New View on Money

CONCORD RESOLUTION, APRIL 27, 2009

2009-04-25T11:07:00.000-07:00

Dear readers of “New View on Money”,

Pasted in below (for those unable to open the attachment) is a note from my colleague, Stuart, on the virtual eve of the introduction of the “Concord Resolution” at the town meeting of April 27 in Concord, Massachusetts. This locale for the bringing of the question of whether money might be issued publicly for the common good is particularly apt, as it was the colonial government of Massachusetts in the year 1690 that became the first government in the Western world to issue its own paper currency. The founding economic principle of a great nation was thus conceived. The “shot heard ‘round the world” at Lexington/Concord gave notice of its birth eighty-five years later. The issuance of the “Continental Currency”, the first national scrip,
commenced barely two months after.

Surely, the likelihood of this untested idea gaining a toehold in the earth, winning the hearts and minds of the People, and eventually transforming their affairs, must have seemed at least as “impossible” to our forebears then as the prospects for “getting the politicians to listen” are to us now; but the Minutemen mustered. How different would history have been if they had given way to cynicism, calculation and despair, and stood down because exercising their sovereign monetary franchise in the face of opposition by the most powerful empire in the world was deemed to be too daunting? Would there even be a nation in America, or only “third-world” enclaves, perpetually in “debt” to a private banking order? In the current financial crisis, has the question of who would issue the nation’s money, in what manner, and for whose welfare been visited upon us yet again?

Rich Kotlarz

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“Listen my friends, and you shall hear,
of the mid-night ride of Paul Revere
On the 18th of April in ’75 . . . .”

Henry Wadsworth Longfellow

Dear Friends,

We write in the aftermaths of Patriot’s Day. Over the last months you have received Rich’s column: “New View on Money.”

On a number of occasions, Rich mentioned our work with the “Concord Resolution”, which seeks to contribute, at long last, to the healing of our financial system, by addressing what we see as the very heart, “life-blood”, of the problem-challenge and, above all, the opportunity facing our nation today.

That is: the renewal of our public works, infrastructure, our foundations in the only longer term way possible: through the redemption of our privately controlled, debt-based, money system.

The resolution has been developed, so as to be adapted and adopted (including its very name e.g. "Kalamazo Resolution") in communities across the nation.

We write to invite you to contribute to this healing process, this process of renewal, by:

1) Reviewing the resolution at www.concordresolution.org

2) If you see not only its merit, but believe it could serve your community or county and are willing to share it with neighbors and friends (both near and far), kindly let us know . . . .

3) ASAP. A brief response before Monday evening, April 27 would be a blessing, indeed. That is when we bring the “Concord Resolution” to Concord’s Town Meeting. If we can report at the meeting that fellow citizens in communities – 5, 10, 15, 20, 30, 50, 100 or more . . . – across the country are, at the very least, turning to the Concord Resolution and beginning to consider its merits, that fact will serve – IMMEASURABLY – our labors here in Concord. I trust that engagement of which I speake is clear.

So it was on that April morn of which Longfellow writes. Reinforcements, Minutemen (aptly named) arrived not only “from every Middlesex village and farm” but from as far north as New Hampshire and Vermont -- a stone's throw, and more, in Colonial Days.

If, friends, there is any time to enact the monetary reform that Rich has been writing about and, I trust, we all seek, this may be it. Such was Congressman Dennis Kucinich’s conclusion following our March meeting with him; such was the feeling, we sensed, that rose in author Doris Kearns Goodwin’s good heart at her parting embrace last week.

An unprecedented window of opportunity opens before us – if We the People are able to rouse ourselves from, and to, our dream. May it be so!

Our heartfelt thanks for your consideration.

Con-corde,

Stuart-Sinclair Weeks
Founder, Center for American Studies
Concord, Massachusetts, USA

“By the rude bridge that arched the flood;
It’s flag to April’s breeze unfurled,
Here once the embattled farmers stood,
And fired the shot heard ‘round the world.”

Ralph Waldo Emerson, Concord Hymn

* * * * *

P.S. The Resolution and Brief Presentation Follow.

CONCORD RESOLUTION

Mr. Weeks moves: that the Town vote to petition its Congressional representatives to submit legislation in order to establish a process, whereby Concord and other local governments will be able to fund their duly authorized public works projects publicly, that is from monies created and loaned directly out of the US Treasury in accordance with the power of Congress to coin money and regulate the value thereof.

Public Loans Directly From Our Public US Treasury, As Opposed to Through the Private Bond Market

Think Globally; Act Locally.

PROS:

Overview:

1) NO RISK, first and foremost:

^ Having given resolution our best, Congress determines its fate;

^ Not tied into that fate. Can stick with bond market.

Locally:

2) Tax relief due to savings of interest on the bonds, totaling $8.5 million 2008-2112.

3) Proceed more readily with duly authorized public works projects;

4) Renewal of our infrastructure/foundation as a community and nation;

Nationally

5) Essential step taken to turn-around economy: return control of our nation’s money supply to our publicly elected representatives, as envisioned by our Constitution: “Congress . . . . shall have the power to coin money [and] regulate the value thereof.”

6) Cornerstone set for a revitalized economy in which money serves people, as opposed to people increasingly obliged to serve money.

Globally: “. . . . And fired the shot heard ‘round the world.”

7) Concord’s legacy carried on in service to our children, generations to come.

To whom much is given, much is expected.

CON:

1) Wasted stamp that sends Concord Resolution to our congressional rep.

2) Other . . . ?

Q: You’re proposing reform of our current financial system?

A: Yes, for reasons:

1) System broken;

2) Worsening predictions;

3) We’re affected, growing distress;

4) Experts increasingly acknowledge they don’t have answer;

5) Someone has to come up with solution;

6) Is not ours a government, as Lincoln said, “of, by, and for the people”?

7) Monetary reform other unavoidable and indispensable side of the public works “coin”. . .

8) . . . . If more than a short-term, self-serving, band-aid approach to infrastructure is sought;

Example: The "shovel-ready projects” digging us into deeper hole/debt. Its stimulus money borrowed from Fed.

Q: Congress can make such loans now if it wants?

A: Yes. And nearly a century of experience since the passage of the Federal Reserve Act has shown that it won’t -- unless We the People speak up.

This conclusion confirmed by our recent visit to 6 Congressional offices. Their responses:

A) Little familiarity with the idea of public funding of our public works;

B) Nevertheless, see that financial system is a mess; self-interest rules, as opposed to the public interest;

C) Immediate sense that “Concord Resolution” onto something fundamental;

D) Express desire to be kept informed;

E) Clear counsel: little possibility without real support from the constituents, us.

Surprise? “When the people lead, the leaders will follow….”

Column #114 RECLAIMING AMERICA'S ECONOMIC PROVIDENCE - April 20, 2009

2009-04-20T07:54:00.000-07:00

We the People:

In Response to President Obama’s Request for Economic Solutions from the Citizenry

RECLAIMING AMERICA'S ECONOMIC PROVIDENCE

“The government [not private banks] should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of the consumers. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government's greatest creative opportunity. By the adoption of these principles, the long-felt want for a uniform medium [of exchange] will be satisfied. The taxpayers will be saved immense sums of interest. The financing of all public enterprises, and the conduct of the Treasury will become matters of practical administration. Money will cease to be master and become the servant of humanity.”

- Abraham Lincoln, as attributed in Senate Doc. 23, 76th Congress

In the providence of Nations, each brings to humankind a gift. It is the destiny of America to establish in the earth a threefold social order to bring, first, a new birth of freedom, second, the rule of democratically determined law, and third, an economic life that nurtures individual liberty and provides for the common good. It is the neglect of this third dimension of the American experience via the abdication by Congress of its Constitutional power to create and issue the public’s own money that is at the root of unprecedented distress in the economic life of the nation, and, by extension, the world.

Accordingly, We the People of these United States, mindful of the hopes and prayers of millions around the world, do resolve to restore the economic providence of the American nation.

In 1690 the colonial assembly of Massachusetts became the first government in the Western world to issue its own paper money. It was based, not on precious metals, debt bonds, land parcels, or other privately controlled “backing” schemes, but on the need for a stable currency issued in proportion to commerce, the general welfare and human dignity. Massachusetts prospered, and its example was copied by its sister colonies. A protracted contention ensued between the American Colonies and the Mother Country to determine who would exercise the sovereign right to create and control the “coin of the realm”, and for whose benefit that power would be exercised.

Representatives of the Colonies gathered at the Second Continental Congress in Philadelphia in June of 1775 and claimed the prerogative of the sovereign by issuing a new currency by fiat of the public will, the “Continental Currency”. A nation was effectively born, and the famed Declaration of July 4, 1776 followed.

Benjamin Franklin stated the root of the matter succinctly: “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.”

The struggle over the control of money was revisited time and again as the new nation evolved. Fateful events transpired around the chartering and eventual rejection of the First and Second Banks of the United States, financing of the Civil War, emergence of the Populist Movement, passage of the Federal Reserve Act in 1913, the money and banking legislation of the Depression era, the “farm parity” monetary reform of the WWII and demobilization period, and the slide into an unbearable burden of private and public indebtedness, which has culminated in the monetary crisis we face today.

Furthermore, there are specific passages established already in the law by which the current monetary distress, can, and indeed is called to be relieved:

On June 4, 1963, President John F. Kennedy signed Executive Order 11110, which invoked “The authority vested in the President by paragraph (b) of section 43 of the [Agricultural Adjustment] Act of May 12, 1933,” passed under Franklin Delano Roosevelt.

This Agricultural Adjustment Act specifically directs the President to take whatever measures he deems necessary to protect the value of the currency of the United States, and states further in Sec. 43, Par. (b) that if he is unable to secure the cooperation of the Federal Reserve Board, or for any other reason determines that additional measures are required, he is specifically authorized:

“To direct the Secretary of the Treasury to cause to be issued in such amount or amounts as he may from time to time order, United States notes, as provided in the Act entitled ‘An Act to authorize the issue of United States notes and for the redemption of funding thereof and for funding the floating debt [bonds against the debt] of the United States,’ approved February 25, 1862. . . but notes issued under this subsection shall be issued only for the purpose of meeting maturing Federal obligation to repay sums borrowed by the United States and for purchasing United States bonds and other interest-bearing obligations of the United States: Provided, That when any such notes are used for such purpose the bond or other obligation so acquired or taken up shall be retired and canceled.”

Taken to its logical end, the effect of this act is to specifically authorize, and indeed direct, the President to redeem Federal bonds with United States Notes as they come due if a stable currency is not achieved under the auspices of the Federal Reserve. It outlines a process whereby the debt of the Federal government can be retired in an orderly manner, and debt-bearing Federal Reserve Notes replaced in the money supply with lawful US currency.

Kennedy’s executive order caused to be issued directly out of the US Treasury over $4 billion in non-interest-bearing United States Notes, in this case Silver Certificates. Further issues were halted shortly after his death.

Significantly, the ‘Act of February 25, 1862’ cited in this 1933 legislation is Lincoln’s original “Greenback Act”, by which he declined to borrow the money to finance the Civil War, and instead issued $450 million in United States Notes. Had he acted otherwise, the debt from that war would remain as a burden of the Federal Government to this day, compounded by interest charges to many times its original amount. Lincoln’s leadership may well have redeemed the Union, on the battlefield, and in the financial arena as well.

The Acts referred to above cite as their authority the power delegated to Congress to “coin Money (and) regulate the Value thereof . . .”, as stipulated in the United States Constitution. They remain the law of the land. Why then, it is fair to ask, are they not being implemented in this time of crisis?

We the People uphold the Constitution of the United States and the intent of the laws derived therefrom. Further, we support President Obama in his promise, stated during his February 24th, 2009 address to the Joint Session of Congress, to do “whatever it takes” to address our current economic crisis.

In the practical spirit of “whatever it takes”, immediate steps can be duly taken (the issuance of United States Notes to redeem outstanding Federal debt) as an emergency measure under the Agricultural Adjustment Act, until a more permanent solution can be effected by repealing the Federal Reserve Act, and returning the creation and issuance of the people’s own money to the public domain through the US Treasury.

Furthermore, the people and physical assets of the Federal Reserve can be incorporated into the Department of the Treasury, where they would continue to assist with administering our nation’s monetary policy, but now subject to the People’s will through our duly constituted system of checks and balances. It is this form of monetary system, we believe, that our most far-sighted and public-spirited Founding Fathers envisioned.

In the spirit of “With malice towards none”, this statement represents, not a condemnation of any segment of society, including bankers (whose due services will continue to be needed). Rather, it seeks to fulfill the American providence to establish a new economic principle on the earth whereby “government of the people, by the people, for the people, shall not perish” from falling under the control of the “moneylender”. It is alike in the best interests of all citizens of our nation, and in these times the world, that such a new economic order be at last established.

“The weight of this crisis”, President Obama stated in his February 25, 2009 address to the Joint Session of Congress, “will not determine the destiny of this nation. The answers to our problems don’t lie beyond our reach. They exist in our laboratories and universities; in our fields and our factories; in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth. Those qualities that have made America the greatest force of progress and prosperity
in human history we still possess in ample measure. What is required now is for this country to pull together, confront boldly the challenges we face, and take responsibility for our future once more . . . , that day of reckoning has arrived, and the time to take charge of our future is here . . . .

So I ask this Congress to join me in doing whatever proves necessary. Because we cannot consign our nation to an open-ended recession . . . . As we stand at this crossroads of history, the eyes of all people in all nations are once again upon us – watching to see what we do with this moment; waiting for us to lead . . . , in our hands lies the ability to shape our world for good or for ill.”

Richard Kotlarz

1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366

richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #113 FINAL THOUGHTS BEFORE TAKING A HIATUS

2009-04-20T07:45:00.000-07:00

(January 30, 2009)

Other commitments bid that this be the last column before I take a two-week hiatus. I plan to resume the series on February 20 (though I reserve the option to send out commentary in the meantime if emerging events call for it). Much has transpired in the world between the last break in October and now. This is perhaps a good introspective winter's time to take what has been said into our contemplations and meditations.

Last fall the economic dispensation of the world changed. Now we are informed in the media daily of the mounting national, and now worldwide, "debt" crisis, the further loss of homes and businesses, and the latest waves of job losses. There have been enough paychecks and other financial resources still in the pipeline to maintain a sense of normalcy through the holiday season, and through the Presidential inauguration. Our attention now turns naturally to the
question, "What will the year ahead bring?" To be sure, the signs are by most reckonings far from positive, but a time of maximum crisis is also a time of greatest opportunity.

I would leave you for now, dear friends, with a note of perspective. In the course of the columns many strong statements have been made. This is not surprising given the vital nature of the subject. I would emphasize, however, (as I have done before) that there are no enemies in the monetary story; only a perverse principle that we, virtually all, have in our own lives and niches become subject to: that is, the idea that life is limited and controlled by money, rather than money being an extension of life. Its effects range from overt thievery, to the most subtle deceptions of the soul. There are none, as far as I know, who have not to some extent at least lived in a glass house on this matter. Who then can cast a stone of judgement? It is altogether fitting then that we move forward with the attitude of removing the beam from our own eye, before attempting to pluck the mote from our brother's or sister's.

Throughout this series of columns I have interjected the American story about money. This is particularly so in the last three installments, where I have drawn out the monetary thread in a manner that reads somewhat like a heroic tale. Indeed, there is heroism in this litany of historical events, but, of course, life is not that simple. There would have been many nuances, contrary weavings and instances of human mendacity along the way, if the truth were fully
told.

My intention is in part to precipitate a new American mythology, which is the story that we tell our children, each other, and the world about who we are and how we got to be this way. I would not, however, that it be a new American jingoism. We as a nation have our unique tale to tell and our contribution to make. Indeed, the case may be made that a new way of doing money is a particular gift that this nation has to offer the world, as part of our "manifest destiny", if you will.

But even in this area, that is not the whole of the story. The evolution of money can be traced back to other times and lands. Some of the thoughts and practices "pioneered" by Americans had significant antecedents of various forms in, for example, ancient China, early classical Greece, the pre-empire Roman Republic and the Islamic civilization of the Middle Ages. The argument over the creation, issuance and control of money in colonial America was in essential ways the coming to a head of a contention that had already taken place in England and France for several centuries, and many of its ideas can be traced from there.

What is more, the American Revolution was not a battle pitting, simplistically, the good guys against the bad. It was, rather, a struggle between heroic people on both sides. This was a soul-wrenching time, and some of the most venerated of our "Founding Fathers" felt rent within by opposing viewpoints, sympathies and loyalties. From a larger perspective, even King George could make a reasoned and passionate argument for his case.

The tenor of these articles might, if one is not fully attentive, be taken to be a screed against bankers and banking. Let me be clear: the enemy is not bankers or banking. In the current monetary crisis is it not true that many banks also are going bankrupt? If I have an attitude regarding the institution of banking, it is not to tear it down, but to see it redeemed for the sake of the People, including the bankers themselves. If we do not engage the financial world constructively, but opt instead for the gratification of comeuppance, we will pull the monetary temple down on our own heads.

