note of here is that the customer has entered into a loan contract with a bank (which is why there are always bank logos on credit cards). This means that the $50 dollars that were used to purchase the garment did not exist the moment before the card was passed through the machine. More precisely, the dollars were not "borrowed," but rather created with the swipe of the card and the pre-programmed electronic process by which the card was quickly approved. Now the $50 does exist (in the retailer's bank account), and the signing of the "receipt" by the customer is essentially the signing of a contract with the bank to whom he or she promises to "pay back" the $50, with "interest" if full payment is not received within a month.

This credit card purchase is one form of the basic bank loan transaction by which our money is created and put into circulation, just as surely as if one had walked into a banker's office to make the application. If the card is used to get cash from an ATM, the transaction is still a bank loan, except the money goes into the pocket of the cardholder instead of the account of a retailer. Technically, there will generally be a middleman involved in the form of the credit card company, and they will charge a fee for each transaction, but this does not change the fact that new money is created every time the card is taken out and used to access purchasing power (It should be noted that this does not apply to debit cards, or credit cards from institutions of deposit (e.g. credit unions) which operate under rules that prohibit them from creating money).

I would pose the query to each of us, "How many times have we gone through the motions of making a credit-card-purchase and not been mindful of the fact that we, along with the bank, were causing new money to be created at the point of transaction?" The answer to this question will give us an indication of the level of consciousness we bring to what we do with money. It will also, in my experience, provide insights into why our financial lives seem to have gotten so out of our control.

In tomorrow's column we will pick up the thread of this thought to see where it leads.

Richard Kotlarz

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

Saturday, August 9, 2008


(Week 2 - Saturday Aug 9)

I can imagine that the line of thought presented over the course of this last week concerning the American experience with money, how it led to the Revolution, and how its lessons are applicable to the problems of the today (particularly those that have to do with the funding of public works), may seem to the reader unfamiliar, to say the least. To bring a greater sense of reality to the discussion, I would reach for the words of prominent voices from our nation's past.

Senator Robert Owen, banker, first chairman of the Senate Committee on Banking and Currency, and widely respected authority on money, explained that when the Rothschild-controlled Bank of England heard of the situation in the Colonies:

"They saw that here was a nation that was ready to be exploited; here was a nation that had been setting up an example that they could issue their own money in place of the money coming through the banks. So the Rothschild Bank caused a bill to be introduced in the English Parliament which provided that no colony of England could issue their own money. They had to use English money. Consequently the Colonies were compelled to discard their script and mortgage themselves to the Bank of England in order to get money. For the first time in the history of the United States our money began to be based on debt."

"Benjamin Franklin stated that in 1 year from that date the streets of the Colonies were filled with unemployed."

Alexander Del Mar (1836-1926), who is considered by many to be the preeminent monetary historian of the 19th century, stated the crux of the matter with great force:

"Lexington and Concord were trivial acts of resistance which chiefly concerned those who took part in them and which might have been forgiven; but the creation and circulation of bills of credit by revolutionary assemblies in Massachusetts and Philadelphia, were the acts of a whole people and coming as they did upon the heels of the strenuous efforts made by the Crown to suppress paper money in America, they constituted acts of defiance so contemptuous and insulting to the Crown that forgiveness was thereafter impossible. After these acts there was but one course for the Crown to pursue and that was, if possible, to suppress and punish these acts of rebellion. There was but one course for the Colonies; to stand by their monetary system. Thus the bills of credit of this era, which ignorance and prejudice have attempted to belittle into the mere instruments of a reckless financial policy, were really the standards of the revolution. They were more than this: they were the Revolution itself."

Finally, perhaps no one stated the matter more prophetically than Thomas Jefferson:

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property, until their children will wake up homeless on the continent their fathers conquered."

I leave the reader with a riddle to ponder: "Why is this quintessentially American debate so conspicuously missing from the public discourse now?"

This rounds out the set of six columns for the week. They were initiated by a first-anniversary looking back at the Minneapolis bridge collapse (and levee failures at New Orleans) to discern why we as a society have somehow not been able to follow through on our widely asserted resolve to never again let the funding of critical public infrastructure lapse. This seeded a discourse that unfolded around the themes of public works, public issuance of money, and the American Revolution.

I will try to pick up on a different line of approach to contemporary preoccupations about money for Monday's column, as the events in the news over the weekend may suggest. The reader is invited to present his or her own burning question(s) and concern(s) to prompt the process.

Thank you for your attentive interest.

Richard Kotlarz

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

Friday, August 8, 2008


(Week 2 - Friday Aug. 8)

When in 1690, the Colony of Massachusetts began to issue the first paper money by any government in the history of the Western world, how must that act have appeared in the hearts and minds those responsible for carrying it out? Did they see it as merely a straightforward common-sense attempt to solve a practical problem, or did they recognize that it as an unprecedented act of defiance towards the Mother Empire that in the end could only lead to an epic contest over the very rights and essence of sovereignty. The power to print money had been fiercely reserved by whoever deemed themselves to be the sovereign throughout the history of civilization, and any challenges over the matter were swiftly suppressed. In fact, British gold coins were called "sovereigns," lest anyone miss the point.

