Friday, October 31, 2008


(Week 12 - Friday, Oct. 31)

In the previous three columns I have attempted to establish a three-part premise to establish a basis for understanding why our children will not inherit the "national debt". It can be enumerated as follows:

#1 – The so-called "loan" from a private bank by which money is created and issued is not a loan in the dictionary or common sense meaning of the term, but is, rather, a process by which money is created "out of thin air".

#2 – Since no money has been loaned, how can there be a resulting "debt"? In truth what is called a "debt" to the banks within the present monetary system results from the creation and issuance of money by a private corporation out of a power that rightfully and constitutionally belongs to the body of citizenry to whom the money is being "loaned". How can We the People be in "debt" to ourselves?

#3 – The compounding fee called "interest" attached to the supposed "debt" created via bank "loans" makes it impossible, even by the rules of the Feds own system, to "satisfy" the obligation so created in a final sense, because when the principal sum of the loan is issued, the money to pay the "interest" is not. The aggregate of "debt" that created the money supply can only be rolled over by continually "borrowing" ever more money into circulation.

Given that the "national debt" is the aggregate of the principal balances of all outstanding bank "loans" (public and private), that such "loans" are not real loans, that the resulting "debt" is not a legitimate debt, and that this "debt" cannot be satisfied in any case due to the compounding "interest" fees attached, how can our children ever pay it?

The straightforward answer is that they cannot, simply because the very idea of a "national debt" makes no sense. It is an abstraction that has no basis in reality. In truth, it is a belief system that the adult world pays tribute to because we think it is real.

The real burden we place on our progeny, therefore, is not in any objective sense some "debt" that they will inherit, but a belief in such. From the time they emerge from the womb, virtually every adult voice in their world is in effective (though not conscious) conspiracy to convince them that their future is already mortgaged away.

If the economic pundits have it right, when a newborn innocent draws first breath he will already "owe" some quarter-million dollars to a supposedly compassionate world that has gone so mad that this abject absurdity is deemed to be hardnosed, bottom-line "reality" from which to reckon his economic future.

But they have a secret; one which even they don't know. It is that the child is not in "debt". His future is not "mortgaged" (i.e. "death pledged") after all. In the economic aggregate there is no such thing as fiscal "debt". Its smoke-&-mirrors "substance" is the usurious bubble attached as a rider at the birth of money itself into the social flow, as alluded to in the private-bank-loan transaction.

All voices in the child's universe - teacher, politician, financier, scientist, psychologist, clergyman, TV personality, parent - conspire to insure that he will be inoculated against the secret; they being not cognizant of it themselves. If the spell is not broken, it will settle upon the youth a yoke of phantom "debt" which in hypnotic stagger he will bear to his grave. Let us resolve now that we disabuse his tender mind of this spirit-crushing bugbear.

Richard Kotlarz

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

Thursday, October 30, 2008


(Week 12 - Thursday, Oct. 30)

In the previous two columns I suggested that nether the "loan" from a private bank by which money is created and issued, nor the "debt" that results, are what the words would purport to mean by the dictionary or common sense meaning of the terms. Moreover, I questioned the very legitimacy of both concepts as they are used in this particular transaction.

Attached to the "debt" is a fee, commonly called "interest", that compounds over time until the "loan" is "paid back". The charging of this "interest" fee is commonly attributed to "the cost of money", but the phrase is not justified. The "cost" in real terms is essentially the small effort it takes to lift the pen and write the check.

If a private person had a checkbook out of which he was able to write checks for any amount with no requirement that there be funds somewhere to draw upon, and, further, he chose to "loan" the money so conjured to people who simply did not have that privilege, would it be proper to say that a compounding fee attached to the use of such funds constitutes a "cost of money" to the person writing the check? While a modest incidental levy might be justified, an "interest" charge can assume such proportions that it can total more than the principal amount of the "loan" itself; often a multiple thereof. It can even result in a revolving-door payment on the "debt", with the principal of the "loan" not being retired at all. Can the fact that a particular group has been awarded control of the spigot that dispenses the economic life's blood of society as a whole be attributable to anything but a disparity of privilege?

Money is the most vital element of the commons. How can it be justified for a private corporation to possess the franchise to create it, while everyone else is obliged to pay a heavy tribute for its use?

But, I hear it said, banks are businesses, and like other businesses they are obliged to pay their expenses and earn a profit. This is true, but most of the expenses of banking are covered by the many fees they charge for their services that are not related to "interest". Why, then, are they justified in tacking on an additional compounding surcharge that requires that the money they create out of essentially nothing be "paid back" in quantities that are often multiples of the amount "loaned"?

Others will say that if banks did not charge "interest", what would be the incentive for them to loan out "their money"? They are not loaning out their money; they are "loaning" ours (i.e. the public's). We should be turning the question around and asking, what is the incentive for We the People to "borrow" at "interest" money that is already ours to create? I would add, why are we not asking this question in sufficient numbers to put the monetary issue on the political agenda?

To be complete, I would note that there are banks that do indeed loan out money on deposit. They are generally referred to by specialized names, such as "savings banks", "savings-&-loans" or "credit unions". What are commonly identified as a "banks" within the Federal Reserve System create new money using funds on deposit (called "reserves") as a baseline from which, within the rules of a mathematical (fractional reserve) formula, they are permitted to create new money to "lend".

The Federal government (i.e. We the People through the Federal government) is supposedly in "debt" to the Federal Reserve for a sum that is currently in excess of $10 trillion dollars. Over a period of time, it will cost the government that much and more in "debt" service payments just to avoid defaulting on the "loan" (without ever reducing the "debt"). Will the Fed really have incurred a "cost" of $10 trillion dollars (as measured by what was needed to cover material expenses and employee wages) in servicing the paperwork on the amount "loaned"?

In the private sector a "loan" of $500,000 might well be sufficient to compensate the architect, suppliers, tradesmen and other necessary contributors to the building of a large house, but does it really cost another $1,000,000 dollars ("interest" and fees) over the period of the "loan" (mortgage) merely to manage the paperwork?

Clearly, there is a grossly disproportionate charge for actual services rendered at the very least. In reality a virtually culture-wide denial is happening in matters of money that is effectively camouflaged by euphemistic language and dubious patterns of thought, which, in turn, have become the words and phrases that we as individuals and as a civilization have available to think with.

What needs ultimately to reckoned with is that, due to the compounding "interest" fee attached to bank "loans", the "debt" of society to the banking system can never be "paid off". Again, to be complete, it is technically possible for the "debt" to be satisfied if the "investors" who bought up the "debt" contracts generated by the banks all forego retaining the "interest" payments collected, and return the money as gifts to the social order. In fact, there is some of this that goes on, mainly in the name of philanthropy, but it is hardly the reason that motivates the majority of the gamblers in the monetary casino. Practically speaking, the "debt" that is attached to the public money supply is unpayable.

How then can our children ever "pay" it? More on that tomorrow.

Richard Kotlarz

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

Wednesday, October 29, 2008


(Week 12 - Wednesday, Oct. 29)

In yesterday's column I offered a description of how the private-bank-loan transaction by which money in the present system is created and issued is not a "loan" in the dictionary or common sense meaning of the term, but is actually a creation-and-issuance procedure by which new money is created when the banker writes the check (or electronically credits the account), and enters into circulation when the "borrower" spends it. The banker is not handing over funds that were on deposit in his bank, but, rather, is bringing an intangible value into existence that is essentially conjured "out of thin air" in a process that could more properly be called "monetization" (the assignment of monetary value to already existent wealth (i.e. collateral)).