In this modern age we are essentially all economic players, and have in our own particular ways and niches contributed to the distressed circumstances that are unfolding in our financial lives at present. Even withdrawing to the woods to live a hermit's life is a profound economic act. Certainly the simple use of a credit card has significant implications, of which we need to become fully conscious if the current "debt" crisis is to be addressed. Let us resolve, then, to take responsibility for our own role in the economic order, and to not blame the other.

In my perception, all the major dilemmas of today converge upon the same question, and that is: "What can we do about money?" Could it be that the outbreak of the present world financial chaos, in conjunction with the belief in new possibilities that seems, for whatever providential reason, to attend the latest change in government in Washington, constitutes a priceless opportunity? I don't know. That question remains for us to answer. I have a feeling, though, that whether we seize upon it in a constructive, as opposed to blame-saying, manner will make all the difference. To be sure, we need to remain discerning and not withhold a critique when it is due, but cynicism holds no power for good. It behooves us always to be mindful of the distinction. There is no reason, in my view, to think that this time of crisis could not be redeemed, and become known to future generations as the year the world finally turned around. I offer this as something to think about, until we reconvene.

Thank you all for your continued interest. I love you, every one.

Looking forward to resuming the conversation,

Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the
following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #112 THE MONETARY PROVIDENCE OF AMERICAN HISTORY

2009-01-26T09:47:00.000-08:00

(Week 25 - Monday, Jan. 26 / 2009)

History, it might be said, is not merely a chain of happenstance, but can be thought of as a meaningful weaving of times, people and events that reveal the workings of providence in worldly affairs. Such is strongly suggested by the American experience. What lesson does it have for us does at this paradoxically auspicious moment of crisis?

Time and again this nation has arrived at a juncture where it was threatened outwardly by affairs seemingly beyond its control. At each such reckoning, I would suggest, it has saved itself by a return to the monetary inspiration that gave it birth.

In 1690, when the seed of what we call the United States was a thin line of struggling settlements along the eastern seaboard, one colony, Massachusetts, became the first government in the Western world to issue paper money. These "bills of credit" were a public scrip whose purpose was to facilitate, not the designs of private interests, but the commonweal of the People. The colony prospered, the practice was adopted by its neighbors, and the beginnings of a new nation germinated.

In 1775, the Crown and Parliament of England had effectively forbidden the Colonies to issue their own money, save with the approval of the Crown and Parliament. This resulted in widespread economic distress, and threatened the undoing of the nascent social order the colonists had painstaking constructed. In response they called a Continental Congress, which then issued a "Continental Currency". This exercise of the monetary power was effectively the assumption of national sovereignty, and the first defining act of a new nation. The political separation heralded by the Declaration of Independence in 1776 followed as a matter of course.

In 1836, the charter for the Second Bank of the United States (modeled after the Bank of England) came up for renewal in the Congress in a bid to become a permanent American institution. It was vetoed by President Jackson whose campaign slogan was, "Bank and no Jackson, or no bank and Jackson". He had asserted:

"The bold effort the present bank had made to control the government, the distress it had wantonly produced . . . are but premonitions of the fate that awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it."

Jackson's veto had the effect of putting off for almost eight decades the day when the country would have "another like it".

In 1860, the United States faced the challenge of whether the ". . . new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal . . . can long endure". Outwardly it was a military conflict between the Union and the Confederate States. On a deeper level, it was a battle over how and by whom money would be created and issued. Financial interests had worked to divide the states between North and South, thereby undermining the American example of a nation made strong and independent through the power to issue its own money. President Lincoln was pressured to borrow the funds to fight the war, but responded instead by creating $450 million in "Greenbacks", a public currency issued directly by the government, much like the Continental Currency. Had he succumbed, this sum would still theoretically be part of the "national debt", but compounded to an amount many times the original. In practical terms it would likely have caused the financial ruination of the nation that was supposedly saved on the battlefield.

In 1896, at the Democratic nominating convention in Chicago, dark-horse Presidential candidate Williams Jennings Bryan declared in his famous Cross-of-Gold speech:

"The gold standard has slain its tens of thousands. If they ask us why we do not embody in our platform all the things that we believe in, we reply that 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 assembled gathering thundered its approval, and on the strength of this position, Bryan went on to win the Democratic nomination three times. This was the high point of the widespread Populist movement that had formed up following the Civil War virtually around the issue of preserving the Greenback as a national institution, and resisting the imposition of a gold standard on money by the banking establishment.

In 1942, the nation was still struggling to emerge from the Great Depression, a collapse brought on, many believe, by the establishment of a monetary system based on "debt" through the Federal Reserve Act of 1913. With the images of battleships burning at Pearl Harbor still fresh in mind, Congress was persuaded to pass the Steagall Amendment to the Stabilization Act of 1942, which established a parity price (one that would cover the cost of production, living expenses and seed for another round) for 45 basic raw materials, including the 25 most basic storable agricultural commodities. The domestic gold standard having collapsed in 1933, the value of the dollar was thus effectively reestablished on the basis of the actual economic worth of real commodities fairly monetized. The result was that the economy roared to life, and continued to prosper even during demobilization, post-war reconstruction, and the Korean War emergency. President Truman even balanced half of his budgets.

Now it is 2009. The legislation that established the "parity dollar" was undone in the early fifties, and the long slide into our present crushing "debt" began in earnest. The current financial crisis is not the first time that we as a nation have faced a threat to our essential well-being, or even very existence. In response to such crises in the past - 1690, 1775, 1836, 1860, 1896, 1942 – the nation saved itself by harkening back to its original monetary inspiration, each time taking the application of the principle a bit higher.

The providential import of this time is being felt across the land, as evidenced by the impulse on the part of millions of people to come together in thousands of gatherings, large and small, in Washington DC and across the nation (not to mention around the world). They are it seems, regardless of partisan feelings, intent on sharing in the momentousness of this week's Presidential inauguration. That being so, a question yet hangs heavy over the land - "What do we do now?"

At this auspicious juncture the nation more than ever needs to return, as it has always done, to its monetary roots for the answer, but, incredibly, we seem to have largely forgotten our own authentic heritage. It needs to be rediscovered, and taken to new heights of realization very soon.

Richard Kotlarz

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #111 RECALLING AMERICA'S MONETARY ROOTS

2009-01-23T16:00:00.000-08:00

(Week 24 - Friday, Jan. 23 / 2009)

History has a rhythm. In the past one can find the prologue of what is coming to pass now.

The early American colonists found themselves economically in a desperate condition. They were essentially stranded on the eastern edge of a vast new land, with bounteous resources, but little money to carry on the commerce required to develop them and provide a new life. Trade with the mother country proved to be a one-sided affair. The raw materials the colonies had to offer were sold cheaply, but imported finished goods were expensive. Without a domestic source of coinage, what few coins the colonies earned in trade quickly disappeared back to England, and they were obliged to sink ever further into debt to keep their economy going.

The colonial assembly of Massachusetts was inspired to come up with a simple, but effective solution to the chronic shortage of circulating medium. In 1690, it began to issue the first government-authorized paper currency in the Western world. It was not based on precious metals, debt paper, land banks, promises to pay interest, or other "backing" schemes, but issued instead to facilitate the commerce of the People. These "bills of credit", as they were called, were simply printed and spent into circulation.

The experiment proved to be successful and was copied by all the other colonies. Eventually, their respective monies began to be recognized and accepted by each other. As trade up and down the Atlantic seaboard increased, these isolated and indentured resource enclaves began to be transformed into a fledgling new nation. When asked about how he could explain the prosperous condition of the colonies, Ben Franklin 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."

The Crown set itself in continuous opposition to these unapproved issues and Parliament passed laws in an attempt to curb them. The Currency Act of 1764 banned the extension of legal tender status beyond certain dates, and England assumed the authority to approve or disapprove any laws the Colonies might pass related to new issues. Its foot dragging on such measures effectively deprived the Colonies of their money, and led to the first two now-uncomprehended justifications for going to war as set forth in the Declaration of Independence, specifically:

(1) - He has refused his Assent to Laws, the most wholesome and necessary for the public good.
(2) - He has forbidden his Governors to pass laws of immediate and pressing importance unless suspended in their Operation till his assent should be obtained; and when so suspended he has utterly neglected to attend them.

Senator Robert Owen, prominent banker and the first chairman of the Senate Committee on Banking and Currency, 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."

Faced with a deteriorating economic situation, and what they felt was British neglect, the colonists called a Continental Congress, and issued the Continental Currency. This differed from earlier colonial monies in that it was an emission of the Colonies as a whole. This act was, essentially, the assumption by the people of American nationhood. 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."

Americans are commonly aware that the establishment of the United States brought to the world a new type of democratic order; i.e. personal freedom under the rule of democratically determined law. What is not nearly as widely realized is that it also represented the establishment of a new economic order. It sought to secure not only freedom and law, but also the means to same; i.e. the control of its own money. This is the all-but-forgotten "rest of the American Revolution".

This was elaborated eloquently in "Harmony of Interests", by Henry C. Cary, who was Abraham Lincoln's economic advisor and the son of Matthew Cary, a close collaborator of Franklin and LaFayette. He stated that there are "Two systems before the world", and proceeds into a lengthy delineation which concludes:

"One looks to pauperism, ignorance, depopulation and barbarism; the other to increasing wealth, comfort, intelligence, combination of action, and civilization. One looks towards universal war; the other towards peace. One is the English system; the other we may be proud to call the American system, for it is the only one ever devised the tendency of which was that of elevating while equalizing the condition of man throughout the world."

And what is this "American system" compared to the "English system"? I describe the former as an economic order based on the sovereign power of a nation to issue its own money, and the latter as the subjugation of society to unpayable "debt" to private interests. It is one of the great ironies of history that, through its privately-issued "debt"-based dollar, we as a nation have become effectively the champion worldwide of the "English system", the very economic order we purport to have triumphed over more that two centuries ago. It seems now that with the advent of the current financial crisis, the final reckoning of which principle we will serve has come upon us in a way that cannot be evaded.

Our forbearers were mindful of what is at stake. Thomas Jefferson had this to say:

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs."

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

John Adams wrote in a letter to Jefferson:

"All the perplexities, confusion, and distress in America arise, not from defects in the Constitution or confederation, not from want of honor and virtue, so much as from downright ignorance of the nature of coin, credit and circulation."

Might this be something for our new President contemplate? How else "Hope"?

Richard Kotlarz

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #110 LINCOLN'S LESSON FOR OBAMA

2009-01-21T05:19:00.000-08:00

(Week 24 - Wednesday, Jan. 21 / 2009)

It takes the events, sacrifices and spent lives of many years to make a day like today. How many years? It depends on how one reckons.

One could say that it took forty years since the murder of Dr. Martin Luther King to finally see a black man rise to America's highest civil office, an Exodus-length time of wandering in a political wilderness towards a civil-rights promised land.

One could say that it has been a century-and-a-half from Lincoln, the "Great Emancipator", to Obama, the "Great Emancipation".

One could say that it was well over two centuries from the penning in our founding document of the words "All men are created equal", to the day when they could resound with an undampened ring.

We could go on with this exercise (get carried away with it, some might say) of casting the net of history ever wider to gather it in as the prologue to what culminated today in the inauguration of our new President. None of this is to say that what transpired in Washington was in a mundane sense anything more than the ensconcing in office of yet another administration, that it might not succeed or fail in the manner of all such political tenures, or even that the right guy won the election (clearly not everyone agrees that that was the case).

Whatever the truth, all that, it seems, was set aside as the feeling of momentousness of this day was allowed to play out. I experienced it in a crowd of approximately three-hundred people who came together to share in the experience in a neighborhood community center, and this sort of event was reportedly repeated in many thousands of gatherings across the nation, and around the world.

I was born and raised in Illinois, the home state of both Lincoln and Obama. I can imagine that there was a sense of historic euphoria that attended Lincoln's day of ascension to the office also, but the nation then, as now, was in a state of deepening crisis, and there were daunting realities to be faced when the festivities were over.

My purpose here is not to in any way make a personal comparison between Abraham Lincoln and Barack Obama, as to do so would be to commit an injustice to both men. Each is his own person in his own unique time, and the achievements and failures of the first say nothing about what might be achieved or failed by the second. Lincoln's record as President has been written; Obama's has yet hardly a mark.

Yet, I find that the feeling of a providential connection between the two men cannot be avoided. Lincoln took office at the leading edge of a crisis that was unprecedented in intensity and scope, and indeed threatened the very existence of the nation. Obama is faced (arguably) with problems every bit as dire and intractable, and this time on a worldwide scale. The outward manifestations of the irrespective challenges are very different, but a common thread runs through them; that is, at their core is the fundamental question of how we as a nation create and issue our money. This indeed has been the quintessentially American question since early Colonial times.

The outbreak of the Civil War demanded that some way of financing it be found. Though under great pressure to borrow the funds from the private banking system, Abraham Lincoln instead had the Treasury issue $450 million dollars in "United States Notes", popularly known as "Greenbacks". The monetary policies of Lincoln are a generally overlooked, but pivotal part of our history. Indeed, they may have been, as much as his better-known proclamations, a crucial factor that allowed the Union to prevail. Reportedly, Lincoln had much to say regarding the public-vs.-private issuance of money which we would do well to contemplate today:

"Money is the creature of law and the creation of the original issue of money should be maintained as an exclusive monopoly of National Government."

"Government possessing the power to create and issue currency . . . need not and should not borrow capital at interest as the means of financing governmental work and public enterprise. The Government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the Government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government's greatest creative opportunity."

"The taxpayers will be saved immense sums in interest . . . Money will cease to be master and become the servant of humanity. Democracy will rise superior to the money power."

Congressman Wright Patman, former chairman of the House Committee on Banking and Currency, commented a century later:

"If instead of issuing 'greenbacks,' the Lincoln administration had issued the interest-bearing bonds, as urged, naturally, these bonds would still be a part of the Federal debt today."

At compounded "interest", the amount would be many times greater. The significance of Lincoln's monetary policy did not escape notice in certain European quarters, although from an entirely different perspective. There appeared in The London Times during the Civil War the following from Otto Von Bismarck:

"If that mischievous financial policy, which had its origin in the North American Republic (the public issue of usury-free currency) should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe."

In 1876, Bismarck explained further:

"The division of the United States into federations of equal force was decided long before the Civil War by the high financial powers of Europe. These bankers were afraid that the United States, if they remained in one block and as one nation, would attain economic and financial independence which would upset their financial dominance over the world. The voice of the Rothschilds prevailed. They saw tremendous booty if they could substitute two feeble democracies, indebted to the financiers, for the vigorous Republic which was practically self-providing. Therefore, they started their emissaries in order to exploit the question of slavery . . . Lincoln's personality surprised them. His being a candidate had not troubled them; they thought to easily dupe a woodcutter. But Lincoln read their plots and understood that the South was not the worst foe, but the financiers."

Lincoln agreed:

"I have two great enemies, the southern army in front of me and the financial institutions in the rear. Of the two, the one in the rear is the greatest enemy."

There is, I believe, a lesson from Lincoln's experience for our new President. It concerns the necessity of returning the function of creating and issuing of our nation's money to the public sector. This is the essential key (as I have touched upon repeatedly) to redeeming the financial crisis the nation currently faces. I am disheartened in the sense that I see few signs of the awareness of any need for this in our new President, but then Lincoln was not an early supporter of the idea either. It grew in him as he became more conscious of the real nature of the monetary problem due to input from others. Surely President Obama has the ability to grow in this way also.

I would add that, in my view, Obama needs not only to finish the monetary revolution that Lincoln started, but to take it to a higher level. That is, he must resolve the fundamental monetary question that has plagued this nation in a way that does not lead to an outward conflict that rends it. I would suggest that this is where We the People can help him, by picking up on the essential conversation that this nation needs to have about money.

Ultimately, the enemy "in the rear" is not the banks and bankers, but a pernicious idea that has been internalized at all levels of our society and culture (the idea that "money is debt"). What is needed is to open up a good-faith, truth-seeking dialogue about money between all segments of society; people of finance included. Only then will we resolve the monetary problem that festers unresolved below consciousness at the heart of our social order. That dialogue is what this New View On Money series of columns seeks to precipitate.

Richard Kotlarz

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #109 VALUE-ADDED MONETIZATION

2009-01-20T07:14:00.000-08:00

(Week 24 - Monday, Jan. 19 / 2009)

In the last column I introduced to this discussion the concept of "value-added", which is an expression used to describe the actual value that accrues to a resource from the earth as it is transformed, at first into a commodity (some would say "raw material"), and thence in successive steps to a finished product that is finally consumed. The value-added process has two parallel streams.

The first is a material stream, which is the series of incremental increases in the material worth of a product-in-the-making that results from the physical and intellectual contribution of each worker in the production chain as it evolves. The second is a monetary stream whereby each worker is compensated according to his net cost of production (i.e. expenses incidental to performing his step in the process), plus receives a profit to cover his living expenses, plus has enough left over monetarily to seed his next round of production.

"Value-added monetization" is the process by which the material and monetary streams of value-added are coordinated. Ideally, the result should be that monetary value accrues proportionally to material value at every step in the production process, and in such a way that it is equitable with respect to the efforts and needs of those who perform the work. The key to making the value-added monetization process work, then, is to maintain this equitable proportionality from raw-material inception to final-product consumption. The key to making this happen is to understand the concept of value-added from both private (micro-economic) and national (macro-economic) perspectives.

