(Week 3 - Friday Aug. 15)
So far this week I have described the credit card phenomenon as a great engine of money (and therefore "debt") creation that has been handed over to (some say foisted upon) the common citizen, and is pressuring many into an unmanageable "debt" burden. In my view, this remains true, but there is another side.
There is a great loophole in the credit card scheme. That is, if one pays off one's balance in full when the bill arrives at the end of the month, then one does not have to pay any charges for "interest," fees or penalties. That means that by borrowing money from a bank using a credit card, and then paying off the full balance at the end of every month, one is causing to be issued into circulation money on which an "interest" or other charge is never paid (admittedly for only a month, but when multiplied by millions of such cardholders the numbers add up).
This is the only significant source of "interest-free" money currently entering into circulation that I know of, and it comes directly from the use of the instrument of finance that is greasing the slide of the less fortunate and the nation as a whole most speedily into "debt."
This loophole has not gone unnoticed by the banks and credit card companies. In fact, there was talk in the industry about lobbying for legislation that would shut down this obvious free ride, but that has abated largely because its beneficiaries tend to be of the wealthiest and most politically-connected segment of the population. So, naturally, the cost of the system would just have to be borne by those in the middle or near the bottom of the economic totem, especially the one's that experience the need to rely on the card for necessities.
This apparently disproportionate burden would be exacerbated by the passing of a new bankruptcy law (in 2005) that would insure that even the relief offered by that extreme measure would become more expensive and difficult to access.
By the way, the credit card profession has a name for those who pay up their debt every month - "deadbeats." For customers, they very much prefer the late-paying-trying-to-survive-on-their-way-to-bankruptcy"revolvers" (those struggling to make minimum monthly payments). From what I have seen, card-company practices are evidently designed to nudge as many of their "deadbeat" customers as possible into the "revolver" category.
This adds a twist of irony to the words of a credit-card industry spokesman I once saw on TV testifying to a congressional committee about the proposed industry-sponsored "bankruptcy reform bill." He said, in effect, that it was needed to protect their reliably-paying customers from the costs occasioned by the irresponsible behavior of those that were having difficulty in 'meeting their obligations.' (i.e. to protect the "deadbeats" from the "revolvers").
Lest I leave the impression that I am being moralistic, permit me to give the issue another twist. I would say that for those "deadbeats" that can afford to charge on their card and pay off their living expenses every month, let them do it (I did when I could afford it). The money that they bring into circulation thereby will help not only their personal finances, but also serve to bring into circulation the only significant sum of currency in the money supply for which nobody in the society is paying an "interest" charge to keep it there. That could be deemed as a boon to everyone.
To wrap it up let me say that I am not offering anyone moral or financial advice. That is not what I do. What I am trying to accomplish is to draw a picture that will bring into focus the profoundly paradoxical effects and implications of credit card use as currently practiced, and how the credit-card phenomenon is a microcosm of the monetary system itself in the present era. Tomorrow's final column of the week about the credit card will examine what is perhaps the greatest paradox of all.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at thefollowing websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Friday, August 15, 2008
Thursday, August 14, 2008
Column#16 CREDITS CARDS: VIEW INTO THE HEART OF THE SYSTEM
(Week 3 - Thursday Aug 14)
There have been many reports in the media which document the financial distress in people's lives that often accompanies the use of credit cards. Is there perhaps, dare I call it, a "redemptive" side of the credit card question? If we can approach our experience with their use with sufficient awareness, it is possible, in my view, that it may yet be turned to good account.
The emergence of credit cards in people's lives can serve as personal view into the inner workings of the financial system. In earlier times people lived a daily existence that was far less immersed in the details of money. The business of banking was some mysterious affair that took place behind the temple-like facade of a building downtown. The average person made only a rare visit there to borrow a few dollars when times were tight. Many lived out there lives without making the trip at all. They mostly grew corn, built their houses and raised their families.