By the terms of the contract that the "borrower" is required to sign to get the money, he agrees to take on a "debt" to the bank in spite of the fact that the money could not be properly said to have been a "loan", but rather an assignment of monetary value to the property (collateral) of the "borrower".

It must be asked, where did the bank get the privilege to effectively write the money that created a "debt" which the citizen who applied for the "loan" is obliged to bear? It proceeds from the exclusive franchise to create money granted to a private corporation by the Federal Reserve Act of 1913. The granting to a private corporation of the franchise to create the nation's money supply is unconstitutional because such authority is a legislative power, as stipulated in the Art 1, Sec 8, Para 5 of the United States Constitution (Congress shall have the power to . . . coin Money (and) regulate the Value thereof).

Notwithstanding that they have done so, it is no more justified for the Congress to abdicate this Constitutional mandate than it would be for the President to contract out his executive duties, or the Supreme Court its decision-making trust to a private contractor. President Andrew Jackson stated the matter succinctly in his message to Congress on the occasion in 1832 of vetoing the charter of the Second Bank of the United States (an institution much like the Federal Reserve):

"But if they (the Congress) have . . . power to regulate the currency, it was conferred to be exercised by themselves, and not to be transferred to a corporation. If the bank be established for that purpose . . . Congress have parted with their power for a term of years, during which the Constitution is a dead letter."

In assuming the authority to create money, the private banking system (under the direction of the Federal Reserve) has usurped a power that properly belongs to the citizenry as a whole. That it then "loans" the money so created back to them is an act of civic effrontery that We the People cannot accede to without becoming as a body citizenry accomplices to the act, and at length indentured serfs to the private interests that have been vested with this misplaced prerogative.

The resulting "debt", then, is not a common-sense debt any more than the "loan" that supposedly created it is a common-sense loan. Indeed, the very legitimacy of both concepts must be called into question. There is one more factor in this line of reasoning that needs to be established before it can be stated definitively (in my view) why our children will not inherit the "national debt". That will be the topic of tomorrow's column.

Richard Kotlarz

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

Tuesday, October 28, 2008


(Week 12 - Tuesday, Oct. 28)

Debates about the "national debt" (especially as concerns the Federal "debt") are frequently accompanied by admonitions that we need to deal with our "debt" now so our children will not inherit it. Politicians have been professing a sense of urgency about the matter for decades, and the public has come to expect the familiar rhetoric from them. Their proposals are invariably vague and couched in ideological terms, and, it seems, once whoever is elected assumes office the net indebtedness of the nation continues to snowball, except at an accelerated pace.

The "national debt," both public and private, has continued to mount for decades, across the generations, until now it is simply galloping out of control. We are being subjected to the same promises in this election cycle, but the numbers have gotten so immense that it makes one wonder how anyone can have the temerity to utter such claims anymore. It is as if they can't think of anything else to say.

This situation begs a few questions. What is happening here? What is it about debt that we don't get? What are we doing wrong? Is there no way to turn the fiscal corner and finally start paying this thing down? Are we helpless to arrest the mortgaging of our own children's future?

In my view the concern often expressed by politicians and citizens alike about not wanting to burden our progeny's future with our irresponsible financial profligacy is for the most part authentic. The problem is that our most heartfelt efforts are bringing about the very opposite effect. The irony is that the more we resolve to fix the problem, the more we make certain that this downward spiral into "debt" continues. This is a case of unintended consequences run amok.

We are counseled in holy writ, "Wisdom is the principal thing; therefore get wisdom: and with all thy getting get understanding." (Proverbs 4:7). In not wanting our children to fall into indentured servitude to the moneylenders we have indeed embraced "the principal thing," but as a culture we lack the understanding of how to accomplish it.

To get this understanding, I propose that we start by revisiting the private-bank-loan transaction by which virtually every dollar in circulation comes into being. I ask the reader's patience in that this will require an explanation that will unfold over the length of several columns, but understanding its implications is absolutely crucial to seeing how our children's future can be rescued from the irredeemable "debt" that seemingly threatens to foreclose on it now.

When a person borrows from a bank, the banker does not get the money he is "loaning" from funds on deposit in his vault. Rather, he creates the money with the "writing of a check" (or the electronic equivalent of creating deposits in the borrowers account with a few keystrokes on a computer). In other words, the money did not exist the instant before he "made the loan", but it does now. This is the very moment in which new dollars come into existence within the Federal Reserve System.

Already we can see that the banker is not making a "loan" in the dictionary or common sense meaning of the term. That is, he is not handing over something tangible that he is in possession of, and therefore must now do without until the "borrower" returns it. Instead, he is bringing an abstract value into existence that is essentially conjured "out of thin air." It would be more proper to describe this, not as a "lending", but a "monetization" process. Monetization is the creation and issuance of money as an extension of a commodity that exists and has worth so that it, or goods of equivalent value, can be bought and sold.

The existence of this more accurate terminology notwithstanding, the common practice in the world of banking is to call the issuance from this money-creation process a "loan", which by implication results in a supposed "debt".

(to be continued)

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

Monday, October 27, 2008


(Week 12 - Monday, Oct. 27)

In the last column I posed the question of why the current candidates for President, like almost every candidate for national office in election-cycle-after-election-cycle going back decades, repeats the same mantra about their intention to reduce the Federal deficit by at last reducing "out-of-control spending", in spite of the fact that the Federal "debt" arises from the very process by which money is created and issued in our system (via borrowing money at "interest" from a private banking system), and cannot be effectively addressed within the context of taxing and spending parameters.

In September I had a conversation with Ralph Nader that may shed some light on the riddle. He, of all candidates, has been a strident and knowledgeable critic of the abuses wrought by corporations. I asked him if he realized that a private corporation has been granted a charter (via the Federal Reserve Act of 1913) to issue the nation's money supply, and that it does so by creating and "lending" it out on such terms that our nation as a whole cannot service the "debt" so incurred (due to the attachment of a compounding "interest" fee) without borrowing ever greater quantities of money, and thereby slipping ever further into "debt." I also suggested to him that this private-money-creation franchise was the linchpin of the whole globalist corporate order of which he offers such an impassioned critique, and that the abuses he documents cannot not be effectively resolved until the monetary power is returned to the public sector.

He said that he understood this to be the case. Why, then, I asked him, does he never mention the corporate control of the issuance of the public's money supply in his public pronouncements? He replied that he does indeed mention it in very small gatherings, but he has not found a way to talk about it to the larger public.

From my decades in trying to address the matter in public, I can understand his dilemma. The public's consciousness about money has deteriorated greatly since William Jennings Bryan won Presidential nomination of the Democratic Party for three election cycles after declaring in his famous Cross-of-Gold speech in 1896 that he did not put all the issues he believes in into his platform because: ". . . when we have restored the money of the Constitution, all other necessary reforms will be possible, but until this is done there is no other reform that can be accomplished."

The lesson of this story is that clearly the monetary awareness of the Presidential candidates of the modern era has changed; but so has that of the public. Do the candidates not talk sense on the issue of "debt" because they do not know what is happening, because they are in denial about the facts, or because they cannot find an opportunity in the public discourse to talk about their true thoughts? Is it possible that McCain and Obama have an understanding on this matter that runs deeper than what they are letting on, but feel constrained because, in the current cultural and political climate, any mental processes they might express that fall outside the bounds of the dominant socio/economic/political paradigm (and this would certainly be that) would be interpreted by the pundits and public alike as unintelligible gaffs that would quickly destroy their candidacy? I don't know the answer to that question, but I do know that we need to lay aside the talking points and partisan bombast, and start talking sense with each other on matters of money.

