(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
Wednesday, October 1, 2008
Tuesday, September 30, 2008
Column #56 PRESIDENTIAL DEBATE – SEPTEMBER 26, PART II THE REAL "COST" OF THE IRAQ & AFGHAN WARS
(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
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
Monday, September 29, 2008
Column #55 PRESIDENTIAL DEBATE – SEPTEMBER 26, PART 1 THE "FINANCIAL RECOVERY PLAN"
(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
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
Saturday, September 27, 2008
Column #54 MY SOLUTION TO THE "DEBT CRISIS"
(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
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
Friday, September 26, 2008
Column #53 THE PRESIDENT'S ADDRESS TO THE NATION
(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
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
Thursday, September 25, 2008
Column #52 TOP COURSES OF THE "FRACTIONAL RESERVE PYRAMID"
(Week 9 - Thursday, Sept. 25)
In the last two columns I have described the lower and middle zones of the image I am using to describe the fractional reserve formula that governs how banks can create and issue new money (a stone block wall which resembles a sort of tall pyramid). The lower zone consists of a foundation course of money on deposit in the banking system which are the proceeds of borrowing by the Federal government, and a number of layers stacked on top of that which are composed of the money on deposit of the banking system's biggest customers (large corporations, major public entities, the mega-wealthy).
Above the base layers are the middle courses, where we find the bank deposits of the hard-working, bill-paying, family-raising wage earner, small businessman and consumer (i.e. the "middle class") who perform the bulk of the wealth-creation work in society.
The Sub-Prime/Revolving-Credit Courses:
The top zone (upper courses) of the fractional reserve pyramid is made up of the money on deposit in the banking system of the people who are borrowing to live. Any pretense of this being funds that are "invested" is virtually gone. This is the level of "finance" where people live from "paycheck-to-paycheck" (if they are fortunate), and "loans" are taken out to buy groceries, put gas in the car, and pay for uninsured medical care. These are the folks who live in the financial purgatory of sub-prime mortgages, credit card dependency and payday lenders.
Whether consumers in the sub-prime/revolving-credit zone default on their "debts" is of little consequence to the monetary system as a whole. Business at this level is all gravy to the banking system, with little cost, except printing and postage on the billions of "new offers" they send out in the mail. That specifically is why people in the midst of a major credit-card "debt" crisis continue to have their mailboxes stuffed with new offerings, even from the same companies they are in arrears to. If the consumer went bankrupt the "debt" on these cards would lapse, but all the money that could have been squeezed out of their beggared estates would by that time have been collected anyway. Fresh "credit money" created out of thin air could be safely issued again, next time on even harsher terms.
For a system that depends ostensibly on the ability of people to pay their "debts", the controlling factor in the pressure-relieving bankruptcy game is not as simple as "loan repayment, or no", but rather the stratum in which any default occurs. In the base strata of the monetary pyramid, institutional default will convulse and even threaten the existence of the system itself (at least that is the fear fed by the fractional reserve formula). As one moves up the pyramid, this default-phobic reflex becomes progressively less operative to the point where in the top zone the banking system does not even want its customers to pay up. That is why privately credit card companies refer derisively to their customers who do pay their bills in a timely manner as "deadbeats". Their business practices result in keeping the consumer running ever faster on a tread-wheel of revolving credit, at increasingly harsh terms, the end of which is almost certain to be bankruptcy.
It should be noted that the soundness of the financial blocks in the bottom row still depend, however indirectly, on the performance of some of the lesser grade courses on top. Their portfolios are ultimately "debt"-based, and so depend on real people being able to "perform" on their financial obligations. A certain amount of rot can be tolerated, but let that be the problem of the middle managers in the upper layers. Of late, however, these prime players have had to reach further up into the realms of "sub-prime and revolving debt" in an attempt to keep their own stones in the "fractional reserve" wall patched up with enough money on deposit.
The perverse logic of this whole scheme is that if the common man goes bankrupt, even if millions do (especially in the sub-prime/revolving-credit zone), it is treated in the world of high-finance and the politics that attend it mainly with lip service, because their "loan" proceeds are not strategic stones in the wall (not the "reserves" for much "credit money" creation), but if a major bank fails it threatens to bring down the whole credit structure. The crazy upshot of this situation is that there is a degree of reality to it; as long, that is, as we the people accept the dubious "financial realities" of a monetary order that is based on the "fractional reserve formula" as propounded by powerful media, financial and political interests.