Now we carry around the keys to the banking system itself in the plastic cards in our wallets. At one time, the decision to create and issue money was made by gray men in paneled rooms after sober deliberation. Today, we the consumer routinely cause vast quantities of money to be created and put into circulation very quickly, often on mere impulse, at the cashier's counter. That we don't realize it doesn't change the fact of its occurrence.
If we take care to track the effects of our use of the card through our monthly statements, it is not difficult to see that the high charges for "interest," fees and penalties on that newborn money quickly absorbs future potential buying power, thus creating a self-fulfilling need to create and bring into circulation ever more quantities of money (increasingly not for discretionary items, but for gas and groceries). The vicious cycle of "debt" expansion is thereby accelerated, and its workings laid bare before our eyes.
At length we are drawn into the revolving-door trap of making minimum monthly payments. Now we are working to pay only the "interest," fees and penalties, and making little, if any, headway in paying down the loan. When we finally stumble and fall on the minimum-payment treadmill, bankruptcy is the next step. This financial dead end has been the natural tendency of the money-issuance-by-private-bank-loan principle all along, particularly since its formal institutionalization in the Federal Reserve Act of 1913.
Much economic travail has transpired under its influence, but until recent decades it has been prevented from running completely amok by the humanity of bankers themselves. This will be a strange saying to some, and it is not to suggest that bankers have always been beyond reproach in their dealings (certainly they have not), but it is significant that at the point of the credit card loan transaction (and other practices in modern banking) the banker is no longer there. The human element has been removed, and now it is between us and the machine.
The credit card phenomenon is running amok as one aspect of finance that is conducted virtually completely via electronic means. Both the financial profession and the people it serves have been shoved equally aside, but it is alike in both their interests to get back together and start talking to each other. That is the critical lesson to be learned from our experience with the credit card.
If we have the wit to see it, the credit card crisis constitutes a unique opportunity for people to get a close look into the workings of the adverse principle at the core of the monetary system from their own experience, and come to a reckoning with their own part in it. We all have something to take responsibility for. The respectful dialogue that could rise out of that epiphany is the first step in implementing a solution that goes to the heart of the system.
Richard Kotlarz
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
There have been many reports in the media which document the financial distress in people's lives that often accompanies the use of credit cards. Is there perhaps, dare I call it, a "redemptive" side of the credit card question? If we can approach our experience with their use with sufficient awareness, it is possible, in my view, that it may yet be turned to good account.
The emergence of credit cards in people's lives can serve as personal view into the inner workings of the financial system. In earlier times people lived a daily existence that was far less immersed in the details of money. The business of banking was some mysterious affair that took place behind the temple-like facade of a building downtown. The average person made only a rare visit there to borrow a few dollars when times were tight. Many lived out there lives without making the trip at all. They mostly grew corn, built their houses and raised their families.
Now we carry around the keys to the banking system itself in the plastic cards in our wallets. At one time, the decision to create and issue money was made by gray men in paneled rooms after sober deliberation. Today, we the consumer routinely cause vast quantities of money to be created and put into circulation very quickly, often on mere impulse, at the cashier's counter. That we don't realize it doesn't change the fact of its occurrence.
If we take care to track the effects of our use of the card through our monthly statements, it is not difficult to see that the high charges for "interest," fees and penalties on that newborn money quickly absorbs future potential buying power, thus creating a self-fulfilling need to create and bring into circulation ever more quantities of money (increasingly not for discretionary items, but for gas and groceries). The vicious cycle of "debt" expansion is thereby accelerated, and its workings laid bare before our eyes.
At length we are drawn into the revolving-door trap of making minimum monthly payments. Now we are working to pay only the "interest," fees and penalties, and making little, if any, headway in paying down the loan. When we finally stumble and fall on the minimum-payment treadmill, bankruptcy is the next step. This financial dead end has been the natural tendency of the money-issuance-by-private-bank-loan principle all along, particularly since its formal institutionalization in the Federal Reserve Act of 1913.