"Value-added monetization" in the Private (micro) Economy:

"Value-added monetization" in the private (micro) economy is the process by which the prices of different products relative to each other evolve through the exchange process in the marketplace, given the amount of money in circulation. The price for any given product will tend towards an equilibrium which determines essentially the monetary value-added of each step in the production chain.

To illustrate, if there was a high level of money in circulation relative to economic activity at current prices, then prices would trend upward until a new equilibrium is reached. Economists would describe this upward readjustment of prices to fit the money supply as "inflation".

Conversely, if there a low level of money in circulation relative to economic activity at current prices, then prices would trend downward until a new equilibrium is reached. Economists would describe this downward readjustment of prices to fit the money supply as "deflation".

Ideally, this tendency in the marketplace to seek a new equilibrium has the effect of each product arriving at a price that truly expresses a balance between the material value-added involved in its production, and the monetary value-added that would reflect it. The principle is analogous to the water on two sides of a porous dam seeking its own level. According to whether the amount of currency in the monetary pool is high or low, the material worth vs. the monetary prices of all products will readjust until a new equilibrium is reached.

"Value-added monetization" in the National (macro) Economy:

"Value-added monetization" in the national (macro) economy is the process by which a determination is made of the amount of money to be issued into or withdrawn from circulation that would promote stable prices, given the total activity participants in the economy would be inclined to undertake. The object is to adjust the amount of currency in the monetary pool such that overall prices remain essentially stable. If a good balance between money supply and economic activity is struck, the price that each producer receives for his value-added contribution to the material worth of whatever product he is working with will tend to be predictable, equitable and sufficient.

This description of how the respective value-added monetization processes would correlate with each other from the private (micro) and national (macro) perspectives is, of course, ideal, but in my view the principle is understandable, sound, and practical. Correlation with this principle in the real world can be observed, but it has been very approximate at best. Indeed, it has broken down many times for individual sectors of the economy, and in the current financial crisis, the breakdown has become general. The reason for this is that the national (macro) economic function of creating, issuing and controlling money has been unwisely transferred to a private (micro) corporation. This is an unnatural economic order that breaks the correlation between the micro and macro monetization streams (due to the loss of monetary value-added through the "interest" charge on bank loans), that cannot help but result in the financial troubles the nation, and the world, are experiencing at present.

Richard Kotlarz

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #108 VALUE-ADDED

2009-01-18T12:48:00.000-08:00

(Week 23 - Friday, Jan. 16 / 2009)

In the last two columns I have introduced to this discussion the concepts of "micro-taxation" and "macro-taxation" (taxation, respectively, by governmental bodies who do not, and who do, issue the money being collected). Questions arise as to how rates of micro and macro-taxation might be determined, how forms of taxation we are familiar with (income, property, sales, estate, etc.) fit into the picture, how might issues of equity be addressed, and many others. To create a basis for answering these it is necessary to introduce another fundamental concept into the discussion, "value-added".

"Value-added" is a term that is already common in economics, and is relatively familiar to the public in much of the world as a mode for taxation. This is especially true in Europe where the "value-added tax" (VAT) is the basis of the taxing regime. The idea is expressed by other names in various locales, as for example in Canada and New Zealand, where it is known as the "goods-&-services tax" (GST). The term is relatively less known (but not entirely unknown) in the United States due to the unique way our taxing structure has evolved, but is reflected in a very limited sense in how we think of the "sales tax", as well as the oft proposed "flat tax". All this notwithstanding, these and other expressions have been co-opted in a way that is not wholly consistent with economic reality by the "debt-money" financial culture, so our understanding of the term "value-added", and its derivative expressions could benefit by reconstructing them "from the ground up", so to speak.

Defining "Value-Added" and some Derivative Expressions:

The most fundamental rule of economics, in my view, is that one should think first in images of the actual material and human realities of economic enterprise, and only then add in the factor of money. As an exercise, let us track in our imagination the progress of a product as it emerges from the untapped resources of the earth through to final use.

Before its extraction, an untapped resource has no economic value as it merely lies there in the ground. Presently someone comes along to mine it, pick it, hunt it, fish it, pump it, cut it down, bulldoze it into a heap, or otherwise perform the task necessary to wrest it from the earth. When this raw material is gathered up into a form that can be offered on the market, it has become a "commodity". Someone with a use for it in mind then will buy it as a commodity.

Let us imagine wood that has been given value by a logger in the sense that he has put work into transforming it from standing trees, to logs ready to be picked up for other uses at the landing. This net increase of value is "value-added".

It may happen that the party who shows up to haul away the logs wants them for personal firewood, the additional processing for which he will do himself. This buyer then is the final "consumer". In this case there was only one value-added increment between unrealized potential in the earth (standing trees) and end product (firewood).

More commonly the party who shows up to purchase the logs does not want them for final consumption, but intends to process them into an intermediate product; a more refined commodity, if you will. He may, for example, be a lumberman looking to buy saw logs. He will pay a railroad to transport them to his mill, where he intends to saw them into lumber. From there a lumberyard will buy the lumber, hire a trucker to transport it to their location, and place it on racks where it is more accessible to those who need lumber for their enterprise. Let us further suppose that a contractor buys the lumber and makes it into a house, which is then sold to a consumer who wants to live in it.

If we track the wood from earth-to-log-to-train-to-sawmill-to-truck-to-yard-to-contractor-to-consumer we can easily see that an increment of value has been added to it at each stage of the process. In economic terms, each of these quantum increases are said to be "net value-added", and the sum of all these steps is the "total value-added" of the product.

Note that we have talked through this example so far without any reference to money. We have referred to value-added with respect only to the worth of the product in physical terms. Ideally, money enters the picture as a medium of convenience to facilitate the exchanges required to move the increasingly valuable product along. Each tradesman who performs his necessary task must be compensated according to his net "cost of production" (i.e. expenses incidental to performing his step in the process), plus receive a "profit" to cover his living expenses, plus have something left over for continuing his business.

For practical reasons these value-added increments must be expressed in monetary units. It follows, then, that these successive price increments (net value-added) accruing proportionally to each step in the process determine ultimately the price a consumer would need to pay (total value-added) in order to maintain overall economic equity for everyone who participated in bringing the wood from raw material to final product. I call this process "value-added monetization".

In the next column I will describe more specifically how this "value-added monetization" occurs.

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #107 FURTHER THOUGHTS ON MICRO & MACRO-TAXATION

2009-01-15T05:23:00.000-08:00

(Week 23 - Wednesday, Jan. 14 / 2009)

In the last column I introduced into the discussion the concepts of micro-taxation and macro-taxation, respectively. "Micro-taxation" is the process by which a governmental body that does not issue the currency in which payment for the taxes are accepted obtains revenue to meet its expenses, while "macro-taxation" is the process by which a governmental body that does issue the currency in which payment for the taxes are accepted removes from circulation the excess of currency that builds up in the monetary pool as it spends into circulation the money it creates.

Within the current American system, all taxes collected currently are micro in nature simply because the governmental body (Federal) that would issue the national currency has abdicated that responsibility to a private corporation. For purposes of discussion, I will assume the return of the franchise to create, issue and control the money supply to the national government, unless otherwise indicated.

This represents a radical departure from the way we commonly think about "taxes," especially at the Federal level. It is unfortunate that we use the same term (taxes) to cover both instances. I would suggest that it might be better to call the revenue collected by any level of government that does not issue the money collected as "taxes", and the money being retired from circulation by the Federal government as something else; say, "retirements" or "overflows." To be sure, such a change would take a bit of getting used to, but in my view it is imperative that we reclaim the consistency of our language if we are going establish clear thinking on monetary matters. Establishing unambiguous and descriptive terminology is one way to do it. I would invite anyone out there to see if they can come up with a better term.

In response to the last column, which introduced the concepts of micro-vs.-macro-taxation into the discussion, a reader asks, "what is it that keeps lower government micro-economic units (state county, municipal) from being just extensions of the Federal macro system? That is, why aren't the micro-level government expenses covered by the issuance of monies from the Federal Treasury? Should this be done? Why not make all government (regardless of level) expenses the macro-economic responsibility? What would be the consequences? Why would we, or wouldn't we want to do this?"

These are excellent questions. The key to understanding the answers is to keep in mind the nature of the micro-vs.-macro-economic functions themselves. The task of the macro-economy is to set up, by law, a matrix of rules, definitions and relationships whose purpose is to create conditions that allow the participants in the micro-economy to exercise "life, liberty and the pursuit of happiness" within the fullest possible expression of personal freedom, social equity, and the commonweal.

That said, let us return to the question, "What is it that keeps lower government micro-economic units (state, county, municipal) from being just extensions of the Federal macro system?" I would say that micro-units of government have largely become extensions of the Federal government now, simply because the Federal part of the system is no longer a macro-economic entity, but has become another "business" among businesses.

If there is a distinction to be made, it is that this "Federal business" retains the greatest ability to borrow money, and has therefore come to resemble a huge predatory corporation that swallows up the smaller corporations in an ongoing process of economically forced takeovers (notwithstanding that our government leaders, I have to believe, do not intend such an end). This tendency has accelerated with the current "bailout" process, whereby the Federal government borrows hundreds of billions of dollars to "rescue" (i.e., take control over) smaller corporations. The take-over aspects of the process tend to be obscured by euphemistic language about requiring more "control" and "accountability" in return for the money.

If the monetary franchise were returned to the Federal government, that in itself would distinguish it as a true macro-economic functionary, that by its very nature and operations would preclude its micro-economic participants from being perceived as being "just extensions" of the same thing.

As to the question, "Why aren't the micro-level government expenses covered by the issuance of monies from the Federal Treasury?", if micro-level government expenses were covered by the issuance of monies out of the Federal Treasury, it would cease effectively to be micro-level government. Without the power over their own purse strings, state and local governments would lose their independence and be relegated, in effect, to being budgetary departments of the macro-government. Political appearances notwithstanding, the operating distinction between levels has indeed become blurred due to the Federal government being obliged to provide the money to keep lesser government in operation out of the Federal's greater power to borrow money, which is then disbursed with "mandates" attached.

"Should this be done?" That is a political decision. I suggest that preserving the distinctions between micro and macro levels of government is an indispensable expression of the types of sovereignty (state, municipal, township, library district, etc.) that will organically arise in any society. It is, to put it another way, the critical means for the unfoldment of a free and diverse social order.

"Why not make all government (regardless of level) expenses the macro-economic responsibility?" We could have a national government, and nothing else. That would be the effect of having the Federal government pay for everything, but is that what we as a society want?

"What would be the consequences?" It would mean the hegemony over the entire social order through a single nexus of power.

"Why would we, or wouldn't we want to do this?" Ultimately, it is up to We the People as to whether we would want this or not. The key to answering the question is to become mindful of who we want, or allow, to exercise the money creation, issuance and control power.

We, as a society, have been making the choice for increasing social hegemony exercised out of an ever-constricting circle of control simply because we are letting the monetary question be answered by default out of our own (dare I say negligent) unconsciousness about money.

Richard Kotlarz

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #106 MICRO-TAXATION & MACRO-TAXATION

2009-01-13T06:34:00.000-08:00

(Week 23 - Monday, Jan. 12 / 2009)

There are, in my view, two types of taxation:

One is "micro-taxation," which is taxation by a governmental body that is not issuing the currency in which payments for the taxes are made. Ideally, this would include taxation by states, cities, counties, townships, transportation districts; essentially any level of government below the Federal.

The other is "macro-taxation," which is taxation by a governmental body that is issuing the currency in which payments for the taxes are made. In the American system as currently configured, all taxes being paid are actually micro in nature because the body that creates our money is no longer the US Treasury under the auspices of the Federal government, but rather the private banking system under the auspices of the Federal Reserve. If the franchise for the creation and issuance of our nation's money were restored to the public sector, then the Federal government would by definition be practicing macro-taxation.

Despite their being virtually identical in outward appearance, micro and macro-taxation are very different processes with very different purposes:

The purpose of micro-taxation is to raise revenue for a governmental body that needs a source of money to meet its expenses. In this respect, such bodies are much like other entities that operate in the micro-economic realm (i.e. individuals, businesses and corporations).

The purpose of macro-taxation is to return money that is in excess of the requirements of commerce to the governmental body that created and issued it into circulation via direct spending. Such a body does not need a source of revenue to meet its expenses because it has the power to create money. Currently within the American economic system the only body with the power to create money is the Federal Reserve, but this is a private corporation, not an agency of the government (in spite of what its name might lead one to think). This is why, specifically, the Federal government operates at a "deficit," and can even be said to "run up a debt." Monetarily speaking, it is operating, effectively, as a "business" in the micro-economic realm (see Col. #38 – "The United States as a Business").

I cannot recall ever hearing the terms "micro-taxation" and "macro-taxation" used and/or contrasted explicitly, especially not in a way that that makes clear the respective distinctions between them. I can hardly imagine that they do not exist in the dictionary of economic expressions in some form. After all the major division in the study of economics in academia from the outset is between micro and macro-economics, but even in the many macro-economic analyses and pronouncements I have encountered, taxation has been referred to only in a micro-economic sense (i.e. as a way to raise revenue to pay government expenses).

How, then, can we describe how macro-taxation works? If we had a monetary system whereby currency was issued directly out of the US Treasury, much, most or all of it (depending on legislated public policy) would enter circulation via "government spending" ("public monetization" would be a more accurate expression). This would create a continuous flow of funds into the money supply, or as it is sometimes called, the "monetary pool." If such a buildup were allowed to continue unchecked the amount of money in the monetary pool would, after a time, exceed what was required to facilitate commerce at current price levels, and this would, in turn, cause an unchecked escalation of prices; what is commonly called "inflation." The way to regulate this process is through macro-taxation.

Assuming that the public creation and issuance of money were re-implemented, macro-taxation would serve two main functions:

One is to act as an overflow device for the monetary pool. When money is injected into circulation via Federal spending, the amount of currency in the monetary pool would be allowed to build up to an optimum level. Any excess that enters after that is essentially monetary overflow, and would be drained out of the pool via macro-taxation. The amount of money in circulation, then, can be controlled easily and transparently by adjusting the rate of macro-taxation (essentially the height of the overflow spillway).

The other main function is to provide a way to "renew" the money in circulation. As overflow currency is removed from circulation, it can then be extinguished and reissued afresh as the Federal government needs money. The very idea of extinguishing currency can be experienced as somewhat disheartening, especially given that one has sent in one's "hard-earned money" to pay the tax, but there is actually nothing lost in the process, since it amounts essentially to the entry and deletion of numbers in an electronic ledger.

At length, a balance will emerge within the macro-economy (i.e. the national economy as a whole) between the amount of actual economic activity performed or paid for by the Federal government (the macro-economic entity), as opposed to that performed or paid for by the aggregate of individuals, businesses, corporations and governmental-bodies-below-Federal (the aggregate of micro-economic participants). The percentage of the total attributable to the Federal government essentially determines the macro-taxing rate (percentage of economic activity to be paid as taxes).

This discussion of micro and macro-taxation will be continued in the next column.

Richard Kotlarz

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #105 THE ROOT CAUSE OF "INFLATION"

2009-01-10T05:31:00.000-08:00

(Week 22 - Friday, Jan. 9 / 2009)

The root cause of inflation within the present system is the "interest" charge attached to the private bank loans by which our money supply is created and loaned into circulation. It is really, I suggest, about as simple as that. To be sure, there are secondary factors that exacerbate inflationary tendencies, but these are mainly psychological, and derive from the inexorable effects of charging "interest" on money at the point of issuance. This may seem strange to the modern ear, given the profusion of arcane economic analysis in the media and academia that portrays "inflation" as if it were some insoluble economic phenomenon that we can only hope to keep under control through sound "business" management.

The truth is, in my view, that "inflation" is not some phantasmal monetary lion roaming about seeking what economic chaos it can cause and whosever's wealth it may devour, but rather the straightforward result of something that We the People permit to be done with our money; that is, we permit it to be created and loaned into circulation from a private corporate entity (the Federal Reserve and private banking system) at "interest." When we stop that practice, the fuel will be withdrawn from the "inflationary" fire.

It is true that "inflation" would still be possible under the auspices of a public monetary system if too much money were issued, but that would be an unlikely outcome within a system that was transparently amenable to control. As it is now, "inflation" has plagued this society, and indeed most of the world, as a mysterious specter for the almost-century since "debt-money" was firmly established as the basis of the monetary system, and hardly anyone with significant influence or control within the system seems to know what to do about it.

To understand the root cause of "inflation" we need only look at how a typical bank loan plays out over time. Suppose that an entrepreneur were to borrow money from a bank to build a small factory. The banker would create the money when he writes the check, and the entrepreneur would spend it into circulation when he paid whatever contractors were hired to build his factory.

Let us suppose further that the term of that loan was ten years. That means that over ten years time, the manufacturing firm that was set up in that factory would have to charge enough for its products to earn back the money to satisfy the contract which spelled out the terms by which the loan would be repaid.

If, hypothetically, there were no "interest" charges on the loan, then the amount to be repaid would be only the original principle balance. Under current practices, however, there would be an "interest" charge which would, typically, more-or-less double the amount of money required to be "paid back" over ten years. It is obvious that this doubled "cost" would have to be covered in higher prices charged by the factory for whatever goods it produced. What is more, this increased "cost" is in no way associated with an enhanced material input into the product. Clearly, then, the price of the product will be "inflated" by the "interest" charge.