There is an element of cynicism in the country that is convinced that the major candidates are bought-and-paid-for shills of the system, and as such are lying outright to the electorate. I can't prove that that is not so, but the assertion seems to me to be simplistic at best; dangerously irresponsible at worst. I observe that great mass of the electorate, as well as the media pundits that would presume to pose the burning questions of the day in our stead, are themselves virtually universally ready to accept the bromide that it is out-of-control-spending that is causing the "debt", and would likely dismiss any candidate that would dare to suggest otherwise. How, then, could we summarily blame any candidate for not committing political suicide by speaking out?

A more productive course of action, I would suggest, is for each of us to think carefully and self-reflectively through the subject of money for ourselves; always seeking the truth, and leaving aside our pet ideologies, idiosyncratic prejudices and personal interests. From there we can cultivate a dialogue that would bring people together to discuss the subject on a fresh basis. Such an approach would naturally include an invitation for the candidates to join in. This may seem like a futile gesture given the shortness of time before the day of decision and the scope of the issues involved, but it behooves us to look beyond the election. We have to start somewhere.

It has become axiomatic to say that this is a pivotal election cycle, but pivotal around what? If We the People, candidates and voters alike, cannot break out of our habitual unproductive thought patterns concerning the "debt" crisis, I see only precious time lost, and a turn for the worse in our prospects for coming to grips with its monetary cause. But, if we can use the period of heightened public consciousness in the run-up to election day to plant the seed of an authentic dialogue, even if there is not time and opportunity for it to come to fruition by November 4, then truly we can hope to turn the situation for the better. Events are telling us that the monetary matter is urgent, and we have already put it off for too long.

Richard Kotlarz

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

Saturday, October 25, 2008


(Week 11 - Saturday, Oct. 25)

As I listen to the rhetoric of the Presidential candidates, the "big two" in particular, concerning the current "debt" crisis, I hear essentially only one proposed response. There are variations of detail that are put forward with great emphasis to be sure, and buttressed by their supposedly contrasting ideological dispositions, but I find them to be distinctions with hardly any difference. Their common answer goes something like this:

"We as a nation have failed to exercise ethical fiscal discipline, both with respect to the private financial sector, and to government taxing-and-spending. Now we have run up this enormous debt that will have to be paid down by instituting the proper constraints and oversight provisions in the private sector, and reigning in out-of-control government spending. Hopefully, we can avoid the abuses of the past, and ultimately pay this deficit down so our children will not have to."

This response is, in my view, hopelessly unrealistic. If the private sector and/or the government for any reason steps down in their ability and/or willingness to borrow, that means that less money will enter into circulation. Private participants in the economy will find themselves increasingly in the position of being unable to pay their bills as the money supply shrinks. That will put greater pressure on the public sector to do the borrowing needed.

Government will at first experience this pressure in the form of having to cover social needs that are no longer being met in the private sector when people are losing their jobs, health insurance, pensions, homes through foreclosure, ability to meet business payroll, and so forth. The levels of government below the Federal will increasingly look to Washington to help out with their mounting budgetary shortfalls caused by increasing social need and falling tax revenues. The Federal government itself will be saddled with the additional problem of keeping the monetary system going by seeing that the monetary pool on which all phases of the economy depend does not run dry. Like it or not, under the present system that means more borrowing.

Faced with these imperatives, I would ask the Presidential candidates how they expect that this mounting national "debt" crisis is going to be redeemed by reigning in "out-of-control spending." Any attempts to "balance the budget" will be futile given the "debt"-based principle on which the monetary system is founded, and under present circumstances could only result in a catastrophic contraction of the money supply, thereby sending the economy into an imploding spiral.

Politicians have for decades virtually always asserted that the "debt" crisis of the moment can only be brought under control through fiscal restraint, but they have virtually always in the exigencies of the moment felt the need to act in a precisely opposite way.

The "conservative" Reagan and Bush I administrations lifted the economy out of the doldrums of the Carter era by running up record deficits, thereby pumping enough money into the economy to restore "confidence".

This allowed President Clinton to claim credit for bringing down the deficit as the ample supply of circulating medium induced private persons to borrow record amounts of money themselves in a euphoria of "economic expansion", and the government could for a time step down as the borrower of last resort; notwithstanding that the country as a whole, public and private combined, continued to slip into "debt" at an undiminished rate.

By the time the second Bush presidency came along, the ability and willingness of private parties to go into still more "debt" was running out, and another source of credit had to be found. The great engine of "debt-money" creation since then has been the Iraq and Afghan wars.

With the decline of the housing market, the biggest source of private "debt" creation (home mortgages) has contracted to the point where even borrowing to finance the current wars is not sufficient as a generator of new money creation, so earlier this year the government felt obliged to borrow even more money and simply pass it out in the form of "tax rebate" checks (as if there were a surfeit of Federal tax receipts).

Confidence in the system has continued to plummet anyway, and now even bankers are so shaken that they are reluctant to lend. Consequently, our national leaders have been at a loss concerning to how to arrest the collapse of the whole monetary order, except to mount a hurry-up effort to borrow the staggering sum of $700 billion and inject it into the speculative financial industry on the basis of vague assurances from the experts (who guided the ship of finance into this storm) that this desperate measure will somehow redeem the situation for the sake of all the people.

The ink has hardly had time to dry on that bill, and already our representatives in Washington are talking about borrowing yet more money to fund a new "stimulus package". Through all of this the public is assured that the abuses will be stopped because there will be some unspecified details written into these "financial packages" that will assure greater scrutiny and control, plus the taxpayers will get their money back out of the "future profits" of these already failed "investments" that the government will buying up. I don't know what is in the minds of the current Presidential candidates, but surely, given their years of experience in government in which they have seen from the inside the futility of trying to wrestle the "debt" dragon into submission through budgetary variables, they cannot possibly have confidence in what they are saying. What is going on here? I will pick up on that question in the next column.

Richard Kotlarz

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

Friday, October 24, 2008


(Week 11 - Friday, Oct. 24)

I reported in yesterday's column about someone who sought my advice concerning whether she should borrow money from a bank for what she deemed to be a creative, but not strictly necessary, purchase; and thereby take on more "debt" that she, and ultimately the larger society, would have to bear. I recommended that she follow as much as possible the best option available with respect to benefiting life, and let whether that meant borrowing money, or not, take its course.

Our nation has recently passed through a similar point of choice, though on a vastly greater scale. This was in reference to the decision about whether Congress should pass and the President sign legislation by which the Federal government would borrow $700 billion from the Federal Reserve in an attempt to "rescue", supposedly, the failing financial system. Within the context of the present monetary system one could make a case for either course of action.

For purposes of this discussion, I would first make an argument in favor of the measure. There is a chance that such an injection of funds will succeed in restoring a measure of order and confidence in the financial system that, in a nation which has largely lost its local subsistence capabilities, we all depend on literally for survival. Standing by while it implodes is not an option. In addition, the bill will put into play billions of dollars of circulating medium that are sorely needed to expedite essential economic activities that people in many areas of life are looking for funds to accomplish. This runs the gamut from paying mortgages, to financing business activity, to investing in alternative energy, to repairing infrastructure, to hiring school teachers, to providing health care, to getting the homeless off the street, to feeding the hungry, to (fill in the blank). It is inevitable that some of the money will reward speculation and end up financing otherwise unproductive and unethical enterprise, but is that any reason to let economic activity that is in this moment needed for pressing human needs to go unrealized?