Massachusetts was only one of many colonial dependencies that were being set up by the British and other European powers throughout the world. Some three-plus centuries have passed since then, and the global order, including the old colonial arrangements, have undergone many transformations. It seems, however, that the territories around the globe that were demarcated as colonies still live in the main with a legacy of underdevelopment, dependency and debt.

The primary exception to this is that band of colonies along the Atlantic seaboard in North America that had the temerity, or the wisdom (as one chooses to view it), to issue their own money in spite of imperial edicts, and, incidentally, grew to be the dominant nation of the world for the last century and a half. Is that a coincidence? Was the exercise of their own monetary power the critical factor that allowed the North American colonies to emerge as a strong and independent nation, as opposed to the languishing disunited even until now in a "third-world" condition?

There are, of course, many complex factors that guide history, and we should be careful about being simplistic or dogmatic about attributing too much to any given one. That said, it still might be fairly argued that the extent to which a people picks up and exercises its right to issue and control its own money has been shown to be a preeminent factor in determining whether nor not it eventually is able to achieve its potential as a nation.

Fast forward from colonial times to 2008. The people of Massachusetts again look out on a bewildering world in which many of them see their sovereignty, present well-being, and hopes for the future threatened. The menacing specter is no longer the British Empire and its Bank of England, but rather a globalist corporate order and private bank-based monetary system. We are yet standing a bit too close to the trees to know precisely what to call the forest, and so there are may views on what this all means and how to characterize it.

Whatever the case, it is growing increasingly difficult to not feel overwhelmed by the onrushing tribulations of the times. But, advised Thomas Jefferson, ". . . follow principle, and the knot unties itself." It may not be too late to emulate our forebears and re-plant the seed principle of the public issuance of public money into our common economic ground. From there, as before, "the knot" just may start to untie itself. We can only hope that the Concord Resolution (or inspired initiatives by others across the land) may in our day and time succeed in effectively re-invoking the world-transforming deed and spirit of 1690. It has to start somewhere.

Richard Kotlarz

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

Thursday, August 7, 2008


(Week 2 - Thursday Aug. 7)

As early as 1652, the Colony of Massachusetts had experienced a chronic shortage of circulating medium (i.e. lack of an adequate money supply), and so tried to remedy this situation by opening a mint to strike its own coins. This provided only very temporary relief, as the new coins soon found their way back to London in exchange for manufactured goods. The Colony remained poor and in debt to England, and its early commerce and development were severely stunted.

Then in February 1690, they got the idea for a "radical" solution to this problem. The Colony began to print its own money, called "bills of credit." By July 1692 these notes were declared "legal tender" (i.e. good for paying all debts), and began to circulate freely. These bills became the first government-issued paper money in the history of the Western world. What is more, they were not "backed" by gold, silver, commodities, land banks, mortgage contracts, or other schemes which mainly facilitate control of the system by an elite portion of the population. Rather they were issued publicly, in proportion to the practical need for a money supply, out the natural right of a society to issue its own money, and backed only by the free economic activity of the people of the Colony as a whole.

Massachusetts prospered with its newly printed "scrip" (paper money), and the other colonies soon copied its example. The Crown set itself in continuous opposition to these unapproved issues, and Parliament passed laws in an attempt to curb them. This set up conditions whereby there arose an open and widespread violation of the law, even by merchants and statesmen. Bonds of nationhood began to form, even as the colonist's unapproved currency facilitated its physical development. This, in turn, created an effective training ground for resisting subjugation which eventually found expression in Revolution. According to monetary historian

Steve Zarlenga:

"The skirmishes at Lexington and Concord are considered the start of the Revolt, but the point of no return was probably May 10, 1775 when the Continental Congress assumed the power of sovereignty by issuing its own money."

Ben Franklin served in France as America's first ambassador. When asked about how he could explain the prosperous condition of the Colonies, he replied:

"That is simple. It is only because in the Colonies we issue our own money. It is called colonial scrip, and we issue it in proper proportion to the demand of trade and industry."

We as a society have been subjected to much myth-making regarding the American Revolution. Selected parts have been endlessly quoted and manipulated to promote partial agendas. I would assert that, without sufficient understanding of the central importance of the struggle over who had the right to create, issue and control the colonies' money supply (the public through its elected representatives – vs.- the monarchy through the Bank of England), we cannot comprehend fully the meaning of the Revolution. We need to understand what Franklin meant when he said:

"The Colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the Colonies (the right to issue) their money, which created unemployment and dissatisfaction."

This leads us back to the inspiration behind the Concord Resolution, which I will take up in tomorrow's column.

Richard Kotlarz

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

Wednesday, August 6, 2008

Column #9 The Concord Resolution

(Week 2 - Wednesday Aug. 6)

In the last two columns I have put forth the idea that public money issued out of the U.S. Treasury is the economic, legal and moral way to finance essential public works. This is a concept that is not new to the history of our nation, but it has been forgotten in our time by all but a very rare few.