But the matter does not end there. The money paid to cover the "interest" goes to financial speculators who have purchased "debt"-based financial instruments (loan contracts, bundled mortgages, bonds, etc.) for the very purpose of receiving those remittances. Assuming that they are not going to spend that money themselves, or gift it back to society through philanthropic efforts, they will effectively withhold those funds from circulation until someone borrows them back into circulation. When that happens we say in the current financial culture that these funds were "reinvested," but the overall burden of "debt" borne by the money supply will have been increased without, even, the injection of newly-created money to help bear it. New money will eventually have to borrowed into existence from private banks to help roll over the growing "interest" charge, and this in turn will have to be factored into the "cost" of producing more goods, thus driving up prices.

It should be noted here that under a public monetary system, a given private enterprise may or may not be eligible to borrow money directly, not-at-interest, from the public sector. That would be a matter of public policy. However that is worked out, it is still a fact that the aggregate "interest" burden borne by the participants in the micro-economy would be reduced by whatever payments would have been required to maintain a money supply borrowed from a private banking system in circulation.

In any case, the vicious spiral I have described here has been the very engine of "inflation" in our economy for almost a century. The expectation that prices will continue to rise is, in itself, a factor that insures that "inflation" will continue to roll. This becomes manifest in price structures, wage labor contracts, budgetary expectations and other hedges in the behaviors of participants in the micro-economy as they try to hold their own against what they anticipate as an inflationary tide.

This can go on only so long before confidence in the monetary scheme collapses, and indeed in the current financial crisis the tide is beginning to turn as we enter a deflationary period. This "deflation," is not an orderly reversing of the inflationary process, but rather a traumatic popping of the inflationary bubble. If the present "debt"-based system can be stabilized for another round of "economic growth" (by no means a sure prospect at this juncture), then the "inflation" dragon will rise again.

Originally the Federal Reserve System was proposed to the public as a means of creating a stable circulating currency of constant buying power. What has the ninety-six years of its existence shown? In 1913, the value of the dollar was approximately the same as it had been a century earlier. Immediately after the establishment of the Fed, prices began to inflate on a more-or-less continuous basis until the dollar today is worth only about 1/20 of its original value. This is because the monetary scheme implemented by the Fed is based on issuing money through loans to which a compounding "interest" charge is attached, and these compounding charges for the use of money must be covered as a cost of doing business; ergo "inflation."

In my view, though we as a nation did not adequately realize it at the time, the mode by which money would be created and issued under the Fed made this outcome a virtually forgone conclusion.

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #104 WHY PUBLIC MONEY IS NOT INFLATIONARY

2009-01-08T06:41:00.000-08:00

(Week 22 - Wednesday, Jan. 7 / 2009)

Perhaps the most common question I hear when the idea of direct public funding (as opposed to the issuance of money via private bank loans) comes up is, "What is to prevent all this currency being issued out of the US Treasury from flooding the economy with too much money and causing inflation?"

Public funding, assuming it is done with a minimal level of integrity, is by nature not inflationary. Indeed, it is the practical answer to inflation. It is amenable to being issued in a manner that is direct and proportionate to the actual economic activity monetized.

As with almost any other mode of disbursement, public money is, presumably, not passed out willy-nilly. It is, rather, issued as part of a transparent and orderly monetization process that is coupled with the production of real wealth (e.g. public infrastructure), or the provision of tangible human benefits (e.g. health care). Another way of saying this is that money is emitted as a complement to genuine human enterprise, which is indeed its "backing."

This process could still be abused, of course, but it is hard to imagine it ever becoming as disconnected from economic accountability as with the hundreds of billions of dollars that are being passed out currently to purchase "troubled assets" (e.g. the "securities" attached to already failed ventures) in the present financial crisis. This out-of-control issuance is caused by the supposed need to "keep the banking system from collapsing," which is another way of saying the need to make the "interest" payments on old loans required to maintain money in circulation. The resultant "need" to constantly expand the pool of circulating medium with ever more sums of borrowed money would not exist within a public system, and that, in turn, would remove the essential fuel from the "inflationary" fire.

Much has been made of the supposed tendency for uncontrolled spending by politicians when they get their hands on the public purse strings. Well, for better or worse, they have "their hands on the public purse strings" now.

Furthermore, even if we were to assume the worst concerning the character of our elected representatives, would it be better if they were spending money that had a compounding "interest" charge payable to private interests attached, or funds emitted essentially at no cost directly out of the Treasury?

I seem to recall scandalous reports in the news some years ago about how the space agency NASA had paid $900 dollars for a hammer, and other such outrages. I would ask, would it be better if that hammer were purchased with money issued directly out of the US Treasury, or with funds borrowed at "interest" from the Fed? If it were paid for with money borrowed at "interest" out of the Fed, the $900 dollar price tag would be only the beginning of the cost. The "interest" charge would be added to the Federal "debt," and more money would have to be borrowed by the government to make up for that charge, which would, in turn, cause over time a further compounding of the "debt." In practice, the "cost" of the hammer would always be with us and never cease to mount.

If, on the other hand, the hammer were paid for with money issued out of the Treasury, the "cost" would be $900, and no more. The unjustifiably high price (if indeed it is that) is not a function of the monetary system. It is the result of poor bureaucratic management and lax political control. However inflated the price of an item might be, nothing is gained, and indeed much is lost by purchasing it with money borrowed at "interest."

The problem with the current private system is that it has virtually no transparency. Indeed, the bank-money financial system is a knot of complexity that even the experts cannot seem to effectively penetrate. Instead the public is subjected to endless political promises, partisan ideologies and economic bromides within an intellectual atmosphere that is basically confused. If the public cannot understand how money is being created, issued and controlled, how then can there be accountability? The direct public issuance of money would cut through the lack of transparency, control and accountability, which, in the end, is the key to controlling "inflation."

In the next column I will describe more specifically the root mechanism that currently drives "inflation."

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #103 FURTHER THOUGHTS ON THE "COST" OF HEALTH CARE

2009-01-06T06:01:00.000-08:00

(Week 22 - Monday, Jan. 5 / 2009)

In the last column I talked about how, from a national (macro-economic) perspective, universal health care could be readily monetized ("paid for") to any extent deemed desirable within the limits of material and human resources available to provide it, by the issuance of money directly out of the US Treasury. The very notion that there is a national health care crisis because of a shortage of money is contrary to any real economic logic. That this idea even exists, and has moreover gained an iron grip over our culture's economic mindset, is largely attributable to the fact that our thoughts have been so taken over by the notion that our money supply must be borrowed into existence at "interest" from a private banking system that we have lost the ability to think in any other terms.

Let me state this emphatically so there can be no confusion. THE VERY IDEA THAT THE NATION IS LIMITED IN PROVIDING HEALTH CARE TO ALL ITS CITIZENS DUE TO A LACK OF MONEY IS AN ABSURDITY. This country possesses the macro-economic ability to issue its own money and thereby provide the circulating media necessary to finance its own health care to whatever extent is deemed appropriate. The task that remains, then, is to issue such funds in a quantity and mode that is optimal to make them accessible in the micro-economy to the people who need health care and the people that can provide it. This is essentially a matter of good monetary management.

The real limit to health care, then, is the availability of the material and human resources to meet the need. Such resources do entail a material and human cost in their development, but from a macro-economic (national) perspective the work to develop and employ them is something to be monetized (money issued on the basis of such activity). It is never a monetary "cost." That we are suffering as a society over a supposed lack of funds to take care of people is tragic and unnecessary. We will not, I suggest, resolve the cost-of-heath-care crisis until we wake up to that.

All this said, a caveat is in order. The assurance that health care services can be offered readily to all members of the society without any serious monetary impediment has the potential to be an immense blessing, but also carries with it a danger. The conscious taking hold by our society of our monetary prerogative unleashes a power into human affairs that has not been fully present heretofore. That is, the very ability for society to "monetize at will," so to speak, anything it decides to do up to limits of its material and human capabilities means, among other things, that we could created a "medical monster" that would have a virtually limitless powers for good, or oppression. A medical establishment could be conjured that would assume vast control over people's body's and minds, and, in a manner of speaking, "put everyone on meds." Increasingly, misgivings are voiced concerning the supposed intrusiveness, abuses and inappropriate influence of the medical system we already have, even by professionals within the system.

That said, I think one would find it difficult to deny that the medical discipline has provided many benefits, including extraordinary life-saving services. Regardless of how corrupted one might think the medical system has become, it is hard to imagine any but the most fanatical detractor (or perhaps most extraordinary person) turning down critical intervention at their own point of crisis.

My purpose in bringing this up is not to join the debate over the vices or virtues of this or that medical regime, but to suggest that such matters ought to be decided on their actual merits, free of being influenced unduly by the imperative to grow the medical economy to service the "interest" payments on bank-issued money.

Within a society that fully recognized its own power to provide the funds for any type and degree of health services it so chose, whether directly (as in a government paid system), or indirectly (as in insuring through public policy that there is enough money in circulation to enable people to manage their own medical finances), the possibility of developing diverse health regimens that are taken on their true merits and available to everyone who could benefit from them would at last be realizable.

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #102 THE "COST" OF HEALTH CARE: MICRO VS. MACRO

2009-01-03T06:23:00.000-08:00

(Week 21 - Friday, Jan. 2 / 2009)

A debate has been raging for years as to how to make health care available to all the people of the nation, including the tens-of-millions of uninsured. Virtually everyone agrees that this is a need that should not go unmet for any human being, but finding a way to get it done seems to have eluded us. At one pole of the argument there are those who say that health care is an individual responsibility, the obtaining of medical services should be left up to personal initiative and the workings of the marketplace. Others assert that it is a human right that ought to be written into the Constitution.

Whatever view of a solution one might hold, it will invariably be centered around the question of how and by whom the spiraling "cost" of health care will be paid. Increasingly doubts are expressed as to whether health care for all is ultimately "affordable."

The existence of such doubts indicates a lack of awareness on the part of the citizenry that there is both a micro and macro-economic dimension of money, and of the respective characteristics and virtues of each.

From a micro-economic perspective, there is indeed a financial cost associated with health care because a source of revenue for employing medical resources must be found.

From a macro-economic perspective, however, there is not a financial cost associated with health care; only a question about much money to create and issue to assure that there is enough in circulation to pay for it.

Stated more succinctly, from a micro perspective health care must be paid for, but from the macro health care is monetized. The way this would ideally play out in practice is as that at the macro-economic level, the social order (through the Federal government) would look out over the society and discern what material resources are available to meet the health care needs of its members, and then formulate a picture as to how ideally they might be utilized. The Congress would then pass legislation that instructed the Treasury to issue money in sufficient quantity that this monetization picture could be realized in actuality.

The ability of our society to fully fund health care to whatever extent it decides is optimal within context of the material and human resources available is thus assured. The notion that the citizens of this country cannot "afford" medical services to the limit of the actual means available to provide them is economic nonsense.

In a micro-economic sense, health care carries with it a financial cost. In contrast, on a macro-economic level the activities associated with health care constitute the very basis or "backing" of the money required to fund them. Stated another way, on the micro level, medical care costs, but on the macro it pays for itself. The key, then, is to cover the micro costs from money issued at the macro level.

For example, to whoever is managing a hospital's budget, a doctor seeing a patient appears as a financial cost for which funds must be found. From the national perspective, however, that same doctor and patient coming together appears to the government, not as a "cost" to be paid for, but as economic activity for which money can be issued. Indeed, any bringing together of human need with the resources to meet it is the very basis for issuing money. It need only be done in an amount that is commensurate with the level of activity to be monetized.

In the light of this understanding, the way out of the nation's health care crisis is this: The Congress would authorize the issuance of money on the macro-economic level according to its Constitutional power to "…coin Money (and) regulate the Value thereof" in such quantity that the extent of enterprise that would naturally emerge in the health-care field if money were not a limiting concern could go forward. This could be accomplished in either of two ways.

One is that medical services could be paid for directly by the Federal government out of funds created for that purpose. This would resemble in appearance the mode of funding commonly referred to as "single payer," as often advocated by the liberal perspective in current political discourse.

The other is that an adequacy of funds to pay for health care could be assured indirectly through the Treasury maintaining sufficient money in circulation to finance whatever level of commerce would naturally occur in the economy, health care included. This would put a larger responsibility on people to manage their own medical-related finances, as is favored by the more conservative side of the political spectrum.

In reality elements of both approaches would almost certainly be employed. Regardless of the details of how that might be worked out, the important thing to know is that the availability of enough circulating medium to fully finance heath care at whatever level was deemed by our society to be optimally desirable and materially doable would be assured.

Richard Kotlarz

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #101 MONEY AT TWO LEVELS: MICRO (PRIVATE) & MACRO (NATIONAL)

2009-01-01T06:25:00.000-08:00

(Week 21 - Wednesday, Dec. 31)

There is a tendency in our culture to treat "money" as a commodity of a single nature that moves about in the matrix of economic relations, conveying value from one hand to the next. Is that not what we mean when we call it a "medium of exchange," "store of value," "unit of measure" or "common currency"? "A dollar is a dollar", so we are accustomed to saying, and if we want a stable economy the thing to be done is to pin down what exactly that means in terms of some representative "market basket" of goods. The orthodox view would say that a unit of currency may for the moment pass from this hand to that, play a roll in certain public or private cash flows, or facilitate trade in either the world of real goods or "investments" in the financial sector, but it remains a "dollar" nonetheless. It is, in a sense, presumed to be the common denominator of the whole economic order.

Outwardly this may seem obvious, but it is a narrow material assessment that produces only numbers and misses the many levels, essences and meanings that attend this all-pervasive social element. Money is a multifaceted manifestation, and to even begin to master it we must come to a living consciousness of that reality.

This is a huge topic, and there is not room to do it justice within the context of this short article. Indeed, it may seem too daunting to even approach the matter. It need not be so, as the topic may be opened up and developed on a digestible-bite-at-a-time basis from thoughts and observations that are perfectly within the reach of any thinking person. We, individually and as a race, simply have not done the work. That said, it is a consciousness that must be cultivated if we are to have any hope whatsoever of attaining a healthy social order, or perhaps for civilization to even survive. The question is, where to begin?

In the column previous to this I introduced the idea that the economic order has both a micro-economic and a macro-economic domain. This is a foundational concept upon which we can begin to build a new monetary/economic understanding. Micro-economics relates to the values, fortunes and acts of the "players" in the economy, while macro-economics relates to the structure, control and aggregates of the economy as a whole. The relationship of micro-to-macro is much like the trees to the forest, or sports teams to their league. The relevant question here is, "What is money with respect to the micro-economic, as differentiated from the macro-economic, domain?" Can money be described as dollars moving around within and between spheres, or does what we call a "dollar" have a different meaning and essence in each?

In my Econ. 101 course, I was taught (correctly I believe) that the micro and macro-economic aspects were indeed different realms with their own respective rules, functions and dynamics. The problem I experienced is that once that premise was established it was seriously violated to the point where orthodox economic thought has become a mish-mash of confused thinking caused in large part by failing to follow though on the rigor required to keep the micro and macro dimensions properly distinguished from each other, and in their rightful places. One manifestation of this is that a macro-economic function (the creation and issuance of money) has been vested in a micro-economic entity (the private banking system). The result is that the United States as a whole (a macro-economic entity) has become a business (micro-economic entity) in the portfolio of a private corporation, the Federal Reserve (See Col. #38 – The United States as a Business). What is more, a whole culture of inconsistent financial thought has grown up around that anomaly to obscure the inconsistencies thereby generated.

What, then, is money with respect to the micro-vs.-macro-economic domains?

In micro-economics money can indeed be described as a "medium of exchange", "store of value", "unit of measure" or "common currency." It is the very life's blood that circulates in the economic social body, and fits in a general way many of the descriptions commonly associated with money.

In macro-economics, on the other hand, money is a structured matrix of relationships established in the law which governs how currency is created, issued and controlled. Whereas money on the micro level manifests as the blood that circulates in the economic social body, on the macro level it is the economic social body itself. It does not conform to the micro-economic processes by which it is presumed to operate, but in fact the opposite.

One place where the confusion between the micro and macro aspects of money can be clearly seen is in the current debate concerning what to do about the enormous "debt" that is mounting in the current financial crisis. The remedy that is commonly put forth is that we have to get our taxing-&-spending priorities under control. For a governmental body that is below the Federal (e.g. state government, which operates on a micro level), this makes sense. For them money is a stream that flows into and out of their operations. Public bodies that do not issue money must, like any business, find sources of revenue to balance spending.

In actuality the phrase "balanced budget" has no meaning on the Federal level, as it is a micro-economic expression that pertains to micro-economic phenomena. It would be more proper to describe the creation and issuance of money at the Federal level as a "monetization" process, which is kept in balance by the collection of "taxes." "Taxes" on the macro level are not a way to fund Federal programs, but a mechanism to remove overflow currency from the monetary pool. The issue of money, then, on the Federal level is a matter of structuring macro-monetary body in such a way that its life's blood (currency) can ebb and flow naturally through its micro-economic organs.