Next I would make an argument against the bill. Sure it might restore a measure of order and confidence in the system, but only temporarily, and at what price? Taking on yet another round of "debt" will come down as an additional burden on the already buckling shoulders of the productive participants in the economy, and will in the long run only serve to compound the problem and put it off to a more terrible day of reckoning? Admittedly it will provide a useful injection of currency into the economy, but in the larger picture is it not really cruel to allow a society that is addicted to "debt" one more fix of the very substance that is bringing it down? In any case, much of this supposedly needed economic activity is not "needed" at all. A large share of the money will go to reward usury (using money to make money at the expense of one's brother or sister, instead of acting as a financial partner to expedite genuinely beneficial enterprise), and it is doubtful whether the added level of economic activity financed will be worth the damage done.

Whatever one's view of the choice that was presented, the bill has been passed. My purpose in revisiting the decision is not to second-guess the road taken, but to use it as an example for how we might approach such dilemmas. The nation could not have avoided selecting on outward course of action, but inwardly we must explore what we are evidently doing wrong that causes such mutually problematic choices to be seemingly our only options.

We need to step up out of the to-borrow-or-not-to-borrow catch-22 into a new way of thinking for the future. Right now financiers, pundits, academicians, politicians and other "leaders of public opinion" are for the most part not offering much of a conversation to help We the People do that.

Too often in the political realm, for example, the options are presented as ideological arguments. We can hear this reflected in the debate between the Presidential candidates at present where the rhetoric of one is designed to sound plausible to a "conservative" base, and the other a "liberal."

It is interesting to note that history has shown that once a President is in office, or a party in power, the demands of their new duties dictate that they act a lot less differently with respect to each other than their ideological pronouncements would have one believe. Witness in this case how Senators McCain and Obama strain to highlight supposed differences in their respective approaches to the present financial crisis, but in the end support the essentially the same course of action. This is a tacit recognition that, when it comes to coping with real-life situations, ideologies don't matter. Acting out of one's highest consciousness of what is needed in the moment matters.

What, then, is needed in this moment? It is not recriminations about whether the $700 billion deed should have been done. The real question is what have we gained from this experience that can help up us move into the future? Cleary, the monetary problem has not been solved, but if the "bailout" is "successful" some time has been bought. This time of "crisis" is truly a gift if we know what to do with it. I say this, not in the spirit of taking lightly the suffering that people have experienced through its travail, but in the fervent hope that such sacrifice can be redeemed to good account, and its lessons contribute ultimately to their economic liberation.

This hope will be in vain if we cannot lift ourselves up into a higher plane than the one on which the to-borrow-or-not-to-borrow-$700-billion issue was debated. To be sure, we need to make the best of whatever options present themselves in the exigencies of the moment, but it is imperative to leave dogmatic biases about whether, or not, to take on more "debt" out of the question. A primary lesson of this whole "debt crisis" episode, I would suggest, is that ultimately we have no choice but to get serious about the matter of restoring the monetary franchise to the public domain.

Richard Kotlarz

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

Thursday, October 23, 2008


(Week 11 - Thursday, Oct. 23)

During a workshop I conducted in Wisconsin, one participant posed a question about a personal financial dilemma in which she felt morally torn between the possibility of borrowing money to purchase a 20 acre parcel of land that was contiguous to a like-sized parcel she was living on, or foregoing the opportunity and thereby obviating the need to go to the bank. She had what she felt were a number of moral reasons for wanting to make the deal, but wasn't sure that such factors adequately justified taking on more "debt". Clearly in this case, to borrow and buy would not be a justification-by-necessity act, but she felt that it could be a humanly creative choice. She wanted my advice on whether she should borrow the money and make the purchase, or not. It was a question for which I could not give a direct answer, but could instead offer conversation that might help her in her determination of what course to take.

I suggested that in making her decision, it might be wisest to ignore the monetary implications with respect to whether or not it would cause more "debt" to come into existence. This seemed to her like a strange response, given that I had just delivered a long dissertation about how borrowing money from a bank causes more compounding "debt" to enter the system, which winds up being carried by the society as a whole on a never-ending basis into the future even after one's loan from the bank is technically paid off. This happens because the proceeds from the "interest" payments are typically converted into more "debt" by "investors" who have purchased the right to be the recipients of these payments. They "recycle" these funds back into circulation by loaning them out at "interest", this time without even the benefit of newly created bank money entering the money supply (see Col. #5, "Where Does Our Money Go?").

How, then, does ignoring the monetary implications of whichever course is taken make sense? It is because, monetarily speaking, the "to borrow, or not to borrow" dilemma is really a Hobson's choice (one with two equally problematic alternatives).

On the one hand, if one goes ahead and borrows the money, whatever benefit flows from the purchase that is financed by the loan is compromised by the burden to the individual and society of the "debt" thereby taken on. It should be noted that if the borrowing was done through a bank, the additional money created does continue to circulate through the money supply after the initial outlay, and this, in turn, does provide to the economy always-needed (but never enough) additional circulating medium.

On the other hand, if one does not take out the loan the "debt" burden is averted, but so is the benefit that might have transpired through whatever the money would have paid for. It should be noted that not borrowing also does not cause additional circulating medium to enter the money supply, and so in effect occasions a contraction of the economy relative to the level of activity it could have supported had the loan been made.

There are other nuances to this choice that could be traced out at length, but the upshot is, I believe, that considered as merely a monetary question, the decision "to borrow, or not to borrow" is, as an economist might say, a "wash" (a choice which has diametrically different, but equally offsetting, outcomes). The reasonable course, then, is to make the decision on the basis of the human merits of the case, and let whether or not the trip to the bank is made follow.

In the case of the lady at the workshop who wanted to know whether she should borrow more money to buy the adjacent land, the decision would presumably be based on a comprehensive consideration of the actual physical and human factors involved. To be sure, such deliberations can run deep, and may even extend in the minds of many to spiritual considerations which are wholly out of the domain of calculation, but whatever the case the question is by its nature uniquely personal, and precisely fitted to the actual people, circumstances and unit of time in which it takes place.

This is not to say that the human cost of carrying a resultant "debt" burden is necessarily not a factor that should be weighed in, but the decision in principle about whether to borrow, or not, is another matter.

The long and short of my advice (if I might presume to offer such) is, when making any economic decision, to follow as much as possible the best option available with respect to benefiting life, and let the finances take their course. Ultimately, the monetary system in its current configuration is not sustainable whether people borrow at a high or low rate. The important point is to not let life suffer anymore than it has to due to the pernicious workings of the system in the knowledge that any determination concerning whether or not to take on "debt" arrived at truly will in the short run avail life, and in the long run buy time for people to come to their senses and remedy the flawed foundation upon which the system is founded. That, in my view, is an optimum course of action, however it might play out in detail in any particular case.

The example we have examined here pertains to the finances of one particular person, but how does that relate to the to-borrow-or-not-to-borrow question for society as a whole? That is a question 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, October 22, 2008


(Week 11 - Wednesday, Oct. 22)

The most common question I hear is "What can I do about money?" This is commonly meant in one of two ways, one inward looking, the other outward.