But now, a vanguard of brave souls in and around the town of Concord, Massachusetts has revived the idea, and is seeking to put it back on the national agenda in the form of an initiative dubbed "The Concord Resolution." This is a grassroots educational and political effort aimed at formulating and bringing to the Concord town meeting a Warrant Article ("resolution" in more common language) to petition the town's Congressional representatives to introduce a bill which would set up a procedure whereby counties and municipalities across the nation could, in an orderly way, apply for interest-free loans issued directly out of the U.S. Treasury to pay for essential public works. This is in lieu of their feeling obliged to sell bonds on the private bond market to raise needed funds.

The problem with the bond method is that it typically causes the financial cost of the project to double or triple due to "interest" payments made to bond dealers and speculators. What the Concord Resolution proposes is the complete elimination of these "interest" fees through the issuance of public money for public works.

The town of Concord is a relatively wealthy community that in an immediate sense stands certainly in lesser need of the money-saving virtues of this proposed measure than others across the nation. Why, then, has the initiative arisen from this particular locale? The good citizens of Concord deserve some recognition for that. They are sensible people who, naturally, do not wish to pay any more money than is right and necessary for their schools, roads, bridges, parks and utilities.

Beyond that, there is a growing realization that this in not only good for building public works and saving taxes in their town, but is indeed necessary to redeeming the crumbling physical infrastructure of the nation as a whole.

Taking the idea a step further, this may be a first practical step to, not only save the cost of the "interest" charges on public works across the nation, but, more fundamentally, to redeem the American monetary system itself. What is more, the fact that this resolution arises from the soil of Massachusetts has profound historical significance. These are bold statements, I know. They will be the topic of tomorrow's discourse.

Richard Kotlarz

Postscript: For more information on the Concord Resolution go to

Tuesday, August 5, 2008

Column #8 Ford & Edison on Financing of Public Works

(Week 2 - Tuesday Aug. 5)

Yesterday I put forth the idea that the natural way to finance essential public works is to create and issue the necessary funds directly out of the U.S. Treasury. This would limit the cost of the project to payment for actual work done, and avoid multiplying the "cost" by, typically, a factor of two or three due to "interest" charges attached to the money. I have often been met with looks of incredulity when I have proposed such a thing. If this is such an obvious method, some say, why is it not talked about all the time in the debates about how to finance public works?

This is a fair question, but it is not possible to do it justice within the limitations of this short missive. I suggest that a fuller answer will unfold over the course of this dialogue. For now suffice it to say that such matters have indeed been debated as part of the great economic heritage of this nation, but we have as a people have virtually forgotten our heritage. It would be easy to invoke a veritable chorus of voices from our past to buttress this argument, but for now the subject is public financing of public works, so permit me to offer the following as a case in point.

During the 1920's Henry Ford and Thomas Edison teamed up in an article in the December 6, 1921 edition of the New York Times to express their views on the monetary system, and to propose that the Federal government issue currency, rather than bonds, to finance the huge Muscle Shoals nitrate plant in the Tennessee River Valley.

Ford asserted:

"The function of money is not to make money but to move goods."

"The youth who can solve the money question will do more for the world than all the professional soldiers of history."

"It is well that the people of the Nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Thomas Edison added:

"If our nation can issue dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good, also. The difference between the bond and the bill is that the bond lets the money broker collect . . . whereas the currency pays nobody but those who contribute . . . in some useful way."

"If the Government issues a bond, it simply induces the money brokers to draw $30,000,000 out of the other channels of trade . . . if the Government issues currency, it provides itself with enough money to increase the national wealth . . . without disturbing the business of the rest of the country. And in doing this it increases its income without adding a penny to its debt."

". . . it is the people who constitute the basis of government credit. Why then cannot the people have the benefit of their own guilt-edged credit by receiving non-interest-bearing currency . . . instead of bankers receiving the benefit of the people's credit in interest-bearing bonds?"

"If the United States Government will adopt this policy of increasing its national wealth without contributing to the interest collector – for the whole national debt is made up of interest charges – then you will see an era of progress and prosperity in this country such as would never have come otherwise."

"And it is the control of money that constitutes the money question. It is the control of money that is the root of all evil."

"There is a complete set of misleading slogans kept on hand for just such outbreaks of common sense among the people. The people are so ignorant of what they think are the intricacies of the money system that they are easily impressed by big words. There would be new shrieks of 'fiat money,' and 'paper money,' and 'greenbackism,' and all the rest of it – the same old cries with which the people have been shouted down from the beginning."

"Ford's idea is flawless. They won't like it. They will fight it, but the people of this country ought to take it up and think about it. I believe it points to many reforms and achievements which cannot come under the old system."

In fact, there is a group of citizens who have taken up the idea and are trying to create an initiative to make public financing of public works a reality. I will pick up on that thread in tomorrow's column.

Richard Kotlarz

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