The failure to differentiate between the functions of money at the micro vs. macro-economic levels is at the very heart of the current financial crisis. I would venture to say that if these two levels of money were fully understood (and presumably acted upon), there would be no "national debt" crisis. Indeed, there would be no "national debt."

In the next several columns my thought is to show how this confusion plays out through some of the major issues besetting our nation, and how a simple comprehension of the distinction between the character of money on the micro and macro levels of the economy could serve as a catalyst for the resolution of the current crisis.

Richard Kotlarz

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #100 TWO ECONOMIES – MICRO (PRIVATE) & MACRO (NATIONAL)

2008-12-29T05:42:00.000-08:00

(Week 21 - Monday, Dec. 29)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Richard Kotlarz

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #99 MONEY, ECONOMIC LIFE & THE GARDEN

2008-12-26T05:44:00.001-08:00

(Week 20 - Friday, Dec. 26)

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

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

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

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

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

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

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

The path to economic rectification is threefold:

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

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

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

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

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #98 NOW IT'S TOYOTA

2008-12-25T04:48:00.000-08:00

(Week 20 - Wednesday, Dec. 24)

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

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

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

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

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

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

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

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

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #97 A WINTER SOLSTICE POETIC INTERLUDE

2008-12-22T04:12:00.000-08:00

(Week 20 - Monday, Dec. 22)

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

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

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

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

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

* * * * * * * * * * *

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

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

Mephostopheles, the king's jester.

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

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

Richard Kotlarz

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #96 MONEY AS VIDEO GAME

2008-12-19T04:24:00.000-08:00

(Week 19 - Friday, Dec. 19)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #95 THE DEGRADING OF COLLATERALIZATION

2008-12-17T03:44:00.000-08:00

(Week 19 - Wednesday, Dec. 17)

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

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

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

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

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

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

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

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

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

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

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

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

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #94 BEYOND CAPITALISM

2008-12-15T04:43:00.000-08:00

(Week 19 - Monday, Dec. 15)

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

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

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

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

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

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

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

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

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

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

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #93 BEYOND THE SEVENTH GENERATION

2008-12-12T04:03:00.000-08:00

(Week 18 - Friday, Dec. 12)

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

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

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

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

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

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

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

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

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

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

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

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

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #92 SEVEN GENERATIONS AFTER THE AMERICAN REVOLUTION: A HISTORICAL PERSPECTIVE

2008-12-10T06:11:00.000-08:00

(Week 18 - Wednesday, Dec. 10)

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

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

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

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

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

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

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

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

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

218-828-1366
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #91 THE SEVENTH-GENERATION LAW

2008-12-08T04:55:00.000-08:00

(Week 18 - Monday, Dec. 8)

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

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

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

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

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

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

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

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

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

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

218-828-1366
mailto:218-828-1366richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #90 WHAT DO THE BIG-THREE AUTOMAKERS REALLY NEED?

2008-12-05T04:15:00.000-08:00

(Week 17 - Friday, Dec. 5)

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

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

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

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

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

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

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

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

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

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

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

218-828-1366richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #89 MONEY – THE PARADOX OF OUR TIME

2008-12-03T05:39:00.000-08:00

(Week 17 - Wednesday, Dec. 3)

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

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

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

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

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

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

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

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

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

218-828-1366 richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #88 THE ECONOMIC IMPERATIVE OF CHRISTMAS SHOPPING

2008-12-01T04:32:00.000-08:00

(Week 17 - Monday, Dec. 1)

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

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

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

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

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

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

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

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

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

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

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

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

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #87 "NOT WORTH A CONTINENTAL"?

2008-11-28T04:36:00.000-08:00

(Week 16 - Friday, Nov. 28)

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

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

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

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

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

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

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

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

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

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #86 PLAYING POKER, FEDERAL RESERVE STYLE

2008-11-26T05:29:00.000-08:00

(Week 16 - Wednesday, Nov. 26)

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

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

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

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

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

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

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

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

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

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

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #85 MAKING SENSE OF PRIVATE RETIREMENT FUNDS

2008-11-24T04:29:00.000-08:00

(Week 16 - Monday, Nov. 24)

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

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

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

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

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

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

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

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

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

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

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

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #84 MONETIZING SOCIAL SECURITY

2008-11-21T11:59:00.000-08:00

(Week 15 - Friday, Nov. 21)

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

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

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

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

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

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

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

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

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

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #83 THE COUNTER-PRODUCTIVE ASPECT OF RETIREMENT ACCOUNTS FUNDED WITH "DEBT"-BASED MONEY

2008-11-19T11:56:00.000-08:00

(Week 15 - Wednesday, Nov. 19)

In yesterday's column I talked about how the Social Security Trust Fund is not a pool of money deducted from paychecks and held in trust, as is commonly assumed, and that the political recriminations over the supposed "raiding" of this fund to cover the general expenses of government are misguided in that there is no way that these funds realistically could be withheld from the general revenue flow without creating an effective need to borrow an additional sum into circulation at "interest" from the private banking system to replace the monies so sequestered. Thinking of it as a fund that is being "raided" distracts our minds away from the fact that the remedy for the "trust fund" issue is dependent on making the transformation from a "debt"-based private monetary system, to one in which our money supply is issued directly out of the U.S. Treasury.

The problem with private retirement funds, including 401k's, Keoghs, company pensions and other private-nest-egg accounts, is similar, though it manifests in a somewhat different way. Rather than being used to make up for deficits in other sectors of the Federal budget, private retirement accounts are effectively capital funds for monetary speculation in the financial markets (government accounts other than Social Security can be a mix of the two). Within the context of an economy whose money supply is borrowed at "interest" from private banks, this could hardly be otherwise.

Most people realize their nest-egg money is being "invested", and generally approve of the idea. After all, the earnings are being applied towards growing the balances of their accounts. To be sure, this is one way their money can be managed, but I would suggest that if people thought through fully the implications such an arrangement, they would see the high cost that they, and the social order in general, are paying for the widespread practice of providing for retirement accounts via private "investing" of "debt"-based money.

To understand this, we need to take a look at the basic dynamics of the free-enterprise market cycle. Goods are produced, and then they are sold in the marketplace. The cost of bringing goods to market is accounted for exactly by the wages, salaries and profits paid to those who are responsible for producing them. In the aggregate, the number of dollars paid to those responsible for producing goods (i.e. the cost of production) always matches, to the dollar, the income they take receive as they transition to the role of consumers (i.e. gross income). This is a mathematical identity, and its balance cannot be upset any more that a drop of fluid circulating in a closed system can avoid coming back to the place where it started, unless, that is, there is a leak in system.

In a market cycle within which the circulating medium is "debt"-based dollars there is indeed a leak in the system; specifically the leakage cause by the obligation to pay "interest" for the use of the currency. The way that works out is this:

Let us say that a worker gets paid $2000 for whatever value he is responsible for producing. He takes home his paycheck and pays his bills. Let suppose that he makes a mortgage payment of $600, of which $200 is applied to the retirement of the loan, and $400 is credited towards the "interest" payment.

In his role as producer, our consumer accounted for $2000 dollars worth of goods, but on the consumer side of the equation he has less than that to spend. The $200 dollars applied to the retirement of the loan is actually accounted for as purchasing power, because it is part of the sum of money he borrowed to compensate other people for building his house. For the $400 paid towards the "interest", however, he receives no goods of tangible value. This means that by the time he has spent his paycheck he will be able to purchase only $1600 dollars worth of goods, and an equivalent of $400 worth of unsold goods will pile up in some producer's inventory.

If money paid out as the cost of production does not show up fully as disposable income, goods go unsold, orders for new goods decline, workers are laid off, less goods are produced, and the market cycle goes into a spiraling contraction. The only way this tendency can be prevented is for someone to keep borrowing more money into circulation to buy up otherwise un-sellable goods.

Just as "interest" charges attached to the creation of money cause a shortfall in purchasing power, so does the subtraction of money from the income of a working person to fund a retirement account. Rather than being used to buy up goods produced in present time, purchasing power deferred until retirement is "loaned" back to workers in the economy indirectly through "investments". These will include buying up the "debt" contracts that people will increasingly be obliged to take on in their lives by the very fact that the deferring of purchasing power represented by these retirement accounts will rob the economy of the ability to complete its own market cycle, and so make such borrowing necessary.

Thus, a pernicious cycle is set up whereby income earned becomes purchasing power deferred, which is compensated for by its transformation into "money loaned". The irony is that the very funding of retirement accounts with "debt"-based money eats away at and eventually destroys the economic base that retirees will depend upon. The cumulative burden of this snowballing "debt" and speculative expectation is precisely what is causing millions of retirement accounts at present to lose much of their value, or go belly-up altogether.

None of this is to say that the material wellbeing of the elderly portion of our population cannot be provided for. On the contrary, to do so is both a moral and an economic imperative. We will be exploring ways to make it happen on a sound and consistent basis as these columns continue.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #82 THE SUPPOSED "RAIDING" OF THE SOCIAL SECURITY TRUST FUND

2008-11-17T10:46:00.001-08:00

(Week 15 - Monday, Nov. 17)

The virtually universal view of pensions or retirement accounts is that they are monies that are put away in dedicated funds that are held in trust until the day they can be drawn upon when the beneficiary reaches an eligible age. This is not, in my view, an accurate description of how these accounts are presently constituted within the current monetary system, and the widespread misunderstanding about that has led to expectations that cannot possibly be fulfilled. The result is that, while we as a society have enacted social contracts designed to insure the financial wellbeing of those who have attained an advanced age, they have been formulated in such a way that millions of people who are counting on the solvency of such arrangements are in the current financial crisis seeing their value decline precipitously, or are losing them altogether.

Retirement accounts can take on many forms. Let us look first at the one we citizens of the nation hold most in common, and perhaps take most for granted; i.e. the Social Security Trust Fund.

Let us imagine a situation in which money is deducted from the wages of a worker early in his productive years and "put away" in this fund. Now fast-forward to, say, three decades later when this person retires and draws his first Social Security check. Let us suppose that he spends the first of those dollars on eggs for his morning breakfast. I would ask the question, were those eggs really purchased with dollars that were earned thirty years before? If one answered "yes", one would also have to answer the question, "Where, then, have these dollars been held for all that time?"

For some strange reason we in this "financially sophisticated" society seem to think that when retirement money is deducted from a paycheck it must be put into some vault where it is kept for safekeeping until the day that we need it. I would point out that if that were indeed the case, then the money so sequestered would constitute a net withholding of money from circulation that would have to made up for by someone "borrowing" an equivalent amount into circulation from the private banking system. To "fully fund" the Social Security Trust Fund, therefore, the social order would be obliged to take on an immense amount of new "debt" on which compounding "interest" payments would need to be made. What is more, these idle funds held in trust would themselves represent a vast quantity of money that had been borrowed into circulation, and upon which "interest" payments would need to be paid in an ongoing manner. Essentially we the people would be paying double "interest" charges for the use of the sum of money held in the trust fund. Monetarily speaking, this is a prohibitively expensive arrangement.

Nonetheless, in our political dialogue we as a society seem to lack a basic understanding of this fact. If that were not so, why then in the political arena is there an almost universal chorus of protest raised about the supposed raiding of the Social Security Trust Fund to finance general expenses of the Federal government? Do we really expect that these hundreds of billions of dollars should be left to languish in a vault unused until the workers from whose checks they were deducted retire and start to draw them out? The "interest" payment on such a sum would of itself typically offset the whole value of the fund, or more.

This professed platform plank is so contrary to the realities they are obliged to deal with in their budget-making processes that it makes me wonder what they could be thinking of when they say such things. Assuming that they are for the most part sincere, then the passion and tenacity with which they cling to this dubious idea can only be a telling example of the great disconnect between their understanding of the monetary realities they are called upon to deal with, and the economic notions that they hold. Truth be told, I don't think that our leaders are alone in this confusion, as I almost never hear anyone challenge them on this view in the public domain. On the contrary, almost invariably there comes an echoing demand from the public to "get spending under control" and stop the supposed "raid on their money".

The economic activity required to produce the first eggs of post-workforce life occurred within a few short days prior to their being consumed, and the money that financed that activity had to have come from cash flow that was concomitant with the productive process that was responsible for the material manifestation of the product itself. In other words, material wealth that is coming into existence today is financed by dollars flowing today. Whatever dollars were deducted from a worker's paycheck years ago had to have long since flowed into other economic activities. The notion that this could be otherwise within the current "debt"-based monetary system is a bookkeeping fantasy. Our failure to understand the actualities of our financial lives and deal with them in a clear and positive way is at the core of why we have become so anxious about the certainly of these so-called dedicated funds being there when we reach retirement age.

In truth the Social Security "Trust Fund" is not a trust fund. It is not money that has been put away. It is, rather, a system for the tallying of credits that determine the eligibility of each citizen for access to the money that is flowing through its operating budget in any given month after one has reached the age of eligibility. The monies that are is paid out through Social Security do not come out of a pool of capital that has been put away for that use, but are taken out of revenues flowing through government coffers in present time.

The problem with thinking of it as a fund that is being raided is that it distracts our minds away from the true nature of the threat to the national economy which underwrites this social welfare program, which in turn is the source of the perception that it is being raided it in the first place; that is, the unrelenting demands placed upon the economy in general, and government budgets in particular, by the "interest" payments required to maintain the money supply. Such misunderstanding leads to the misguided proposal to insure the purported fund's solvency into the future by opening it up for "investment" in the financial markets. The ultimate irony is that if such a proposal is carried out, it truly will become a fund that has been raided. I will continue with this analysis in the next column.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #81 THE MONETARY ASPECTS OF INSURANCE

2008-11-14T04:56:00.000-08:00

(Week 14 - Friday, Nov. 14)

The essence of insurance agency is the formation of a pool of money into which people make a contribution, and from which they can expect to receive compensation to cover the financial cost of a potentially catastrophic loss of life, limb or property. These funds are generally managed by corporations. This means, supposedly, that such businesses have been issued a corporate charter by the society they supposedly serve to perform this specific function for the benefit of that society. As long as what transpires stays within these bounds, everything is very upfront, straightforward and transparent. The function for which the agency was formed is perfectly legitimate, and the social order that chartered it is well served.

Over time, this has been less-and-less the case. The premium payments which people make have been dedicated less to protecting them from loss, and more to forming pools of capital out of which financial speculators gamble with their money. This is done in the name of "investing" their premiums to help defray their cost, but in reality it is a withholding of policyholders money under deceptive pretenses, which is then used to buy up the increased quantity of "debt" paper that the public (including the company's clientele) is obliged to take on due to the decreased consumer buying power that is caused by the very withholding of that money.

Understood in this way, this widespread mode of doing business by the insurance industry can be seen, not only as a matter of questionable business ethics, but also as a practice with monetary implications. To put it succinctly, insurance companies have become financial purveyors on behalf of their stockholders at the expense of their policyholders and the public at large.

The question then becomes, what can be done about it? The obvious answer may seem to be more regulation, but this does not get at the root of the problem, which is that within a monetary system in which money is borrowed into circulation at "interest" from private banks, there exists a virtual financial imperative for that "money" itself to earn "interest" to cover the "interest" cost of maintaining it in circulation. It is very difficult for a person in a position of fiduciary trust to justify doing otherwise.

If regulations governing the insurance industry were put into effect which mandated that they maintain the monies collected through premiums as idle (non-invested) pools of capital, then that in itself would constitute a diminishing of the money supply which would have to be made up for with more borrowing by the nation as a whole, whether privately or through government. This is a catch-22 that executives of the insurance industry are not realistically in a position to do anything about by themselves (whether they realize the nature of their dilemma, and would be inclined to do anything about it is another matter). For the most part they are playing the game the only way they can see to play it.

The solution for the problem needs to come from society as a whole through its political process. The key is for the People to direct their government to reclaim their rightful money creation franchise from the private banking system. The initial steps in that process would be to repeal the Federal Reserve Act of 1913, purchase the outstanding stock of the Fed from the member banks who are holding it, and convert its resources and employees to the task of facilitating issuance of public money under the direction of the U.S. Treasury.

The Treasury would thereby gain the ability to maintain a quantity of currency in circulation that is calculated with precision to meet the needs of commerce for the nation. If one of those needs is to maintain an extra margin of money in circulation so that a certain amount is available to lie "un-invested" in pools of capital required to underwrite insurance policies, that is not a problem, as the increment of funds so designated can be issued at virtually no cost simply by adjusting the level of money supply.

The amount of capital needed to underwrite insurance policies is in the national aggregate considerable, even under the strictest interpretation of the requirements of the business. As such, it represents a great sum of money upon which, within the current system, someone is obliged to make "interest" payments just to keep it available for that purpose. To "invest" such funds, then, can seem to be the responsible option, the fact that this is in the larger picture monetarily self-defeating notwithstanding.

The very existence of such an "investment" opportunity attracts financial players who are not necessarily concerned about the ethics or logic of the way insurance companies do business, but are simply looking for a way to make money with money. Through the ownership of insurance company stock, they can make their demands and reap their reward. Whatever the case, insurance executives are effectively pressed into being agents for "investors" seeking a "profit" through the control of their policyholders' excess premium payments.

With the establishment of a system in which money is issued publicly, this seeming fiscal imperative (in the case of good-faith insurance agency), or opportunity (to the financial speculator) is effectively removed. This is because whatever amount of money was needed to be tied up in pools of insurance capital could be made up for quite readily by letting the level of the money supply rise as a matter of public policy.