The inward looking is focused on what the inquirer can do to preserve, expedite or otherwise conduct his or her personal financial situation in a way consistent with the greater realities in the world today. The outward is aimed at determining how he or she can act in a way beneficial to the larger economic concerns of the world from his or her own unique position in it.

What I find encouraging at present is that people are asking ever more earnest questions about the nature and realities of money itself. Heretofore, it has been treated more as a given, and the main concern has been to about how to catch one's share of its currents as it passes through from wherever it came, to wherever it goes. Now people are waking up to the more fundamental questions of "What is money?", "Where does it come from?", "What is its effect?" and "What can I do about it?"

I am not a financial advisor, political pundit or ideological proponent, and have no specific answers or moral judgments to render. My inclination is to offer a conversation out of my own experience that can perhaps help others to clarify their own thoughts and feelings related to matters of money, and thereby come to a determination of what in their life is to be done with it.

This is not to say that matters of substantive personal relevance can't be talked about; only that it is incumbent upon each of us to come to our own final determination of what is to be done.

One thing that can be offered of which I have a sense of certainty is that, whatever our disposition with respect to money, any contemplation needs to begin with ourselves. In a phrase, what is called for is "soul searching". My observation is that the human race has a most disorderly and disharmonious relationship to money at present, and virtually every one of us has contributed to, and indeed continues to participate in, the problem. There is no criticism or judgment in this, in that it is a natural stage in the evolution of a soul from innocence to adulthood.

But now we are adults, and are called upon by the demands of maturity to put away childish things.

Like children looking for whom to blame, the public dialogue on our current monetary straits is filled with expressions of accusation, recrimination and denial. If only, so the thinking goes, we could find out who is responsible for this mess, then we could hold them responsible and somehow clean it up. The culprits may include bankers, the Fed, Wall Street financiers, politicians, the "conservative right", the "liberal left", communists, the media, the corporations, the mega-rich, a coddled middle class, the destitute poor, welfare moms, the Chinese, Islamic terrorists . . . The list goes on ad infinitum.

To be sure, people in each of these spheres have played a role, but the realities they live with are never simple. It would serve the situation well to hold the attitude of removing the beam from one's own eye before attempting to extract the mote from the other.

In the modern world we are all economic creatures, and the actions we take, both by commission and omission, have an economic dimension. Even to move to the woods and live like a hermit is a profound economic act. This is a condition of our age, and it cannot be avoided.

The attitude that we are all responsible, then, becomes the starting point for an intrepid introspection that will lead ultimately to a unique answer for each to the question, "What can I do about money?" I will have more specific thoughts to offer on this in the next few columns.

Richard Kotlarz

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

Tuesday, October 21, 2008


(Week 11 - Tuesday, Oct. 21)

In Col. #9 (Wednesday, August 6) I reported about an initiative being undertaken by citizens of Concord, Massachusetts that seeks, in a form suited to our time and circumstances, to recreate the momentous step taken by the Colonial Assembly of Massachusetts in 1690, by which the political body that represented their social order as a whole began to issue the colony's own money supply.

I can imagine that, for the most part, the deed was not contemplated by these loyal British subjects as an act of revolution with respect the England and the Crown, notwithstanding that in time it did indeed lead to a train of events that took on that character. It was more likely conceived of as a straightforward measure that was meant to address a pressing problem of immediate import in a simpler time; the need for a circulating medium. Surely these colonists had little or no sense of the world-changing developments that would unfold from what must have seemed to them to be an audacious, but seemingly limited, act.

We live in a vastly different era, and whatever problems were manifest then are redoubled many times over. That said, we are now, like they were, faced with a stark choice. That is, should we as a society submit to borrowing our money supply from the modern equivalent of the Bank of England (Federal Reserve System) backed by the power of the state, or should it be issued publicly (out of the U.S. Treasury) backed by the sovereign political prerogative of We the People.

The primary advantage we have over our colonial forebears is being able to see the implications of this act as it played out in almost three hundred and twenty years of history. America has been a veritable laboratory for monetary development, and its lessons can now be drawn upon in the interests of serving human evolution, with transformative benefit to the individual, the nation and the world.

The Concord Resolution was originally contemplated as a grassroots educational and political initiative 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 would be in lieu of their feeling obliged to sell bonds on the private bond market to raise needed funds, which typically causes the cost of a project to double or triple due to the "interest" payments associated with the bonds. Presumably, if the idea behind the Resolution caught on across the country, that would open the door for the eventual transformation of the monetary system itself, perhaps within a few years.

What has changed since then is that there is a newly palpable sense of urgency about the condition of our economic life due to the unfolding worldwide financial crisis. I was reminded of this again today as I heard reports in the media that our representatives in Congress are considering a proposal for yet another "financial stimulus" package. This is political speak for having the Federal government borrow even more money, and passing out the proceeds as a way to mollify a citizenry that is smarting over feeling obliged to foot the bill for the $700 billion "bailout" of the "speculative financial industry." All this is after the massive monetary expansion facilitated by borrowing to fund the Iraq and Afghan wars, and the "tax rebates" sent out earlier this year.

The "debt-money system is essentially a confidence game, and confidence on the part of the public, and even the bankers, is hemorrhaging. It seems that there is no amount of new "debt"-money transfusion that can stabilize the situation. I sense that there has occurred amongst the populace a virtual acquiescence to the idea of letting the government and the Fed have their way in taking any they like to patch the system, while being in denial of the terrible price that will have to be paid in the long run for this relinquishing of our responsibility as a citizenry for our own economic life.

Urgency does not mean panic. Our monetary house is indeed burning, but there is still time and opportunity to put out the fire and save the structure essentially intact. The moment is now, however, when we must be about facing what needs to be reckoned with, or the whole question will become catastrophically moot.

Over the last two months what seemed like the revolutionary scope of the Concord Resolution is now shown to be inadequate in the context the financial tsunami that has swept over the global financial order. A more direct and transformative approach is called for. Accordingly, the focus of the Concord Resolution has moved from funding infrastructure, to changing principle by which the monetary system operates; i.e. restoring the monetary franchise to the public sector.

Truth be told, the Massachusetts colonists who in 1690 initiated the first publicly issued paper money in the Western world founded on the free enterprise and backed by the sovereignty of We the People did (whatever may have been their conscious thoughts on the matter) nothing less, and that has made all the difference.

Richard Kotlarz

For more information on the Concord Resolution go to

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

Monday, October 20, 2008


(Week 11 - Monday, Oct. 20)

We the People of the United States need a public money supply with which to conduct our commerce. Under the current Federal Reserve System, our money is issued via loans from a private banking system.

When a private person, corporate entity or government body borrows money from a bank, the banker creates the money he is loaning when he writes the check for the loan or credits the account of the borrower. That is the rule upon which the Federal Reserve System is founded. In a booklet published by the Fed, "Everyday Economics", the section titled "How Banks Create Money" states as its opening sentence -"Banks actually create money when they lend it."

The borrower then goes out and spends that money for whatever purpose he took out the loan to fulfill. The money from the loan (principal proceeds) thereby enters into general circulation.

Over time, the borrower will be required to pay back the loan. The terms of the loan contract, however, will state that he will be required, not only to pay back the money he borrowed, but also pay a compounding fee described as "interest on the loan". A problem arises because the money from the loan entered into circulation and is therefore available to be paid back, but the money to make the interest payments was never created and issued. It can only be obtained by taking it out of the money from other loans that are still in circulation.