Much economic travail has transpired under its influence, but until recent decades it has been prevented from running completely amok by the humanity of bankers themselves. This will be a strange saying to some, and it is not to suggest that bankers have always been beyond reproach in their dealings (certainly they have not), but it is significant that at the point of the credit card loan transaction (and other practices in modern banking) the banker is no longer there. The human element has been removed, and now it is between us and the machine.
The credit card phenomenon is running amok as one aspect of finance that is conducted virtually completely via electronic means. Both the financial profession and the people it serves have been shoved equally aside, but it is alike in both their interests to get back together and start talking to each other. That is the critical lesson to be learned from our experience with the credit card.
If we have the wit to see it, the credit card crisis constitutes a unique opportunity for people to get a close look into the workings of the adverse principle at the core of the monetary system from their own experience, and come to a reckoning with their own part in it. We all have something to take responsibility for. The respectful dialogue that could rise out of that epiphany is the first step in implementing a solution that goes to the heart of the system.
Richard Kotlarz
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, August 13, 2008
Column #15 FRONTLINE CREDIT CARD REPORT
(Week 3 - Wednesday Aug. 13)
I recently watched the Frontline report on PBS titled "Secret History of the Credit Card" (available online). I found it to be a well produced piece that presented the story of this new fixture in our financial lives from its corporate beginnings in South Dakota, to the plastic phenomenon that has spread to every level and niche in society. It was a balanced and well-researched presentation that, as far as I could see, strove to include voices from all sides of the credit card question.
That said, there was one factor that was, to my mind, conspicuously missing. That is that nowhere was it mentioned that when a consumer uses a credit card, he is, in conjunction with a bank, causing new money to come into existence. Nor did I detect any indication that such a thought was even a glimmer in the minds of the producer, or any of the people in the film.
There were experts that offered sober advice about how to use credit cards responsibly. We do live in a time when they appear to be part of our financial lives (for better or worse), so how could one argue against being prudent in their use? I certainly could not. There seemed to be an underlying assumption, however, that if only we could use them "responsibly" we could keep them under control. This seems reasonable if one takes a short term view of the matter. It is problematic if one takes the longer view.
The truth is that any level of usage (assuming one does not pay off one's balance each month before charges apply) unleashes, given enough time, financial pressures into the lives of people (both the cardholders and others) that tend to drive them ever deeper into "debt." This is true especially given the astronomical rates of "interest," fees and penalties that credit card companies tend to charge.
The source of this pressure is, as for all bank loans (which a credit card transaction is), that the money to pay back the principal of the loan is issued with the loan and retired with the payback, but the money dedicated to "interest," fees and penalty payments is recycled through the financial markets and reemerges as yet more consumer "debt." If we are to think through to the end the full implications of credit card use, this is a factor that must be fully taken account of.
None of this is meant as a criticism of the Frontline producers or their show. On the contrary, I thought it was an excellent, informative and entertaining presentation, and I would not hesitate to recommend it to others. I say this despite the fact that this most central element of the credit card transaction went completely unmentioned in the report, and as far as I could tell, unnoticed.
My remarks are intended, rather, as a commentary on the irony of a culture that is utterly immersed in money and "debt," and yet does not see the private-bank-loan elephant in the room. Viewed with fuller awareness, this Frontline documentary can serve, not only as an excellent chance to learn more about the credit card phenomenon, but also as an object lesson for what our culture has become blind to in our financial lives. When we integrate the two, we will start to come to answers about the credit card dilemma.
Richard Kotlarz
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 recently watched the Frontline report on PBS titled "Secret History of the Credit Card" (available online). I found it to be a well produced piece that presented the story of this new fixture in our financial lives from its corporate beginnings in South Dakota, to the plastic phenomenon that has spread to every level and niche in society. It was a balanced and well-researched presentation that, as far as I could see, strove to include voices from all sides of the credit card question.
That said, there was one factor that was, to my mind, conspicuously missing. That is that nowhere was it mentioned that when a consumer uses a credit card, he is, in conjunction with a bank, causing new money to come into existence. Nor did I detect any indication that such a thought was even a glimmer in the minds of the producer, or any of the people in the film.