Insurance companies could then be limited to being compensation pool managers by restrictions written into their corporate charters. As businesses, this need not be experienced as an arbitrary limitation, because it would allow them to focus on the crux of their task; or as a competitive hardship, because other companies working in the field would be obliged to observe the same boundaries. Their operations would be simplified, their costs lowered, and, I can imagine, the burdens of management greatly relieved. The net contributions through premium payments, and payouts for claim satisfaction could be tracked through a transparent public accounting. The company's customers and the public at large would be well served, and, I suggest, there would never have arisen a need for any massive "bailout". I wonder if the executives at AIG would agree.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #80 - THE AIG "BAILOUT PACKAGE"

2008-11-12T05:05:00.000-08:00

(Week 14 - Wednesday, Nov. 12)

The lead article in Monday's Wall Street Journal announced that the Federal government has agreed to offer AIG (American International Group), the nation's largest insurance company, a "bailout package" worth $150 billion. This raises the question, has there occurred somewhere recently massive losses of life, injury and property that have made such a financial rescue plan a necessity? Clearly there has not. If we follow this line of inquiry through to its logical conclusion, we will discover that "insurance companies" are no longer primarily insurance companies. Rather, they have become more-and-more a means to create pools of capital to be used for financial speculation.

Theoretically an insurance company is a business that has been granted a corporate charter by the society it supposedly serves to gather and manage a pool of money for the purpose of providing people with protection against catastrophic financial expenses brought on by loss of life, health or property. The idea is that each person that subscribes to the service contributes money to a common pool of funds through the payment of premiums, and those relatively few people who experience a loss are then compensated out of it. The premium rates, then, would presumably be set at such a level that the amount of money in the pool would be adequate to compensate expected claims, plus provide enough left over to cover the actual expenses of the company, and allow for a modest profit. This is all so straightforward that it hardly warrants explanation, but increasingly it is not what happens.

Instead, insurance companies use the premiums they collect to create "investment" funds, which they then use for speculation in financial markets. While it is true that they do in fact pay claims out of premiums collected, their unstated financial speculation agenda causes them to have to charge higher premiums than they would otherwise have to merely to cover claims. They justify their "investments" by saying that they are merely acting responsibly with their customer's money. After all, so the rationale goes, since there always needs to be a substantial pool of capital maintained to insure that there are adequate funds available for when their customers experience a loss, they may as well "invest" these funds so that the income they produce in the meantime can be used to defray part of the cost of the premiums. On the surface this sounds reasonable. On a deeper level it is very deceptive.

To begin with, excess funds that are bound up in such "investments" are not, relatively speaking, very "liquid". That is, they are not readily available to cover ordinary day-to-day claims made against the capital pool. Therefore, the "investment" pool is essentially extra capital that must be maintained over and above the actuarial requirements of the insurance function itself.

It could be claimed that the nature of a given company's business is such that it insures against losses that occur infrequently and on a large scale, as might be the case, for example, for one whose primary business is to cover losses incurred from natural disasters. It would make good business sense, supposedly, to earn "interest" from these idyll funds while they are lying for long periods of time at the ready, so to speak. This argument too breaks down. Such a monies may need to be paid out on short notice, and therefore the essential financial quality that is called for is liquidity. A large capital pool that is bound up in a portfolio is almost by definition not very liquid, and the necessity to make it so quickly may result in having to dump its speculative-paper contents on the market in what is essentially a fire-sale circumstance, thereby driving down the its redeemable value. That would tend to defeat the argument that the purpose of "investing" their customers' premiums is a way to defray their cost. As a hedge against this, the tendency will be again to maintain a fund that is larger than is necessary for the purposes of insurance alone.

Looking deeper into the problem, when an insurance company collects a premium, it is taking money out of the money supply for which the consumer receives no immediate value in return. Essentially the buying power it represents is held in abeyance until a claim is made and the money paid back out. To the extent that this is necessary it can be justified as a business practice. To the extent that premiums are "invested", however, it cannot.

With respect to the market cycle in the economy, the "investment" of insurance premiums has a net affect that is similar to that created when "interest" payments are made on private bank loans, whereby the payments go to "investors" who have bought the "debt" contracts by which the loans were created so that they might be the recipients of those payments. The consumer in the aggregate is shortchanged of the earned income required to pay the cost of the goods and services equivalent to what he produces. This money is effectively withheld from circulation until someone comes along who is willing to "borrow" such funds from the "investor", thereby returning it to the money supply, but now with an increased "debt" obligation attached.

The money that is paid in as premium payments to an insurance company that is excess to the amount required to cover claims, plus the actual material costs of and a reasonable profit to the company, acts in much the same way as those "interest" payments made on bank loans. These net over-payments represent a net subtraction from the money supply, which, in turn, creates a need for someone to "borrow" this money back into circulation so that the market cycle can be completed.

This practice, then, of insurance companies maintaining capital pools that are "invested" in financial instruments, supposedly for the benefit of their customers, is revealed to be a wealth transference scheme that is carried out at the expense of their customers, and of the society at large. Increasingly, the insurance industry has become a cash-cow for the speculative financial industry, and AIG is the prime example. If that is not so, then where are the actual losses in life, limb and property that the citizenry is being called upon to pay? With this AIG "bailout" package, We the People, through our government, are being asked to take on an enormous "debt" to cover the losses of financial speculators. It has absolutely nothing to do with the legitimate functions of the insurance business.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #79 A NEW ROTATION

2008-11-10T04:05:00.000-08:00

(Week 14 - Monday, Nov. 10)

Everything evolves, and so does this column. The initial concept was to put out a daily message of four to five hundred words that could be read over "morning coffee" as a daily antidote to the standard media fare. In practice I have found that these offerings tend to take on their own natural length, which turns out to be roughly twice what was originally contemplated. It has required a major exercise in discipline to keep them within even those bounds, as anything that touches upon the topic of money tends to swell in the enumeration. Truncating or dividing the topic arbitrarily tends to cut the heart out of it, and so I let whatever is wanting to be written have its way. The upshot is that I have produced twice the amount of verbiage that I intended, and keeping up that pace is not sustainable.

Most of the feedback I get indicates that while much, if not most, of the readership has kept up with the reading, they too sometimes fall behind, and the unread email mounts up. There seems to be on their part a determination to keep up, as the columns as a series represent a systematic and carefully measured development of thought. If a link is missed, something is lost.

Taking this all into account, I have decided to reduce the frequency of the installments to three per week; those coming on Monday, Wednesday and Friday. This column is the first of the new rotation. I anticipate that the length of the typical column will be approximately the same, but the less frantic pace will leave me more time to devote to producing each one, plus attending the correspondences and dialogues which the columns have been a seed for starting. I have tried to be responsive to communications that have been sent to me, but have fallen far behind in spite of strenuous efforts. I apologize for that. I look forward to catching up on my backlog and being more responsive in the future.

All this said, this effort is not about writing columns. It is about precipitating change. We are at a juncture in the life of our nation where the portent of that sentiment has never been more acute that now. The providential turn represented by the latest election has released a breadth and depth of hope into the world that, if harnessed in the right way, could provide the boost to at last overcome the opposition to permanently transformative change in the realm of money. This would be truly the culmination of a battle of the ages.

It is not mere coincidence that our new President will take office at the height of the greatest financial crisis the nation, and the world, has yet faced. Indeed, the urgency of the matter will not even wait for him to take his oath, as it is pressing down upon him even now. It is a foreboding sign that already he is being hedged about by a coterie of heavy-hitting financial advisors that will surely impress upon him the importance of going even deeper into "debt" as a way of resolving the "debt" crisis. I do not say that such voices should not be heard, but truly liberating virtues of public money need at last have their hearing.

If the promise of the moment bounces back unrequited in the unfolding of events, then the present euphoric mood will turn upon the People as it metamorphoses into the bitterness of cynicism, and our state will be at the last incalculably worse than at the first.

What is more, nothing will be changed by reading; only by acting. We Americans are doers. That is what we bring to the world. What then to do? That is for each to determine out of his or her own inspiration.

As a thought, there are practical initiatives that can be pursued in concert with others. One is the Concord Resolution, which is an effort to recreate in our time essentially what was done by the colonial government of Massachusetts in 1690; that is, to issue public money in service to the commonweal of the People, as the alternative to relying on private money, which would make of the colony a debtor to the moneylenders. This Resolution has been reworked of late to make it more focused on the transference of the money-creation franchise itself from the private banking system to the U.S. Treasury. It has also been presented in such a way as to encourage others around the nation to introduce parallel resolutions in their communities. It is our hope that this could become a movement.

It is incumbent upon me to address the matter of resources. I have, and will continue, to offer up the column, and the fruits of all other initiatives that I am engaged in, free of charge, and remain true to that commitment regardless of whatever personal sacrifices it entails. That said, the effort cannot move forward without resources. To date that burden has fallen upon a very limited circle of people who have effectively emptied themselves out to insure that the work, at least on a minimal level, continues to move forward. The level of critical work that needs to be done with respect to the monetary sphere far exceeds the resources available to perform it. It may not be too much to say that this is a tragedy of our time.

Help is needed in researching specific topics on money, and I would be willing to speak to anyone who is willing to lend a hand.

Basic material help of many kinds is sorely needed. This, of course, includes financial assistance. Funds contributed to the effort become in effect monies that are consecrated to the liberation of the whole of humanity from the ravages of a bogus "debt". This is not simply a worthy sentiment, but a spiritual principle that works through money itself. I will have more to say on that subject in future columns.

Finally I would express my appreciation for all who have taken an interest in these discourses. I have received hundreds of communications posing questions, offering critiques, or lending encouragement. I am grateful for every one. In the future it is my hope that I can be more responsive, and tighten up the time lag in the dialogue.

The time for action on the transformation of the way our society creates, issues and controls money is now. I encourage each to find their own path of commitment according to their own authentic calling. For those with ears to hear.

Thank you for your patient and considerate attention.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #78 REGAINING CONTROL OF OUR DESTINY

2008-11-08T05:07:00.000-08:00

(Week 13 - Saturday, Nov. 8)

In "Religion and the Rise of Capitalism", historian R. H. Tawney observed:

"Few who consider dispassionately the facts of social history will be disposed to deny that the exploitation of the weak by the powerful, organized for purposes of economic gain, buttressed by imposing systems of law, and screened by decorous draperies of virtuous sentiment and resounding rhetoric, has been a permanent feature in the life of most communities that the world has yet seen."

It is time to arrest this tragic litany. Throughout history there have been many struggles to win the rights, protect the dignity, and insure the welfare of mankind. Unfailingly, these demands have been resisted by a reactionary establishment whose power is rooted in the economic order of their day. It at first denies, then stonewalls, then grudgingly accommodates the demands. Eventually it preempts and incorporates the changes for its own devices, as part of the "imposing systems of law" and "decorous draperies of virtuous sentiment and resounding rhetoric" with which the system props itself up.

Chattel slavery is abolished, universal suffrage is won, the rights of labor are established, a social safety net is laid out, environmental protections are enacted, and a multitude of other reforms are accomplished. A black man is elected as President of the nation (alternately a woman nearly elected Vice-President), and the euphoria of the moment transcends party lines. Our society indeed moves ahead by quantum leaps.

Still, there is something crucial we are not getting at. That is that the energy of our civilization, and in turn its social, political and economic structure, is still controlled from the top for the benefit of the few, rather than percolating up from the bottom for the welfare of the People. Indeed, it may be argued that the economic polarization is getting ever more extreme. What is more, one could make a case that we, as a species, are lurching dangerously close to self-annihilation on many fronts, from resource exhaustion, to disease pandemics, to species extinction, to loss of genetic diversity, to environmental poisoning, to nuclear holocaust, to climate change, to moral degradation, to (fill in the blank).

The reason for this, I believe, is that we have not properly recognized the bedrock importance of the nature and control of the monetary system. Money is an abstraction. It is weightless, colorless, odorless, ephemeral and intangible in every physical way; yet is seems to control everything. It is the essential energy, the life force, the prana, the chi of the system.

To draw a medical analogy, if a pathogen attacks a body, it does so through the blood, the fluids, the nerve synapses, and other processes by which it circulates energy to live and grow. If a pathological agenda attacks a socio/political/economic body, it does so through the monetary system for the same reason. This is not just another issue, but a little recognized reality that underlies all issues. We have come to an unprecedented point in history where it can no longer await its turn for attention. Humankind has reached the stage where we have the power to threaten our very existence through many avenues. We must at last gain control of our own energy processes.

Expanding the medical analogy, in a material sense a dead body may contain every element it had when it was alive, down to the most infinitesimal cell structure. What has changed is that the connection with the intangible energy that animated every fiber of its being has dropped below viability and ceased to function.

An economy is much like that. The physical part abides. The sun beams down, the rains fall, the plants grow, the infrastructure persists, and the hands, hearts and minds remain willing and able to do the work. This is equally true in times of boom and bust alike. What changes is this ephemeral abstraction which seems to control everything: the monetary system.

Money is a paradox. It is nothing, yet it is everything. We must finally transcend that paradox if the human race is to gain control of its own destiny. In doing so, we will at once transform the debate on all issues, from an impasse in which we appear to be checkmated by lack of funds, to an open-ended march to the future with all the physical and human resources we can mobilize. Money will cease to be a bludgeon that hinders or drives the social order. It will instead become a superconductor that transfers energy efficiently and equitably though it.

When we get fully into this process we will be dealing with, not just finances, but the transformation of our whole civilization. It is the economic dimension of a larger key to crack the whole mess we are in wide open. We would at last break out of the "debt-money" straightjacket, and dispel the Federal-deficit sword of Damocles. Then we will start to get a handle on our other seemingly intractable problems; social, political, ecological, agricultural, urban, rural, education, health care, or whatever. Living morality will merge with common-sense practicality as we begin to reclaim the creativity, civility and humaneness of our civilization.

For those with the vision to see this represents, not merely a solution for an economic problem, but also the opening of a new horizon; one which could light up the imagination of a whole new generation. To be sure, the audacity of the prospect is intimidating, but if we approach it with grace, determination and aplomb, it may turn out to be our nation's greatest adventure yet.

I saw in the youthful faces of those gathered in Chicago Tuesday evening a deep yearning for what might be. Let us not foreclose on their hope for the future by failing to act.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #77 PLANTING TIME

2008-11-07T04:24:00.000-08:00

(Week 13 - Friday, Nov. 7)

The only time one can affect what type of tree will grow is when one selects and plants the seedling. So it is in the political process.

A critical lesson I learned from my years of political activism is that once the campaigning starts, even in its pre-public stages, the chance for fundamentally affecting its direction has effectively passed. By then the decision about why a candidate is running is set, the early money attached to expectations has started to flow, and the themes and aspirations of the candidacy have been virtually cast in cement. The only things left to work out are how they will be reflected in the talking points and campaign strategies.

Once a candidate has made the plunge into the frenzied pace of running for office, he or she will have precious little time for input or reflection. To expect that any major change in direction can be effected is unrealistic. The deliberative pretense of the electoral process, with its glad-handing photo-ops and staged "town meetings", is a charade. If one would be so uncouth as to pose a question, however cogent, that is not within acceptable bounds, he or she will be made to feel as the intruder who released flatulence into the room. Candidates on the trail are not interested in going out into the public to discover what the people think. Rather, they have already determined what the public ought to think, and the formidable machinery of campaigning is geared to effecting that end.

The problem is not so much the venality of the candidates themselves. How could they do otherwise given the ordeal we put them through so that they might demonstrate their mettle to our satisfaction? This is not a process that supports earnest exchange or conversation, so it is futile to expect it.

If there is any real deliberative process that does go on, it happens well before the campaigning starts. At that point politicians contemplating a run for the prize may well be involved in a discovery process. They may even be seeking inspiration. At the very least they are looking for those initial elements of support that can start the "momentum" ball rolling in their favor. In my experience it is at this very nascent stage that they are accessible, and looking for ideas. This phenomenon varies, of course, and career pols tend to be in a more-or-less campaigning mode virtually all of the time, but if there is any openness and flexibility possible in the situation, it will be in the formative pre-campaign stages.

If one would hope to plant the seeds of a monetary dialogue in particular, this early open-endedness is crucial. If the candidate is indeed a seeker of truth (I believe that there are a few, but we tend not to recognize them because we treat them badly) there will at best be a narrow window of opportunity to gain a deep hearing. If it is not seized upon, then virtually every word, thought and position that comes after will be rooted in a socio/political/economic culture that springs from the private-bank-loan transaction upon which the social order is founded. The usual, but spurious, intellectual cornerstones related to "balancing the budget", "running the government like a business", "paying down the 'debt' so our children won't have to", creating "economic growth" (a euphemism under the current system for "borrowing" more money), the "un-affordability" of human services, and so forth, will be immediately set, and the argumentative structure of the candidates' appeal will be built on top of them. After that, they are almost helpless to fundamentally change their direction even if they "see the light" and reach a different conviction in some greater or lesser degree.

This immediate post-election period, then, is the season for planting the seed of the tree. After such a long and tedious election cycle, the People will almost universally be inclined to turn to the more personal business of celebrating the upcoming holiday season. Who could blame them?