This means that there will not be enough money in circulation for others to pay their loans. The only way this shortfall can be coped with in practice is for people to borrow more-and-more money into circulation on a continuously increasing basis, both to service the principal and interest payments on old loans, plus bring enough newly borrowed money into circulation to maintain an adequate money supply. People almost certainly will not think of what they are doing as being motivated by maintaining an adequate money supply, but as the amount of money in circulation drops, people are progressively less able to pay their bills, and so will tend to resort to borrowing from banks to make their financial ends meet, which, in turn, has the effect of filling up the monetary pool.

Eventually, the amount of outstanding indebtedness becomes so great that people are simply not able to pay it, and a wave of financial defaults results. This temporarily relieves pressure on the money supply relative to the amount of "debt" it is being called upon to service, but at great cost in personal trauma to those who are obliged to bear the resultant bankruptcies.

As a domino-like default phenomenon gains momentum, a psychological state takes over whereby people become more prone to consolidate their financial position by paying off old "debts" (as opposed to taking on new "debts"), and even banks become reluctant to create and lend more money. The net effect is that the money supply goes into a contraction, which, if not arrested, can lead to economic depression.

One further effect is that the "investments" (bonds, mortgages and other "debt" contracts) bought up by financial speculators are in jeopardy of becoming worthless paper. Technically this is not really a danger to the economy, as the collapse of such paper would relieve pressure on the existing money supply to service "debt", but it does create a great disorder and confusion of interests because many ordinary people also are significantly invested in "debt" paper (as held in money-market accounts, retirement portfolios and the like). In any case there will be voices from the academic, political and financial arenas that will try to convince the public that their distress can only be relieved by rescuing the "investments" of the "speculative industry".

Complicating the whole picture is the fact that the "fractional reserve formula" that governs the banking system will start to break down, sending the banks themselves into technical "bankruptcy".

The upshot of all this financial mayhem is that there arises a general fear in the populace that the monetary system is in danger of "collapsing" if it is not "rescued" with a massive injection of freshly-borrow private-bank money. In truth there is such a danger, but mainly because widespread belief in such a scenario makes it self-fulfilling. This fear, plus the lack of realization concerning what to do about the situation, is precisely what is driving the headlines announcing a general monetary meltdown at present, and the promulgation of a $700 billion "bailout" plan.

Such a plan may (or may not, if a degree of confidence and order cannot be restored) stave off near total disruption of the economy in the short run, but it will inevitably result in the citizenry taking on an ever greater amount of "debt", in this case indirectly through government borrowing. An increasing portion of tax receipts will be diverted into making more hundreds-of-billions of dollars of "interest" payments on a ballooning "national debt", until even the Federal government will not be able to borrow enough new money into circulation to meet its operating expenses.

The churning of the monetary system will continue amidst increasingly unbearable complications. We live in unprecedented times, and where this all may lead is difficult to envision, but the end thereof, and the rough ride getting there, can only be catastrophic in the extreme.

Turning the leaf over, the remedy to the crisis is simple, straightforward and quintessentially American; that is to restore the authority to create our money to the public sector (as stipulated in Art. 1, Sec. 8, Par. 5 of the U.S. Constitution). Money is created "out of thin air", whether this function is performed by a public body that serves the people as a whole (the U.S. Treasury), or a corporation that serves the interests of private gain at the expense of the whole (the Federal Reserve).

If the public's money is borrowed at "interest" from a private corporation, the social order as a whole cannot help but fall increasingly into "debt" to the financial interests that that corporate entity serves.

If, on the other hand, our money supply is issued publicly out of the U.S. Treasury, We the People issue it to ourselves, and no "debt" of the economy as a whole to private financial interests can result.

This was the very monetary principle the Founding Fathers incorporated into the U.S. Constitution, which would, if reinstated, resolve the crisis of crushing "debt" that is today plaguing individuals, the nation, and the world.

Richard Kotlarz

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

Postscript: I have attached to this column a note from a colleague, Stuart Weeks, who has in many ways played a vital role in helping me to produce these columns. It introduces the matter of possible audience participation in the greater ongoing effort of which the columns are but one part. For my part, I thank you for your considerate interest in the journey through this most critical subject of money so far. (second link listed)

Saturday, October 4, 2008


(Week 10 - Saturday, Oct. 4)

This is the last of the first sixty columns before I, and those readers that have accompanied me on this journey, take a two-week hiatus. I plan to resume the series on October 20. It is time, not only for a chance to catch our breath, but also for inner reflection on what has been said.

The writing has had its satisfactions, but it is a poor substitute for meeting in person. If it were possible I would have each of you in front of me for a face-to-face conversation. That goal is not attainable realistically, but it can be realized in part through voice-to-voice conversation over the phone. Accordingly, I am herein listing my phone number: 218-828-1366 (many of those on my distribution list have it already). I invite critiques, questions and commentaries. I also welcome the many written responses I have been receiving, but often I can see in them subtle, but important, issues of understanding that can only be addressed in voice-to-voice conversation.

The tenor of these articles might, if one is not fully attentive, seem to be a broadside against bankers and banking. Let me be clear; the enemy is not bankers or banking. Rather, it a powerfully perverse principle that has gotten a hold on the human heart and mind. To be sure, bankers have often played their unfortunate part, and the institution of banking has to a great extent been the agent for the devil's work, but they are by no means unique in that status. In this modern age we are virtually all economic players, and have in our own particular niches contributed to the difficult circumstances that are unfolding in our financial life at present. I had intended to speak to greater depth upon this subject, but that idea was overtaken by events in the financial world that had to be addressed.

I have worked at this monetary "obsession" for going-on three decades, and have encountered a receptiveness, and even hunger, that has grown over the years for the conversation about money. There is a palpable impulse for change emerging in the people I meet. Many times the discussion is animated and the demeanor eager. Often, there is a reluctance to let the epiphany of the encounter come to an end. The next time we meet the personal warmth and enthusiasm is still there, but that special moment of recognition of the fatally flawed nature of the present monetary system, and the way out, has not taken root.

I have seen the flame of awakening on the subject of money kindled many times, but it has been, for the most part, a kindling of green wood. It will burn as long as the flame of my or other's speaking in person to the matter is held to it, and perhaps a while after, but the awareness needed for it to sustain itself is not yet arrived, and so it goes out. Still, something remains. A glowing ember from the moment of recognition when the hearer could peer through the veil of the present malaise and see that there is indeed an answer remains deep in the hearer's memory, but is not sufficient to re-kindle the flame on its own.

The time approaches in the progression of human evolution where a living consciousness about money can, and indeed must, be sustained on its own. It has been the conscious purpose of this series of treatises to expedite that transformation. The idea has been to break down a subject that is bewilderingly vast, complex and immersive into daily digestible bites that can be taken in as an antidote to what is, in my view, misguided, misleading and depressing media fare. My hope is that whatever merit is contained in these tomes will serve as lessons that will, over time, season the inner timber of mindfulness on the subject of money.

The success or failure of this initiative will be measured by how much it encourages and inspires people to take up spontaneously the seeking of truth about money in the context of their own life experiences, and their own original thoughts. Only then can the flame of understanding be said to have been lit. From there it can be shared with others until it kindles a mighty conflagration of realization that no force on earth can hold back.

At least that is my idea. If it is my delusion, let it be so, but I can't spend the day worrying about what others think. There is too much to do. The headlines, of late, have sewn a seed of urgency in many I have met or who have contacted me. Humankind has come a long way without coming to a deep realization of "what is money", the sophisticated world-encompassing financial structures we have built up notwithstanding. But the question can no longer be put by. It demands an answer, or fearful forces out of our control will impose one on us.

In my perception, all the signs of the times converge in a worldly sense upon the same reckoning, and that is what to do about money. If we would see it, the very occurrence of the present world financial chaos is a priceless opportunity. Whether we seize upon it for good or ill will make all the difference. I suggest that this is something to contemplate until we resume.

Thank you all for your interest.

Respectfully and lovingly submitted, Richard Kotlarz

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

Friday, October 3, 2008


(Week 10 - Friday, Oct. 2)

In these last three weeks I have heard from voices in the media and people I have conversed with much speculative talk about whether the current financial emergency indicates that we are entering into another "Great Depression" of a nature similar to what the world endured in the 1930's. That such a comparison would arise is natural, given that many of the same factors that attended that crisis seem to be present in this one also. Many elders still living among us have a vivid memory of that time.

People are free, of course, to engage in any musings they feel moved to express, but I would suggest that, absent critical thinking, such speculations are effectively loose talk that pose a danger of becoming self-fulfilling prophecies. The depression of the 30's was a real historical occurrence for which a relatively good picture can be formed. The term "depression", as it is somewhat uncritically used now, is, in my view, an abstraction that can distract our thinking from a real perception of what is happening now, and what needs to be done.

Since the 1930's the world has changed so fundamentally that, I would suggest, the litany of events of that period offers only minimal potential for guidance as to how the current crisis might unfold. To be sure, there are lessons from that episode that need to be learned, but the present crisis is happening in a world that is in many respects so changed as to be almost unrecognizable. The nation was able to survive the Depression of the 30's relatively intact (albeit with great hardship), and emerge stronger than ever on the world scene. In my estimation, such an outcome would not be certain if such a catastrophic monetary contraction were to occur today. Why do I say that?

In the decade of the 30's a quarter of the population still lived on the land, and a farm still, typically, had chickens and hogs for meat, a garden which was augmented by extended storage capabilities (canning & root cellaring), a woodlot for heat, a diverse mix of "organic" crops, simple equipment, and a limited need for cash flow. Farms were still embraced by a network of small rural towns, and communities where people knew and supported each other on a personal basis. This was true also of the town banker.

Now less than two percent of the populace remains on the farm, and the average age of the farmer is about sixty. Increasingly he is no longer an independent operator, but a manager who produces on contract to a corporation. The farmstead chickens, hogs, gardens, woodlots, crop diversity, and simple equipment are virtually gone. The limited need for cash flow has been supplanted by a huge appetite for money to buy seed, fertilizers, fuel, equipment, and other inputs.

The upshot is that if the monetary economy ceases to function to the degree that it did in the 30's, even the few farmer's who remain will for the most part be in the food line almost as quickly as the urban dweller. Where would our food come from? One can easily imagine the implications of such a situation for the cities.

In the manufacturing sector most products have gone hi-tech, and the capacity to produce real sustaining goods has been dismantled and shipped abroad. In the transition a wide range of practical manual and mental skills have not been passed on to the next generation. During the depression of the last century the skills most in demand, even in downtown office towers, were relatively basic. They depended largely on manual and mental dexterities that are rarely practiced anymore. They have been supplanted by highly specialized computer software routines that would be useless as survival skills if the money to finance their capital-intensive workstations stopped flowing.

The big growth area of the last few decades, it seems, has been in the service sector, but many of these jobs are essentially "doing the paperwork" on each other's lives (albeit in a software mode). Now many of these "service" jobs have disappeared to other shores in the endless search for "cheap labor". In any case, the service sector cannot be materially sustaining. We have to produce something. We can survive only so long by selling each other insurance, while borrowing more money to have foreigners make our products and do our work.

My purpose here is not to recite a litany of how much better life was in the good old days, as opposed to how untenable it has become now. Truth be told, many of these changes represent the impelling forces of human evolution, and embody in themselves their own virtues. My point here is simply to say that the times have changed. The economy is now high-tech, high-cash-flow, and global. Hardly anyone survives on their own efforts anymore, or even on the labors of their local, regional or national communities.

The division (or should I say atomization) of labor has become virtually utter, and globally dispersed. Like it or not, in this new socio/economic order people do not work for themselves anymore. They work to do their bit in supplying the needs of others who live often half-a-world away, and whose language they do not speak. The transformed conditions since the time of the last great global economic upheaval I am describing here is, of course, relative, but in essential ways it is effectively a "world turned upside down".

The web of relationships that holds all this together works through the monetary system. If that goes down, unlike in the last depression, we do not have the subsistence capabilities by which a modern civilized society can survive, save at unthinkable human trauma (if even then).

We as a nation, and as a global community, have no good option except to redeem the monetary system by transforming it, if it is not to implode, taking us and our civilization with it. There is an argument that can be made for going for the $700 billion "bailout" in the hope that we can buy some time before the final reckoning, but it is the same self-delusional reasoning that courses through the being of an addict who wants to stave off the inevitable by indulging in his weakness just one more time. The "bailout" may (or may not) keep the system going for a time, but there is no doubt that in the end the price we will pay will be more certain and ruinous for our having put off coming to terms with our addiction to "debt" money.

But, life is a leaf; turn it over. Unless we will it so, this crisis is not the end of the world. On the contrary, it may be our opportunity to step up and emerge into a bright new morning. There has been a lot of tragedy and suffering that has transpired in the course of getting to this juncture, but we can choose how events will unfold from here. Indeed we must.

There is a silver lining of grace in the dark cloud that looms over the financial world right now. The present crisis is not our grim chastiser (unless we refuse to understand it otherwise), but our teacher. If only we could behold the lesson it has to reveal (the necessity of returning, in the spirit of service (not gain), the monetary franchise to the public domain), a breathtaking vision of a new world would open up on the other side.

Richard Kotlarz

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

Thursday, October 2, 2008


(Week 10 - Thursday, Oct. 2)

With respect to the "debt"-based monetary system, we have reached a tipping point, and which way the situation will fall is uncertain. While the productive capacity of the physical economy has virtually ceased to grow (or declined), the economic expansion it has heretofore generated is slowing, and financial ledgers burgeoning with new "debt" can no longer be balanced with new money secured by actual production. That is why, for example, state budgets across the nation have gone from being balanced, or even flush with extra money a decade ago (in my state, Minnesota, they even sent out a rebate to taxpayers), to huge-cash flow deficits now, with little visible sea change in physical reality to account for it.

The stock market is in precipitous decline. Housing prices are no longer supportable in real terms, and are falling. Good paying jobs have been systematically shipped abroad or replaced with minimum wage positions. The newest crop of college graduates, already saddled with student loans and credit card debt, face a declining job market, and will not be able to provide the economy with the upwardly mobile spending impetus that has traditionally driven its growth. People's ability and willingness to go into new debt has in the aggregate been maxed out. Old debts, obligations and entitlements (both private and public) made under expectations of ad-infinitum exponential economic growth are coming due. The environment is being depleted. The infrastructure is crumbling. The baby-boomers are entering retirement.

The net effect of all these factors is that the "debt" load can no longer be serviced adequately with new borrowing within the constraints of the domestic market. Federal Reserve banker John Exter warned, "the Fed is locked into this continuing credit expansion. It can't stop. If ever bank lending slows . . . the game is up, and the scramble for liquidity starts." and "The Fed will be powerless to stop a deflationary collapse once it starts."