And so the public may acquiesce (if history is any guide) to these "bailout" schemes, albeit amidst indignant demands for more "accountability" in the system this time around. Those who labor to make mortgage payments, sub-prime and prime, are losing their homes by the millions, while Fannie Mae and Freddie Mac (the financial agents for those "investors" who "own" their mortgages) are getting hundreds of billions of dollars in "bailout" money. The fortunes represented by the lower courses of the fractional reserve pyramid scheme are thus secured, the banking system is "saved", and the system is made ready to go another round of "debt"-money expansion.
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
In the last two columns I have described the lower and middle zones of the image I am using to describe the fractional reserve formula that governs how banks can create and issue new money (a stone block wall which resembles a sort of tall pyramid). The lower zone consists of a foundation course of money on deposit in the banking system which are the proceeds of borrowing by the Federal government, and a number of layers stacked on top of that which are composed of the money on deposit of the banking system's biggest customers (large corporations, major public entities, the mega-wealthy).
Above the base layers are the middle courses, where we find the bank deposits of the hard-working, bill-paying, family-raising wage earner, small businessman and consumer (i.e. the "middle class") who perform the bulk of the wealth-creation work in society.
The Sub-Prime/Revolving-Credit Courses:
The top zone (upper courses) of the fractional reserve pyramid is made up of the money on deposit in the banking system of the people who are borrowing to live. Any pretense of this being funds that are "invested" is virtually gone. This is the level of "finance" where people live from "paycheck-to-paycheck" (if they are fortunate), and "loans" are taken out to buy groceries, put gas in the car, and pay for uninsured medical care. These are the folks who live in the financial purgatory of sub-prime mortgages, credit card dependency and payday lenders.
Whether consumers in the sub-prime/revolving-credit zone default on their "debts" is of little consequence to the monetary system as a whole. Business at this level is all gravy to the banking system, with little cost, except printing and postage on the billions of "new offers" they send out in the mail. That specifically is why people in the midst of a major credit-card "debt" crisis continue to have their mailboxes stuffed with new offerings, even from the same companies they are in arrears to. If the consumer went bankrupt the "debt" on these cards would lapse, but all the money that could have been squeezed out of their beggared estates would by that time have been collected anyway. Fresh "credit money" created out of thin air could be safely issued again, next time on even harsher terms.
For a system that depends ostensibly on the ability of people to pay their "debts", the controlling factor in the pressure-relieving bankruptcy game is not as simple as "loan repayment, or no", but rather the stratum in which any default occurs. In the base strata of the monetary pyramid, institutional default will convulse and even threaten the existence of the system itself (at least that is the fear fed by the fractional reserve formula). As one moves up the pyramid, this default-phobic reflex becomes progressively less operative to the point where in the top zone the banking system does not even want its customers to pay up. That is why privately credit card companies refer derisively to their customers who do pay their bills in a timely manner as "deadbeats". Their business practices result in keeping the consumer running ever faster on a tread-wheel of revolving credit, at increasingly harsh terms, the end of which is almost certain to be bankruptcy.
It should be noted that the soundness of the financial blocks in the bottom row still depend, however indirectly, on the performance of some of the lesser grade courses on top. Their portfolios are ultimately "debt"-based, and so depend on real people being able to "perform" on their financial obligations. A certain amount of rot can be tolerated, but let that be the problem of the middle managers in the upper layers. Of late, however, these prime players have had to reach further up into the realms of "sub-prime and revolving debt" in an attempt to keep their own stones in the "fractional reserve" wall patched up with enough money on deposit.
The perverse logic of this whole scheme is that if the common man goes bankrupt, even if millions do (especially in the sub-prime/revolving-credit zone), it is treated in the world of high-finance and the politics that attend it mainly with lip service, because their "loan" proceeds are not strategic stones in the wall (not the "reserves" for much "credit money" creation), but if a major bank fails it threatens to bring down the whole credit structure. The crazy upshot of this situation is that there is a degree of reality to it; as long, that is, as we the people accept the dubious "financial realities" of a monetary order that is based on the "fractional reserve formula" as propounded by powerful media, financial and political interests.
And so the public may acquiesce (if history is any guide) to these "bailout" schemes, albeit amidst indignant demands for more "accountability" in the system this time around. Those who labor to make mortgage payments, sub-prime and prime, are losing their homes by the millions, while Fannie Mae and Freddie Mac (the financial agents for those "investors" who "own" their mortgages) are getting hundreds of billions of dollars in "bailout" money. The fortunes represented by the lower courses of the fractional reserve pyramid scheme are thus secured, the banking system is "saved", and the system is made ready to go another round of "debt"-money expansion.
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
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