But, the power of money never sleeps, the demand for "interest" payments is unrelenting, and whatever potential the age of Obama represents is being undermined even now. Despite our undeniably momentous achievement, we can be sure that we as a nation are being set up by the seductive allure of lucre (as after the War of Independence) for yet another "feeble sequel". If we cannot stay conscious, determined and vigilant throughout this transition, then it has, in critical ways, all been for naught.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #76 WHAT NOW?

2008-11-06T03:45:00.000-08:00

(Week 13 - Thursday, Nov. 6)

This nation has from time-to-time passed through periods of incredible euphoria for the heights of achievement and sacrifice it has achieve. I sensed such a moment in the aftermath of Obama's victory amidst the throng in Grant Park in Chicago. The People basked briefly in the sublime light of fulfillment in their realization that this nation's very soul, though sullied by its passage through chattel slavery, Jim Crow and racial bigotry, had traversed the length of human mendacity in at last coming to elect as its leader the first African American President.

Few believe that being black, or of any other particular description, is a qualification for high office, but the identity of the candidate in this case cannot be separated from the momentousness of the attainment. Obama had endured the vicissitudes of the process, and that few seemed inclined to question that he had fairly "won" (whatever that means in politics) was somehow cathartic to the nation. Even John McCain could not help but dedicate the first words of his concession remarks to that historic achievement, and President Bush issued his own declaration commemorating the event. We have long been a people that prides itself on the belief that any new soul born into its fold could aspire to any position in the land. Until last night this promise was in some measure hypothetical, but the question is now laid to rest.

Had the election tipped the other way, an historic precedent would have been set in another direction; i.e. the first woman to attain to the office of the Vice-Presidency. There was a time when for even one party to entertain the idea of having a Catholic on the ticket was pushing the bounds of thinkable thought (as for JFK), but now it seems the breaking of the Protestant-white-males-only-need-apply rule was done it stride. Surely as a nation we have grown up.

What now?

The events of yesterday were in part a culmination of the American Revolution, but something crucial remains undone. After a heroic War of Independence announced with a noble Declaration and guided by "founding fathers" of high principles, one might think that the establishment of the right of the nation to create, issue and control its own money would be a foregone conclusion, but if history teaches anything it is to not underestimate the money power (the amorphous principality that the power of money, as co-opted by forces inimical to the commonweal, represents; it is not any particular persons, but persons of every class or description can, and do, fall under its spell). While the People have on occasion arisen to great heights of purpose and sacrifice, afterwards they understandably tend to turn back to their private lives. The money power, on the other hand, never rests, leading monetary historian Alexander Del Mar to observe ruefully:

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

This is the unfinished business of the American Revolution. It is what we will have to reckon with if the promise of the nation, so clearly reflected in the yearning faces seen last night in Chicago, is to be fully realized. None of this is to take away from the momentous import of what has already been achieved, but if We the People merely turn back to our private lives after the great mobilization of energy, resources and willingness to get involved represented by this election cycle, then our hope will have been allowed to expire in yet another "feeble sequel", and America's promise will in the end ring hollow.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #75 ELECTION NIGHT MUSINGS

2008-11-05T03:53:00.000-08:00

(Week 13 - Wednesday, Nov. 6)

I have spent the evening in the company of good friends with whom I watched the election returns on the television. At this late hour I am more in the mood to be personal than analytical. Election days are singular in their effect upon me. They are a unique hiatus between one rhythm of life and another. The campaigns are over, and now we go back to work.

I am a quintessential baby-boomer and child of my time. I grew up in what I experienced as the halcyon 50's, and came of age in the turbulent 60's. The thought that kept coming to me tonight is, "what a difference forty years can make". I was born and raised in Chicago, and grew up with familiarity with Grant Park, site of Obama's acceptance speech. Forty years ago it was the location of the massive disorder ("police riot" some called it) that swirled around the '68 Democratic Convention. How different that was compared to the virtual love fest that reigned there tonight.

I did not experience the mayhem in Grant Park in '68 because I was in the midst of another chaotic scene in Vietnam. From there it seemed that "the World" (what we called the states from "the Nam") was coming apart. Over a hundred cities, we were told, were beset by rioting and on fire. Martin Luther King had been murdered in the spring. Bobby Kennedy, who's last public utterance was "And now on to Chicago", met the same fate shortly after. This finished off, it seemed, the innocence of a generation, coming as it did less than five years after the assassination of his brother.

I experienced a particular feeling of sadness upon hearing McCain's most gracious concession speech. I realized that no veteran of Vietnam had served in the office of President, and that McCain was perhaps the last best hope of that happening. It still isn't too late, or course, but I had the feeling that with the public taking a pass on his candidacy, perhaps the torch was being handed off already to a new generation. It seemed that the experience of the souls who had served in the war that marked our generation, but were still keeping it all inside, was somehow being passed over also.

Obama's dignified acceptance address aroused in me feelings of hope. More so did the looks on the faces of his crowd. Much has been said about the shallowness, mendacity and venality of modern political campaigns (not without reason), but I did not see evidence of that in the countenances of this celebratory, but serious, throng. How long will such comportment last? I do not know, but it is reassuring to know that it is there and can be called forth if the moment can be made right.

As I reflect upon the differences between the times now and forty years ago, it strikes me that, culturally and politically speaking, much has changed, except perhaps the one thing that needs most to change. That is, we still cannot have an authentic public dialogue about money. To be sure, there are many partisan ideological arguments about taxes being too high, spending being out of control, having to pay the "debt" so our children won't have to, and the like, but those are not sober soul-searching conversations about what money is, how it is created and controlled, and who it serves.

McCain and Obama both talked in a heartfelt way about the need to come together. Money is one topic that is common to us all. Notwithstanding that it is typically invoked in a divisive manner, my experience is that it is the one subject around which it is most possible to have a unifying transcendent dialogue. I have tried to demonstrate something of that potential through these columns. It is my hope that in the relative political calm between now and inauguration day, the seed of a productive discourse on money can be planted, before the looks on those faces fade again into the disunity of political business as usual.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #74 A POETIC THOUGHT FOR ELECTION DAY

2008-11-04T03:16:00.000-08:00

(Week 13 - Tuesday, Nov. 5)

The campaigning is done, and each office seeker has made his or her case. This poem is offered from the heart as something to reflect upon as each reader casts his or her vote. If one cannot find clear expression for the thought and sentiment it raises on the current ballot, then may it at least plant a seed of resolve for the next time around (which starts tomorrow).

"Why?"

Hark the entreaties of the broken
Souls who have borne usury's curse,
Debt-money's train of death and woes.
The huddled betimes scarce awoken
Soon to find wit and will aburst,
The hour, impending, no one knows.

The meek get ready to inherit the earth,
The earth prepares to receive the sky,
The youth anon will discover a future,
The wise, in love, smile – and now you know "Why?"

May we all walk in wisdom on this day of decision.

Thank you for listening.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #73 - ELECTION DAY: DAY OF DECISION, OR RATIFICATION?

2008-11-03T15:08:00.000-08:00

(Week 13 - Monday, Nov. 3)

Tomorrow is "election day". Ostensibly, this is the long-anticipated pivotal day of decision on which we set a bold new direction for the future of ourselves and our children. After observing the pattern set in previous election cycles, it might be fairly asked if it is not instead an empty civic ritual whereby, amidst much expensive political hoopla, we participate in the ratification of the same old system, with no realistic chance of making a choice for the positive? In the persons presented on the ballot (as per John McCain and Barack Obama, for example; not meaning to overlook the fact that there are others also), is there presented a bona fide choice between two divergent roads forward, or is it essentially a non-choice, between "Tweedle Dee and Tweedle Dum". Is the only real alternative to "waste" one's vote on a protest third-party candidate?

Taking the question a bit deeper, is it a constructive act to cast one's vote at all? This, to be sure, may appear to be out of synch with the civic tenor of this special day, but in my travels the question is presented to me frequently by serious-minded souls who are seeking an affirmative way to act, but are torn between hoping that they can make a difference, and feeling that their precious time and energy are being co-opted to add political bunting to the same old corrupted civic structure.

For my part I am encouraged that the level of interest and participation among the electorate, even after what seems like an interminable four-year grind since the last Presidential election. In a peculiar sort or way the vast quantities of cash that have been pouring into campaign coffers is an indication that there is a vast reservoir of hope that is being drawn upon, even to the extent that people are electing to vote with their financial substance through a difficult time. For all that, however, the issue of monetary transformation, is nowhere represented on the ballot, except in the guise of the tired old rhetoric of getting-spending-under-control-and-balancing-the-budget-so-our-children-won't-have-to-pay-our-"debt". What could be more discouraging?

This begs the question, is there a reason for hope? I believe that there is.

Permit me to offer an analogy. In the field of chemistry there is a phenomenon known as a "super-saturated solution." By way of explanation, if one were to take a liter of water and then begin to add small quantities of a salt, the salt would dissolve into the water forming a solution; until, that is, the water held in solution all the salt that it could hold. At that point the solution would be "saturated", and any additional salt added would fall undissolved to the bottom of the container.

Now suppose that one started with a solution that was already saturated (with no extra salt at the bottom), and began to let water evaporate out of the container. As the water evaporated the salt would be left behind, but the measure of salt that was supposedly dissolved by that amount of water would stay dissolved, and not precipitate to the bottom. The solution in the container would have entered a state of being a "super-saturated solution"; that is, it would be holding in suspension more salt than it could supposedly hold. The reason that it would stay in suspension is that there is nothing identifiable in the solution that represented truly the pattern the excess salt would precipitate into if it had the chance. If one were to introduce into the solution a seed crystal, however tiny (it need only be at least one molecular replication of the true pattern), then the excess salt in the solution would precipitate out (this is in fact how crystals are grown).

The state of the macro-political climate at present is analogous. The energy in the hopes, fears, debates, activism, anxieties, seeking and prayers of the people around the world about the present state of affairs constitutes a mighty socio/economic/political super-saturated immersion. There is a great deal of angst-ridden argument out there about having to find a new and better way. Many issues are raised, some which venture tantalizingly close to the core truth, but we remain yet at a collective loss as to what precisely the problem is, and what exactly can be done about it. If, however, the seed crystal of a true alternative can be sown into the public consciousness, what would precipitate out would be breathtaking. That is what this column, hopefully, is all about. If in fact it can be constituted so as to form a seed crystal of what is yet unmanifest, but striving to be born. This is no mere metaphor, but a principle of real power and change.

Seen in this light, the tremendous energies that have been poured into this election cycle, without, in the view of many, evident fruit need not be lost. They do indeed come from a deep font of human hope in the future that can be precipitated out into a bright new vision for the future. The seed crystal that is yet lacking, I would suggest, is a true dialogue about the nature, realities and practice of money.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #72 - PRIVATE BANK MONEY: THE STRANGE SUPERSTITION OF OUR AGE

2008-11-01T04:38:00.000-07:00

(Week 12 - Saturday, Nov. 1)

Christopher Hollis, British economist and guest professor at Notre Dame University, observed:

"Indeed the historian has to record that in almost every age there was some superstition or other of utter unreason which strangely occupied the minds of men, otherwise of activity and vigor . . . We are sometimes ready to congratulate ourselves that our age has outgrown all superstitions. But the historian of the future will, I fancy, reckon in the same class . . . the strange superstition that, whenever money is invented, a percentage must be paid forever afterwards as a propitiation to a banker. It is on that superstition that the whole empire of Mammon is built."

Private bank money is the "strange superstition" of our time. It behooves we modern scientific sophisticates to ask ourselves if we as a civilization have fallen for an assumption that is as unscientific as the flat-earthery of an earlier time. Frederick Soddy, a British scientist and Nobel Laureate in Chemistry, was appalled by the anomalies caused by the usury-based monetary system. He wrote,

"The sensationalism of the scientific prophet could hardly imagine anything so sensational as this. A nation dowered with every necessary requisite for an abundant life is too poor to distribute its wealth, and is idle and deteriorates not because it does not need it, but because it cannot buy it."

Such thoughts precipitated an inquiry on his part which resulted in what many consider to be a classic volume, Wealth, Virtual Wealth and Debt. This treatise compares economics with physical science. The creation of real wealth, he reasoned, always involves the expenditure of energy, and must conform to the laws of thermodynamics, whereas to set up "debt" paper as the source of wealth turns reality on its head. Among his many insights was the conclusion that,

"If we reasoned similarly in physics, we should probably discover that weight possessed the property of levitation."

My observation is that in our "enlightened" era, denial, especially when related to money, is perhaps the strongest human failing. I can imagine a time in the future when our descendents (for whom we are so ostentatious about not wanting to pass on our "debt"), will come to their senses and dispel the bank-money bogeyman back to the irrationality from which he came, and wonder in amazement how an age of "science" could ever have believed in him. They will regard with horror the terrible price we were willing to pay, rather than relinquish our attachment to this pernicious notion.

In my view, the so-called "national debt" is a phantom. By taking it at face value, and arguing within an arena circumscribed by its own ostensible terms ("loan", "debt", "interest", "pay back", etc) , howbeit even "against" it, we effectively legitimize its chicanery and cement it as a fixture of our intellectual landscape. Our reflexive hand-wringing on this "issue" needlessly traumatizes our children into believing this abstraction is real, and unintentionally programs them into an acquiescence to a dead-end future. We do untold violence to their prospects, their psyches and their hopes, however unintentionally, because we are reluctant to break our denial on this.

If We-the-People were to wake up to the reality that the "national debt" is a made-up construct, and that it could be de-constructed, there would be a new world in the morning. What is more, the sky would not fall, and the whole financial mess the nation finds itself in could begin to be resolved directly, systematically, transparently and without default to anyone.

Monetarily speaking the way forward is straightforward. It begins with the restoration of the money creation franchise to the public sector. It continues with the deflation of the "debt" bubble (not a paying of the "debt") by the redemption as they come due of already outstanding U.S. bonds with real money (United States Notes; as per the "Greenback"). It is completed with the scrapping of the fractional reserve formula, and the redefining of all "credit money" already issued as legal money.

The playing out of the transition is bigger and more complex than this of course, but eminently doable. This may sound like a preposterous vision, but, I would suggest, it is not. It only seems so because our minds have been trained out of the ability to even entertain such fits of common sense by the cumulative force of our "debt-money" rooted acculturation.

Next week the citizens of the nation will enter the voting booth in what is widely billed as a "pivotal election that will determine the future of our children's future." In spite of what has come to be years of strenuous campaigning at a cost of hundreds of millions of dollars, the issue of money is not even represented by anyone on the ballot in any definitive way. Whatever the turnout, and whoever the victors, this is a great tragedy for our nation. It was not always so. Let us resolve that it never be again.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #71 - WHY OUR CHILDREN WILL NOT INHERIT THE "NATIONAL DEBT" – Part 4

2008-10-31T04:31:00.001-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #70 WHY OUR CHILDREN WILL NOT INHERIT THE "NATIONAL DEBT" – Part 3

2008-10-30T05:13:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #69 WHY OUR CHILDREN WILL NOT INHERIT THE "NATIONAL DEBT" – Part 2

2008-10-29T04:11:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #68 WHY OUR CHILDREN WILL NOT INHERIT THE "NATIONAL DEBT" – Part 1

2008-10-28T04:45:00.000-07:00

(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
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #67 WHY DON'T THE CANDIDATES TALK SENSE ABOUT THE "DEBT"? – Part 2

2008-10-27T00:39:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #66 WHY DON'T THE CANDIDATES TALK SENSE ABOUT THE "DEBT"? – Part 1

2008-10-25T04:56:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #65 TO BORROW, OR NOT TO BORROW: THAT IS THE $700 BILLION QUESTION

2008-10-24T06:07:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #64 TO BORROW, OR NOT TO BORROW: THAT IS THE QUESTION

2008-10-23T01:27:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #63 "WHAT CAN I DO ABOUT MONEY?"

2008-10-22T03:12:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #62 THE CONCORD RESOLUTION REVISITED

2008-10-21T04:53:00.000-07:00

(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
richkotlarz@gmail.com

Postscript:
For more information on the Concord Resolution go to http://www.concordresolution.org/

The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #61 AMERICAN MODE OF CREATING & ISSUING MONEY

2008-10-20T05:40:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

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)

Column #60 KINDLING A FLAME

2008-10-04T05:05:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #59 WHY WE CANNOT HAVE ANOTHER DEPRESSION

2008-10-03T05:22:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #58 MONETARY CRISIS – TAKING STOCK OF WHERE WE ARE NOW

2008-10-02T05:20:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #57 MONETARY CRISIS – THE RECENT HISTORY OF HOW WE CAME TO THIS

2008-10-01T06:11:00.000-07:00

(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
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #56 PRESIDENTIAL DEBATE – SEPTEMBER 26, PART II THE REAL "COST" OF THE IRAQ & AFGHAN WARS

2008-09-30T04:59:00.000-07:00

(Week 10 - Tuesday, Sept. 30)

In yesterday's column I offered commentary on the first half of the Friday evening debate between John McCain and Barack Obama, which was directed towards the current financial crisis in the economy, and President Bush's proposed $700 billion dollar "rescue plan" to save the speculative financial "industry" and the banking system. Much of the discourse was about how the "debt" the Federal government would inevitably take on in any such plan would ultimately have to be made up in the future through ever more prudent priorities concerning taxing and spending.