Judging by the strident stories in the newspapers, it would seem that the "deflationary collapse" has begun. Clearly there is a danger of such a thing happening, but as a nation and a world, we are entering an unprecedented time and it is difficult to say what scenario might play out.

The proponents of the "rescue plan" may indeed get their $700 billion dollars, and "save the financial system". What that means is that the obligation will be added to the "national debt". This "debt" is a ruse in the sense that it is never paid down anyway, but it does cause a further escalating of "interest" charges to be taken out of tax revenues to "service the national debt"; until, that is, these charges grow large enough to eat up the whole budget, and the government has to borrow every dollar it needs to fund its operations. This is a theoretical extreme, of course, and it is hard to imagine the situation getting to that point before the system breaks down completely.

If the rescue plan, as conceived, were implemented, it would, in the short run, inject a huge fresh stream of cash into circulation. When combined with the fact that a lot of "debt" that the money supply had been supporting will have been wiped out through bankruptcies (mostly in the productive sector), the freed-up "liquidity" (cash flow) may allow the economy to revive for a time. Politicians who voted for the scheme will boast about how it "worked", and the country will be setup for a round of "debt"-money expansion that is more crushing to its citizens than before.

It would certainly not be long, however, before the economy is back at the same impasse. By this time even more massive "interest payments on the debt" will consume public revenues. The productive capacity of the economy would almost certainly have deteriorated due to the supposed need to pour ever greater portions of its financial capital into "servicing debt", more and more buying power would have been lost to snowballing consumer "debt", and we would have become a nation that is even more dependent on living off borrowed money, while those abroad work for inadequate compensation to supply our material needs.

What is more, much greater control will have been invested in a small click of power brokers who would increasingly run our society in exchange for keeping the monetary spigot turned on. Already there are widespread reports in the media of proposals to "reform" or "streamline" the system by concentrating ever more power and authority in the Fed. It will become an unaccountable de facto government to an even greater extent than it is now.

Inevitably, at some point the journey down this path of "compounding-debt" will not be sustainable. The economy will "collapse" anyway. Are we there now, or can the reckoning be put off again until some time in the future? I don't know. Civilization has never been in this position before. In a world in which subsistence skills have been largely sacrificed to the mixed benefits of technology, and mutual global dependency has become the norm, one can only imagine what a "collapse" of the monetary system might look like. I will offer some sobering, as well as hopeful, thoughts on this in tomorrow's column.

Richard Kotlarz

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

Wednesday, October 1, 2008


(Week 10 - Wednesday, Oct. 1)

If one understands the imperative imposed by the private-bank-loan transaction by which our money is created and issued (for participants in the economy in the aggregate to go continuously deeper into "debt"), then the run up to the current financial crisis by can be readily discerned by tracking the major economic swings of the last three decades.

The early stages of the dismantling of the manufacturing base, the Vietnam War, the OPEC oil embargo, the prohibitively high "interest" rates of Paul Volker's tenure as Fed chairman, the "stagflation" of the '70's, and feelings of impotence engendered by the Iranian hostage crisis left the nation with a crisis of confidence that inhibited the people's ability and willingness to borrow money from the banking system.

In the 1980 election, the nation turned to a "conservative" President in the person of Ronald Reagan to reign in the "reckless liberal spending" supposedly at cause for the economic "malaise" of the Carter years, and get the Federal budget back in balance. The Reagan administration responded by racking up record deficits, in the name of a war of course (albeit a "cold war"). Whatever the ideological contradictions, the Reagan era deficits caused massive amounts of new money to be injected into circulation. In the short term this stimulus did work, as the infusion of "debt"-money into the economy (along with Reagan's personable, upbeat demeanor) restored "confidence" in the future, and the citizenry themselves started to make the trek to the bank.

This mood of national self-assurance continued to swell as the U.S. "won" the Cold War, and the Iron Curtain came down. Moreover, with our main enemy no longer on the scene the nation could anticipate an economic "peace dividend". Moderate "economic growth" in the private sector was augmented by another shot of government borrowing as the country was roused to finance the Persian Gulf War during the first Bush administration. As a result, the people of the nation felt relatively flush with cash, and optimistic about the future. This encouraged even higher levels of private borrowing that effectively allowed the government to step down as the engine of "debt"-money creation at the beginning of the Clinton years.

The corporate-inspired economic impetus of the '90's was the development of financial vehicles and training of the public mindset to encourage consumers to go into perpetual "debt". The monetary culture shifted, and hardly anyone paid for anything anymore. The new byword was "cash flow". If one could make the payments on something, one could have it. "Innovative" financial vehicles, from credit cards, to student loans, to financial derivatives, to stock and bond portfolios, to easy credit over the Internet were aggressively promoted. More and more, people leased their cars and other durable goods, or financed them over greatly extended periods. Home mortgages were artificially inflated by the lending practices of Fannie Mae and Freddie Mac against their speculative prospects for being cashed in later at higher prices, as opposed to being paid for in proportion to their utility as dwellings at prevailing wages.

The net result was that for the decade of the '90's, the private sector took on so much new "debt" that it was able to service the overall principal and "interest" payments attached to the money supply, and the government could step down from its roll as the principle bank-money borrower for the economy. This made for a period of "economic growth" (i.e. private "debt" expansion) when most government agencies (Federal, state and local) did not have to resort to "deficit spending" to balance their budgets.

Politicians of the Clinton years boasted about how good the economy was on their watch, and how the "deficit" was finally being brought under control. They made every effort to take credit for the supposed good news, but in actuality they were merely riding a wave they did not understand. Meanwhile, the economy when considered as a whole, public and private combined, continued to slip into "debt" at an undiminished pace.

Alas, the period of reduced "Federal deficits" could not last. The ability and willingness of people in the private sector to take on ever greater quantities of "debt" was largely exhausted. By the time the second Bush Presidency came along another major impetus for "debt" creation had to be found. This appeared in the form of the political will that coalesced around the "war-on-terror" that followed 9/11, and the renewed round of government borrowing that tragic event has initiated.

With the number of "debt" dollars circulating on which "interest" payments needed to be made increasing at an ever faster pace, and even government borrowing for a domestic "war on terror" and foreign wars in the Middle East was not proving to be sufficient to keep the "debt" bubble pumped up, especially given the economic slowdown of the last few years in the private sector.

Then came the housing collapse, first in the sub-prime arena, and now the prime. This has sent shock waves out to other areas of the economy, which are now entering into their own precipitous declines as well.

It became evident that the monetary system could be kept from collapsing only by the government borrowing yet more money and effectively passing it out, with the hope that any political backlash against such bald-faced "debt" creation would be muted by the calming effect of people receiving checks in the mail (which, evidently, was a correct assessment); hence the recent "rebates" sent out to all taxpayers.

It was still not enough. Public confidence is waning quickly, and the "debt" numbers are piling up. So, what is the answer to this crisis that the leadership in Washington has come up with? What else could it be but to borrow at "interest" yet more money from the banking system to redeposit in the banking system, thereby shoring up the collapsing fractional reserve formula? Now they are proposing a $700 billion dollar "bailout" scheme for the speculative financial industry.

Where will this end? The answer is that it won't; not so long, that is, as the private-debt-money system remains in place. There are myriad possible scenarios as to how this crisis could play out, but none that might occur within the context of the present system are, in my view, anything less than catastrophic.

This is doubly tragic because a return to a public monetary system could allow the situation to turn around quickly, and the economy be put on a sound and understandable basis in relatively short order.

Richard Kotlarz

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