There were experts that offered sober advice about how to use credit cards responsibly. We do live in a time when they appear to be part of our financial lives (for better or worse), so how could one argue against being prudent in their use? I certainly could not. There seemed to be an underlying assumption, however, that if only we could use them "responsibly" we could keep them under control. This seems reasonable if one takes a short term view of the matter. It is problematic if one takes the longer view.
The truth is that any level of usage (assuming one does not pay off one's balance each month before charges apply) unleashes, given enough time, financial pressures into the lives of people (both the cardholders and others) that tend to drive them ever deeper into "debt." This is true especially given the astronomical rates of "interest," fees and penalties that credit card companies tend to charge.
The source of this pressure is, as for all bank loans (which a credit card transaction is), that the money to pay back the principal of the loan is issued with the loan and retired with the payback, but the money dedicated to "interest," fees and penalty payments is recycled through the financial markets and reemerges as yet more consumer "debt." If we are to think through to the end the full implications of credit card use, this is a factor that must be fully taken account of.
None of this is meant as a criticism of the Frontline producers or their show. On the contrary, I thought it was an excellent, informative and entertaining presentation, and I would not hesitate to recommend it to others. I say this despite the fact that this most central element of the credit card transaction went completely unmentioned in the report, and as far as I could tell, unnoticed.
My remarks are intended, rather, as a commentary on the irony of a culture that is utterly immersed in money and "debt," and yet does not see the private-bank-loan elephant in the room. Viewed with fuller awareness, this Frontline documentary can serve, not only as an excellent chance to learn more about the credit card phenomenon, but also as an object lesson for what our culture has become blind to in our financial lives. When we integrate the two, we will start to come to answers about the credit card dilemma.
Richard Kotlarz
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
Tuesday, August 12, 2008
Column #14 THE REVOLVING-DOOR TRAP
(Week 3 - Tuesday Aug. 12)
I invite the reader to return to the image I drew in yesterday's column of the person paying for a garment with a credit card. The card is swiped through the register and approved in a preprogrammed electronic process, after which a number appears on the monitor. This number represents new dollars that are being created in that moment by the bank that issued the card. The card holder then signs a printed "receipt," which is in reality a contract with the bank by which the cardholder promises "pay back" the money, plus an "interest" charge, if he does not do so in full within the first month.
The new money that was just created ($50 in the case of our example) is passed electronically into the bank account of the store owner, and now becomes part of the funds he has available to pay his cost of merchandise, wages, building rent, lighting, etc. As he does so, that $50 enters into general circulation as part of our public money supply.
Let us assume that the consumer makes other charges to the card on a regular basis. He will receive a statement from the credit card company at the end of each month that lists the amount of each new charge. The total for these items is precisely the amount of new money he, along with the bank, created and spent into circulation by the use of his card.
Looking over the monthly statement, the consumer will also notice that the credit card company is demanding to be paid back considerably more money than it "lent." There would be an "interest" charge that can run as high as 39.99%, plus, likely, other fees and penalties. If he is carrying a significant balance, the cost of these extra charges can mount to a level where he has all he can do to pay only the interest and fees, without reducing the balance owed.
He may elect to make what is noted on the monthly billing as the "minimum payment," which often covers little more that the "interest," plus fees and penalties. On a $10,000 balance this can add up to $300 dollars for the month, which, in turn, diminishes by that sum the amount of money the card holder has available to make payments against the balance owed. Let us suppose, as is common, he falls into the routine of making only the minimum payment month-after-month, and the balance remains essentially the same (even if he does not make any new purchases). He enters what is called in the credit card industry the "revolving door." He makes hefty payments, but makes little, if any, progress on paying down the loan.
The important question for this discussion is, "What are the larger implications of falling into the revolving-door trap?"
In Col. #5 ("Where Does Our Money Go?") I described how, when one makes a payment on a bank loan, it is divided into two parts. One portion of the money is applied to retiring the principal of the loan, and is extinguished. The other passes into the account of an "investor," who has obtained the privilege of receiving the money that is paid in as "interest" by buying the rights to the "debt" contract by which the loan was secured. Such an "investor," typically, will not put that money back into circulation by spending it, but will instead withhold it from circulation until he finds a place to "reinvest it" (i.e. finds someone to re-loan it to). The "interest" payment is thereby transformed into more "debt," and released back into circulation. This constant recirculation of "interest" payments through the "private-investor" mill, then, is the very engine that is driving the economy ever further into overwhelming "debt."
The point to be noted here is that, with the widespread advent of credit cards, the predatory practices associated with their promotion, and the ever more usurious terms of their use, the speed with which we the people are descending into "debt" has quickened to a dizzying pace. What is more, the practice has become so widespread that almost anyone with an economic life in the modern world has engaged in it, increasingly with a degree of regularity. I would pose the question, "How many of us ever take thought of the full implications of what we routinely do so unthinkingly with this one simple act?"
I would hasten to add a caveat. It is not my intention here to make moral judgments about anyone's use of credit cards. Truth be told, I use them also. My purpose is to raise our awareness of what we are doing in this act, as in all financial matters, to the point where we can penetrate to the heart of what is actually transpiring when we perform it. This will, I believe, helps us discover a way to move forward into our economic future with a real solution to our "debt" crisis.
Richard Kotlarz
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 invite the reader to return to the image I drew in yesterday's column of the person paying for a garment with a credit card. The card is swiped through the register and approved in a preprogrammed electronic process, after which a number appears on the monitor. This number represents new dollars that are being created in that moment by the bank that issued the card. The card holder then signs a printed "receipt," which is in reality a contract with the bank by which the cardholder promises "pay back" the money, plus an "interest" charge, if he does not do so in full within the first month.
The new money that was just created ($50 in the case of our example) is passed electronically into the bank account of the store owner, and now becomes part of the funds he has available to pay his cost of merchandise, wages, building rent, lighting, etc. As he does so, that $50 enters into general circulation as part of our public money supply.
Let us assume that the consumer makes other charges to the card on a regular basis. He will receive a statement from the credit card company at the end of each month that lists the amount of each new charge. The total for these items is precisely the amount of new money he, along with the bank, created and spent into circulation by the use of his card.
Looking over the monthly statement, the consumer will also notice that the credit card company is demanding to be paid back considerably more money than it "lent." There would be an "interest" charge that can run as high as 39.99%, plus, likely, other fees and penalties. If he is carrying a significant balance, the cost of these extra charges can mount to a level where he has all he can do to pay only the interest and fees, without reducing the balance owed.
He may elect to make what is noted on the monthly billing as the "minimum payment," which often covers little more that the "interest," plus fees and penalties. On a $10,000 balance this can add up to $300 dollars for the month, which, in turn, diminishes by that sum the amount of money the card holder has available to make payments against the balance owed. Let us suppose, as is common, he falls into the routine of making only the minimum payment month-after-month, and the balance remains essentially the same (even if he does not make any new purchases). He enters what is called in the credit card industry the "revolving door." He makes hefty payments, but makes little, if any, progress on paying down the loan.
The important question for this discussion is, "What are the larger implications of falling into the revolving-door trap?"
In Col. #5 ("Where Does Our Money Go?") I described how, when one makes a payment on a bank loan, it is divided into two parts. One portion of the money is applied to retiring the principal of the loan, and is extinguished. The other passes into the account of an "investor," who has obtained the privilege of receiving the money that is paid in as "interest" by buying the rights to the "debt" contract by which the loan was secured. Such an "investor," typically, will not put that money back into circulation by spending it, but will instead withhold it from circulation until he finds a place to "reinvest it" (i.e. finds someone to re-loan it to). The "interest" payment is thereby transformed into more "debt," and released back into circulation. This constant recirculation of "interest" payments through the "private-investor" mill, then, is the very engine that is driving the economy ever further into overwhelming "debt."
The point to be noted here is that, with the widespread advent of credit cards, the predatory practices associated with their promotion, and the ever more usurious terms of their use, the speed with which we the people are descending into "debt" has quickened to a dizzying pace. What is more, the practice has become so widespread that almost anyone with an economic life in the modern world has engaged in it, increasingly with a degree of regularity. I would pose the question, "How many of us ever take thought of the full implications of what we routinely do so unthinkingly with this one simple act?"
I would hasten to add a caveat. It is not my intention here to make moral judgments about anyone's use of credit cards. Truth be told, I use them also. My purpose is to raise our awareness of what we are doing in this act, as in all financial matters, to the point where we can penetrate to the heart of what is actually transpiring when we perform it. This will, I believe, helps us discover a way to move forward into our economic future with a real solution to our "debt" crisis.
Richard Kotlarz
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, August 11, 2008
Column #13 The Credit Card Swipe
(Week 3 - Monday Aug. 11)
In Column #3, "Where Does Our Money Come From?", I made the statement that ". . . virtually every citizen of the country has had a direct personal experience of the process by which our money comes into being. Indeed, many of us participate in one or more of its various forms almost daily, and yet remain completely unconscious of what we are actually doing. The process I am talking about is the deceptively simple act of borrowing money from a bank."
This statement begs the question, what form of borrowing money from a bank is so common that many of us participate in it almost daily, and yet remain completely unconscious of what we are doing? It is the act of using a credit card to buy something, or to get cash.
To illustrate, I would invite the reader to imagine a person in a clothing store taking a garment they wish to purchase to the cashier's counter. Let us suppose further that they are using a credit card to pay for the item. The customer will get out the card and swipe it through a register. If the card is accepted, the price of the item (let us say $50) will appear on a monitor. A machine connected to the register will print out a small slip of paper that lists the terms of the purchase. Typically, the customer will sign it, and then go off about his or her business without taking much thought about what has just transpired.
The critical point to take note of here is that the customer has entered into a loan contract with a bank (which is why there are always bank logos on credit cards). This means that the $50 dollars that were used to purchase the garment did not exist the moment before the card was passed through the machine. More precisely, the dollars were not "borrowed," but rather created with the swipe of the card and the pre-programmed electronic process by which the card was quickly approved. Now the $50 does exist (in the retailer's bank account), and the signing of the "receipt" by the customer is essentially the signing of a contract with the bank to whom he or she promises to "pay back" the $50, with "interest" if full payment is not received within a month.
This credit card purchase is one form of the basic bank loan transaction by which our money is created and put into circulation, just as surely as if one had walked into a banker's office to make the application. If the card is used to get cash from an ATM, the transaction is still a bank loan, except the money goes into the pocket of the cardholder instead of the account of a retailer. Technically, there will generally be a middleman involved in the form of the credit card company, and they will charge a fee for each transaction, but this does not change the fact that new money is created every time the card is taken out and used to access purchasing power (It should be noted that this does not apply to debit cards, or credit cards from institutions of deposit (e.g. credit unions) which operate under rules that prohibit them from creating money).
I would pose the query to each of us, "How many times have we gone through the motions of making a credit-card-purchase and not been mindful of the fact that we, along with the bank, were causing new money to be created at the point of transaction?" The answer to this question will give us an indication of the level of consciousness we bring to what we do with money. It will also, in my experience, provide insights into why our financial lives seem to have gotten so out of our control.
In tomorrow's column we will pick up the thread of this thought to see where it leads.
Richard Kotlarz
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 Column #3, "Where Does Our Money Come From?", I made the statement that ". . . virtually every citizen of the country has had a direct personal experience of the process by which our money comes into being. Indeed, many of us participate in one or more of its various forms almost daily, and yet remain completely unconscious of what we are actually doing. The process I am talking about is the deceptively simple act of borrowing money from a bank."
This statement begs the question, what form of borrowing money from a bank is so common that many of us participate in it almost daily, and yet remain completely unconscious of what we are doing? It is the act of using a credit card to buy something, or to get cash.
To illustrate, I would invite the reader to imagine a person in a clothing store taking a garment they wish to purchase to the cashier's counter. Let us suppose further that they are using a credit card to pay for the item. The customer will get out the card and swipe it through a register. If the card is accepted, the price of the item (let us say $50) will appear on a monitor. A machine connected to the register will print out a small slip of paper that lists the terms of the purchase. Typically, the customer will sign it, and then go off about his or her business without taking much thought about what has just transpired.
The critical point to take note of here is that the customer has entered into a loan contract with a bank (which is why there are always bank logos on credit cards). This means that the $50 dollars that were used to purchase the garment did not exist the moment before the card was passed through the machine. More precisely, the dollars were not "borrowed," but rather created with the swipe of the card and the pre-programmed electronic process by which the card was quickly approved. Now the $50 does exist (in the retailer's bank account), and the signing of the "receipt" by the customer is essentially the signing of a contract with the bank to whom he or she promises to "pay back" the $50, with "interest" if full payment is not received within a month.
This credit card purchase is one form of the basic bank loan transaction by which our money is created and put into circulation, just as surely as if one had walked into a banker's office to make the application. If the card is used to get cash from an ATM, the transaction is still a bank loan, except the money goes into the pocket of the cardholder instead of the account of a retailer. Technically, there will generally be a middleman involved in the form of the credit card company, and they will charge a fee for each transaction, but this does not change the fact that new money is created every time the card is taken out and used to access purchasing power (It should be noted that this does not apply to debit cards, or credit cards from institutions of deposit (e.g. credit unions) which operate under rules that prohibit them from creating money).
I would pose the query to each of us, "How many times have we gone through the motions of making a credit-card-purchase and not been mindful of the fact that we, along with the bank, were causing new money to be created at the point of transaction?" The answer to this question will give us an indication of the level of consciousness we bring to what we do with money. It will also, in my experience, provide insights into why our financial lives seem to have gotten so out of our control.
In tomorrow's column we will pick up the thread of this thought to see where it leads.
Richard Kotlarz
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
Saturday, August 9, 2008
Column #12 SOME AMERICAN VOICES ON MONEY & THE REVOLUTION
(Week 2 - Saturday Aug 9)
I can imagine that the line of thought presented over the course of this last week concerning the American experience with money, how it led to the Revolution, and how its lessons are applicable to the problems of the today (particularly those that have to do with the funding of public works), may seem to the reader unfamiliar, to say the least. To bring a greater sense of reality to the discussion, I would reach for the words of prominent voices from our nation's past.
Senator Robert Owen, banker, first chairman of the Senate Committee on Banking and Currency, and widely respected authority on money, explained that when the Rothschild-controlled Bank of England heard of the situation in the Colonies:
"They saw that here was a nation that was ready to be exploited; here was a nation that had been setting up an example that they could issue their own money in place of the money coming through the banks. So the Rothschild Bank caused a bill to be introduced in the English Parliament which provided that no colony of England could issue their own money. They had to use English money. Consequently the Colonies were compelled to discard their script and mortgage themselves to the Bank of England in order to get money. For the first time in the history of the United States our money began to be based on debt."
"Benjamin Franklin stated that in 1 year from that date the streets of the Colonies were filled with unemployed."
Alexander Del Mar (1836-1926), who is considered by many to be the preeminent monetary historian of the 19th century, stated the crux of the matter with great force:
"Lexington and Concord were trivial acts of resistance which chiefly concerned those who took part in them and which might have been forgiven; but the creation and circulation of bills of credit by revolutionary assemblies in Massachusetts and Philadelphia, were the acts of a whole people and coming as they did upon the heels of the strenuous efforts made by the Crown to suppress paper money in America, they constituted acts of defiance so contemptuous and insulting to the Crown that forgiveness was thereafter impossible. After these acts there was but one course for the Crown to pursue and that was, if possible, to suppress and punish these acts of rebellion. There was but one course for the Colonies; to stand by their monetary system. Thus the bills of credit of this era, which ignorance and prejudice have attempted to belittle into the mere instruments of a reckless financial policy, were really the standards of the revolution. They were more than this: they were the Revolution itself."
Finally, perhaps no one stated the matter more prophetically than Thomas Jefferson:
"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property, until their children will wake up homeless on the continent their fathers conquered."
I leave the reader with a riddle to ponder: "Why is this quintessentially American debate so conspicuously missing from the public discourse now?"
This rounds out the set of six columns for the week. They were initiated by a first-anniversary looking back at the Minneapolis bridge collapse (and levee failures at New Orleans) to discern why we as a society have somehow not been able to follow through on our widely asserted resolve to never again let the funding of critical public infrastructure lapse. This seeded a discourse that unfolded around the themes of public works, public issuance of money, and the American Revolution.
I will try to pick up on a different line of approach to contemporary preoccupations about money for Monday's column, as the events in the news over the weekend may suggest. The reader is invited to present his or her own burning question(s) and concern(s) to prompt the process.
Thank you for your attentive interest.
Richard Kotlarz
http://us.mc366.mail.yahoo.com/mc/compose?to=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 can imagine that the line of thought presented over the course of this last week concerning the American experience with money, how it led to the Revolution, and how its lessons are applicable to the problems of the today (particularly those that have to do with the funding of public works), may seem to the reader unfamiliar, to say the least. To bring a greater sense of reality to the discussion, I would reach for the words of prominent voices from our nation's past.
Senator Robert Owen, banker, first chairman of the Senate Committee on Banking and Currency, and widely respected authority on money, explained that when the Rothschild-controlled Bank of England heard of the situation in the Colonies:
"They saw that here was a nation that was ready to be exploited; here was a nation that had been setting up an example that they could issue their own money in place of the money coming through the banks. So the Rothschild Bank caused a bill to be introduced in the English Parliament which provided that no colony of England could issue their own money. They had to use English money. Consequently the Colonies were compelled to discard their script and mortgage themselves to the Bank of England in order to get money. For the first time in the history of the United States our money began to be based on debt."
"Benjamin Franklin stated that in 1 year from that date the streets of the Colonies were filled with unemployed."
Alexander Del Mar (1836-1926), who is considered by many to be the preeminent monetary historian of the 19th century, stated the crux of the matter with great force:
"Lexington and Concord were trivial acts of resistance which chiefly concerned those who took part in them and which might have been forgiven; but the creation and circulation of bills of credit by revolutionary assemblies in Massachusetts and Philadelphia, were the acts of a whole people and coming as they did upon the heels of the strenuous efforts made by the Crown to suppress paper money in America, they constituted acts of defiance so contemptuous and insulting to the Crown that forgiveness was thereafter impossible. After these acts there was but one course for the Crown to pursue and that was, if possible, to suppress and punish these acts of rebellion. There was but one course for the Colonies; to stand by their monetary system. Thus the bills of credit of this era, which ignorance and prejudice have attempted to belittle into the mere instruments of a reckless financial policy, were really the standards of the revolution. They were more than this: they were the Revolution itself."
Finally, perhaps no one stated the matter more prophetically than Thomas Jefferson:
"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property, until their children will wake up homeless on the continent their fathers conquered."
I leave the reader with a riddle to ponder: "Why is this quintessentially American debate so conspicuously missing from the public discourse now?"
This rounds out the set of six columns for the week. They were initiated by a first-anniversary looking back at the Minneapolis bridge collapse (and levee failures at New Orleans) to discern why we as a society have somehow not been able to follow through on our widely asserted resolve to never again let the funding of critical public infrastructure lapse. This seeded a discourse that unfolded around the themes of public works, public issuance of money, and the American Revolution.
I will try to pick up on a different line of approach to contemporary preoccupations about money for Monday's column, as the events in the news over the weekend may suggest. The reader is invited to present his or her own burning question(s) and concern(s) to prompt the process.
Thank you for your attentive interest.
Richard Kotlarz
http://us.mc366.mail.yahoo.com/mc/compose?to=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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