In my view, this is a hopelessly off-target attempt to address the problem. The Federal "debt" is not a fiscal phenomenon (i.e. an imbalance between taxing and spending), but arises out of improper monetization (i.e. the process by which money itself is created and issued) [see Cols. # 19 – 21]. We can gain a dramatic insight into the difference between these two perspectives by examining the real "cost" of the Iraq and Afghan wars, which preoccupied much of the last half of the debate.

It can hardly be disputed that the wars in the Middle East are costing our country dearly in materiel, blood and lives. Many also argue that it is costing us the love, trust and admiration of our fellow human beings in the community of nations, and some even say that it is costing us our sacred honor for the supposedly devious reasons for which it was entered into (to be sure many feel otherwise). One would find little disagreement that the conflicts are imposing costs in carnage and suffering on the Iraqi and Afghan people that are difficult to even imagine, not to mention the toll that it is taking on their infrastructure and lands.

All this said, the question remains, what is the "cost" of these war sin terms of money? Each of the candidates lamented the vast sums that are being spent on these conflagrations. I understand where they are coming from, but I would suggest that there is another way of looking at the matter.

From the beginning of this series of columns I have examined and frequently referred to the private-bank-loan transaction by which our money supply is created and issued. I have also tried to show that it sets up a monetary dynamic whereby ever greater amounts of money need to be borrowed from the banking system and spent into circulation in order for people to be able to make the principal payments on old loans, plus the "interest" payments on those loans, while maintaining a necessarily growing money supply.

If this fails to occur, then the money supply will begin to contract, bankruptcies will multiply, and the economy will spiral down into recession or depression. Somebody has to keep going deeper into "debt". It does not matter to the banking system whether it is the people in the private or the public sector that feel compelled to make the plunge. At present, the confidence of the borrowing public is at low ebb, and their ability and willingness to take on vast quantities of new "debt" is largely exhausted. This means that if the economy is to not go into the tank the Federal government has no choice, seemingly, except to step in as the "borrower of last resort".

The key to making this work is to find a way to generate the political will to take on a vast public "debt". Spending on universal medical care, freely available education, public infrastructure, cleaning up the environment, and a dignified basis of support for all its citizens has been so discredited in the eyes of the public as "wasteful spending" (which is not to say that some things proposed are not indeed foolish and wasteful), that a political will sufficient to allow the government to borrow the huge sums necessary to stave off economic collapse under the current "debt" load cannot, as a practical matter, be attained. What can succeed in creating such a mandate is to start a war against a feared and hated enemy. Then no amount of "financial sacrifice" (i.e. government borrowing) is too much, and almost any politician who says otherwise runs a grave risk of being turned out at the next election cycle.

Far from being a net "cost" to the economy, the Iraq and Afghan wars have been the great engines of money creation that have kept the economy from imploding. I would hasten to add here that I am not saying that our national leaders have consciously gotten this nation embroiled in the Middle East morass for the purpose of going into "debt". On the contrary, on the whole they sincerely believe that the war is "costing" money that will have to be, in some vague and unspecified way, made up for by fiscal frugality after the conflict(which is an illogical notion given the virtual imperative imposed on the people by the private-bank-loan transaction to go even deeper into "debt" whenever new money is created)

When money is created and spent into circulation, it does not stop with the procurement for which it was originally issued, even if that is for weaponry. It goes into the paychecks of whoever produces the products and the profits of the company they work for, and thereafter becomes blended into the monetary pool. I would urge the reader to contemplate the thought that, of the dollars in his or her wallet or bank account right now, a large portion have entered into circulation as a result of government borrowing to pay the "costs" of the Iraq and Afghan wars. Monetarily speaking, if it were not for these wars, those dollars would very likely not be in existence, and the economy would be proportionally contracted, arguably to the point of recession or depression.

To be absolutely clear, this is not a rationale to start a war (or go into "debt" even for more benign domestic reasons). It is, rather, an absolutely compelling reason to change the basis of the monetary system away from one in which the madness of having to borrow the nation's money at "interest" from a private banking system becomes an effective economic imperative at whatever ruinous cost.

What I am saying here is nothing new. The fact that war, in its many guises, has been the great engine of money creation when the public could not be aroused to the task of taking on vast quantities of "debt" for any other purpose has been long discussed in classic economic writings, but has virtually disappeared from the more "sophisticated" canon of modern texts.

The real monetary "cost", then, of the wars in the Middle East is not the vast sums of money "borrowed" to finance them (which, unlike lives, can be created in any amount by the "flick of a pen"), but the ever deepening penetration of public consciousness with the flawed basic premise of the "private-debt-money" system itself (i.e. that the numbers associated with money creation at "interest" are the "hard realities" that must be accounted for, and everything else is a "cost"). It is a lesson that we as a modern civilization will have to relearn. In my view, this is what McCain and Obama need to be talking about if they are serious (and I can only imagine they are) about stopping these wars.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #55 PRESIDENTIAL DEBATE – SEPTEMBER 26, PART 1 THE "FINANCIAL RECOVERY PLAN"

2008-09-29T05:25:00.000-07:00

(Week 10 - Monday, Sept. 29)

On Friday evening the two "major-party" candidates for President, John McCain and Barack Obama, met for the first face-to-face debate of the Presidential campaign. Overall the session was divided into two main segments, their respective themes being the current financial crisis in the economy, and the Iraq and Afghan wars in the Middle East. In this installment, let us take a look at the first segment, the current financial crisis.

Moderator Jim Lehrer opened with the question - "Where do you stand on the financial recovery plan?" (the "financial recovery plan" being, presumably, the $700 billion dollar bailout of the financial industry proposed in an address to the nation by President Bush earlier in the week).

I found the responses of both candidates to be evasive and non-substantive. They lapsed into the vague platitudes, truisms and bromides that virtually always seem to attend economic issues. For Senator Obama's part, he talked about the need for "more oversight", measures "to make sure that we protect taxpayers", arrangements to "make sure that "none of that money is going to pad CEO bank accounts", and steps "to make sure that we're helping homeowners". Senator McCain's replied by asserting the need for more "transparency", "accountability", "oversight" and options that don't require the government taking over. These are all very fine sentiments, but, borrowing from a Presidential debate in 1984 between Walter Mondale and Gary Hart, "Where's the beef?" That is, where is the substantive thought in their respective responses?

I would ask the reader, if the words and phrases attributed to each candidate above were cut out and presented without identification as to who uttered them on this particular occasion, could you tell which belonged to whom? Or, rather, are they not in fact abstract vagaries professed endlessly in the common political-speak by which politicians attempt to garner credit for sincere intent, and create an aura of being on top of the problem, but convey no substantive thought on the matter at issue?

Both declined to be responsive in the first go-round to the clearly stated intent of the moderator's question, so he felt obliged to re-ask it. The answers were only slightly more responsive the second time around. Obama deferred in part by saying that "we haven't seen the language yet", and McCain related an inspiring in is own right, but irrelevant in this case, anecdote about General Eisenhower to reiterate his point about "accountability".

In yesterday's column I stated that, "...if returning the monetary franchise to the people where it rightfully belongs is not at the heart of a proposed solution, then it is no solution at all." There was no mention whatsoever about the need to return the monetary franchise to the American people, and so in my view there was no effective dialogue about a solution. In fact, neither candidate even mentioned the monetary system, let alone the private-bank-loan transaction by which the nation's money is created and issued, or the collapsing fractional reserve formula which is creating the perception of the supposed urgency to push through a "rescue plan" immediately before the banking system shuts down.

This is a far cry from when three-time Democratic Party nominee for the Presidency, William Jennings Bryan, declared in his famous "Cross of Gold" speech in 1896:

"If they ask us why we do not embody in our platform all the things that we believe in, we reply that 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."

Can one imagine a "major party" Presidential candidate saying such a thing today? Perhaps more importantly, can one imagine a national audience understanding what he is talking about? This is a point to keep well in mind before we blame McCain or Obama for their failure to address the core issue at the heart of the financial crisis. A culture-wide amnesia has descended on the populace related to the monetary issue, and, of course, the "major candidates" we get are a natural reflection of that.

To be fair, both candidates made attempts at more substantive responses as they talked about the need to "balance the budget". What was missing, however, was any awareness that the current financial crisis is not in its nature a fiscal problem (i.e. related to balancing taxing and spending), but a monetization problem (i.e. related to how and by whom money is created and issued) [see Cols. #19 – 21]. Until they gain such a realization, their "debates" on this critical issue will continue to be almost completely unresponsive to the wrenching financial turmoil that citizens, the nation and the world are experiencing at present.

Richard Kotlarz
mailto:Kotlarzrichkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #54 MY SOLUTION TO THE "DEBT CRISIS"

2008-09-27T04:43:00.000-07:00

(Week Nine - Saturday, Sept. 27)

I would suggest that there is an answer to the current "debt crisis" that is very straightforward and consistent with common sense. This is the time to pause, take stock of what has happened, and do some soul searching before getting stampeded into any multi-hundreds-of-billions-of-dollars "bailout" scheme that only serves to compound the mistakes of the past. In my view, there is a better way. I hereby propose the outlines of a genuine solution based on three principles.

Principle #1:

As a society we need more and more to see money, not as a means for private gain, but as a channel for serving the needs of our fellow man and taking care of the planet. This is not a mere truism or sentiment. It is the only practical way forward. The current monetary order grew out of the current monetary culture as naturally as a tree grows from its own seed, and now we are seeing the fruit thereof.

If the whole truth be told, it is not only the financiers who have entertained a measure of avarice in their hearts when it comes to money. Dare I say that virtually everyone has unduly coveted it to a degree in their own respective spheres, and acted on that impulse, at least in part, within the context of to their own opportunities? Who has not accepted what has come to them through the system as their due, while protesting against what is perceived to be the unwarranted fortune of others? I mean no judgment or accusation by this. We all have an inner conscience to which we must give an accounting, and I have my own to face.

I believe that a society-wide change of consciousness about money is possible, and would be reachable if each person strove to cultivate a right inner attitude.

Principle #2:

The "debt"-based private-bank-loan mode of money creation and issuance must be abolished, and the people must rouse themselves to reclaim their sovereign power to create and issue their own money. I don't mean to sound dogmatic on this point, but I believe that if returning the monetary franchise to the people where it rightfully belongs is not at the heart of a proposed solution, then it is no solution at all. This is a principle that cannot be compromised in any hybrid "rescue plan" without re-planting the seeds of the monetary order's, and thereby the social order's, undoing.

Public issuance of currency is not a scheme to get "free" money out of the government. Rather, it is the taking up of a responsibility that we as citizens have neglected for too long. We have allowed our monetary affairs to be taken over by a private agency, the so-called "Federal Reserve" (which is neither "Federal", nor a "Reserve"), and our own currency to be doled out on terms favorable to the private interests are represented by it. Now we will have to get serious about, not only our prerogatives as a sovereign people, but also our duties as stewards of an essential trust.

As a practical measure, the first step politically would be to repeal the Federal Reserve Act. This does not mean demolishing its buildings and telling its employees to look elsewhere for work. Rather, the skills and dedication of the workforce could be turned to good account in helping to administer a new way of handling money.

Nor does it mean abolishing private banking, or even the lending of money by banks at interest. The banks would continue to perform their necessary services, but the essential change is that they would cease to be the agencies that issue our money supply. In their new configuration they would operate more like savings-&-loans and credit unions do now.

Principle #3:

There must be established a world trading order in which the relative values of currencies are allowed to find their equitable exchange ratios through the normal processes of trade, much like water finds its own level. This would tend to happen naturally now, except that the "interest" charge that is attached to the issuance of virtually all currencies is constantly draining them of their value, thereby igniting "trade wars" by which nations feel obliged to make up for that lost value through a "positive trade balance". It is not possible for every nation to have a "positive trade balance" with every other nation. The result is that no just and stable equilibrium can be achieved in the global economy.

My proposed new world trading order would be essentially the "level playing field" that the sincere proponents of "free trade" aspire to, but cannot seem bring about. I welcome any other thoughts.

Respectfully offered, Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

Column #53 THE PRESIDENT'S ADDRESS TO THE NATION

2008-09-26T06:09:00.000-07:00

(Week 9 - Friday, Sept. 26)

Following are selected excerpts from President Bush's speech to the nation on Wednesday evening in which he addressed the current financial crisis, and urged the adoption of a proposed $700 billion dollar scheme to "rescue" banks and other major financial institutions. To his words quoted below, I have added my own commentary and explanatory (in my view) inserts in [brackets].

"Financial assets related to home mortgages have lost value during the house decline, and the banks holding these assets have restricted credit." [These "financial assets" are people's mortgage contracts that "investors" have bought up with money borrowed from banks in order to be the recipients of their "interest" payments. (see Col. #5)]

"As a result, our entire economy is in danger." [The condition of our "entire economy" is being linked to the interests of the financial speculators who are buying up our "debt" paper.]

"So I propose that the federal government reduce the risk posed by these troubled assets and supply urgently needed money so banks and other financial institutions can avoid collapse and resume lending." [It is being proposed that the federal government borrow money to replace what the banks lost through speculative lending. The phrase "avoid collapse and resume lending" is an indirect reference to the idea that the money lent to buy such "troubled assets" is on deposit in the lower courses of the fractional reserve pyramid, and constitute, therefore, much of the "reserves" that are supporting the consumer borrowing above it.]

"This rescue effort is not aimed at preserving any individual company or industry." [It is aimed at preserving the gains of the speculative financial "industry".]

"See, in today's mortgage industry, home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world... Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac." [Fannie Mae and Freddie Mac have been presented to the public as financial agencies dedicated to getting people into their own homes. Whatever good may have been done through them in this respect, the President's words are a tacit admission that "when push comes to shove", it is the "investments" of speculators in home mortgages who are getting "bailed out", while the investment of the homeowners who pay them is not taken seriously into account.]

"The decline in the housing market set off a domino effect across our economy." [This is another way of saying that the decline of the housing market has precipitated a collapse of the fractional reserve formula.]

"When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses. Before long, these securities became so unreliable that they were not being bought or sold. Investment banks, such as Bear Stearns and Lehman Brothers, found themselves saddled with large amounts of assets they could not sell." [The phrase "incur serious losses" makes it seem (though not explicitly) as if banks and speculative "investors" were holding money that is now being lost. They were not holding money; only speculative paper that gave the appearance of being money because there was always someone else waiting in the wings, presumably, that had money in hand that they were ready to trade for that paper. There is virtually as much money in the economy as there was a month ago, except that now the holders of it are not so willing to play at the gaming tables in the casino that the monetary system has become.]

"I'm a strong believer in free enterprise, so my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business." [Then why do we not let the speculators go out of business, and leave the productive sector unburdened by their "enterprise"?]

"And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And, ultimately, our country could experience a long and painful recession." [The American people possess the key to their own credit, and that is to issue their own adequate supply of money directly out of their own public treasury, which is the sure antidote to "recession".]

"But given the situation we are facing, not passing a bill now would cost these Americans much more later." [I find this to be a misguided sense of urgency. It is as if we the people are being rushed to plunge back into the "debt"-money system before we have had a chance to think about what it has wrought. This is our perfect opportunity to see the workings and consequences of the private-bank-money system exposed and examined. If the enforcement of the fractional reserve formula were suspended, we could let the money in the banks just be money (not "reserves"), and that would allow us to take any time we needed to come to our senses.]

"First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system." [If one finds dead leaves clogging one's gutters, the sensible thing to do is to flush them out, or at least allow the natural flows of water over time to do so. Why, then, do we not allow the "troubled assets (i.e. unsupportable "debt" contracts) that are clogging the financial system" to be flushed out?]

"The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal." [The President is acknowledging that the government is effectively the borrower of last resort (after the people lose confidence and/or are no longer willing or able to borrow more) for the private monetary system.]

"And when that happens, money will flow back to the Treasury as these assets are sold, and we expect that much, if not all, of the tax dollars we invest will be paid back." [This is wishful thinking. The proliferation of "debt", public and private, will only continue.]

"The final question is, what does this mean for your economic future?" [This "bailout" would insure that our economic life in the future would be consumed by ever greater quantities of "debt."]

"Earlier this year, Secretary Paulson proposed a blueprint that would modernize our financial regulations. For example, the Federal Reserve would be authorized to take a closer look at the operations of companies across the financial spectrum and ensure that their practices do not threaten overall financial stability." [I fear that "modernize our financial regulations" is a euphemism for transferring even greater power to the institutions that have presided over the crisis that is now coming to pass.]

To be clear, I am not singling out our current President as the scapegoat. Truth be told, I don't hear either of the "major" Presidential candidates say anything that gives an indication that they have distanced themselves from the mode of thought that got us into this mess (though some of the less regarded do, namely Ron Paul, Dennis Kucinich, Cynthia McKinney and Ralph Nader). Surely President Bush has had his part in this, but so have previous presidents, and virtually everyone who has in their own sphere helped to shape the economic life. This is not a time for haste, blame or recrimination. Rather, it is a pause for soul-searching, both as individuals and as a nation. I do not exclude myself. I think that there is a bright new future than can come out of this "financial crisis," but it will not happen by making an ill-conceived and massive "bailout" of the failed ideas and practices of the past.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm