(Week 8 - Wednesday, Sept. 17)
One of the great secrets of the capitalist system is that it depends on bankruptcy to survive. This is how air is let out of the bubble of unsupportable "debt" attached to our money supply due to the demand for ever greater "interest" payments attached to the issuance of our dollars. Otherwise pressures associated with "debt" would become too high for the system to be sustained. Indeed, if one were to check the historical record, this is how capitalism has achieved longevity. The trick for those players who would survive, and even prosper, is to make sure that the air expended is someone else's air.
Regular episodes of widespread financial failure restore a sort of pseudo-confidence in the system because anyone whose balloon doesn't get popped experiences a sense of relief, is in a positions to exercises relatively more control in the social order for his "success," can feel like a "winner" (one of the "smart" ones), and may even wax righteous in their faith in the system. After all, so the thinking goes, does not the occurrence of such periodic convulsions to the economic order provide a way to weed out its "less fit" players (for the good of all or course), and correct "imbalances" in the system (never mind that these "imbalances" are due to the instability inherent in a system in which there is never enough money in circulation for people to pay their debts)?
A prime example of how the debt-bubble-deflation-through-bankruptcy process operates has transpired in the Midwest Farm Belt over the century - almost since the establishment of the Fed. At the time of the passage of the Federal Reserve Act, a third of the people lived on the farm, and at the start of WWII it was still a quarter of the populace. Now less than two percent remain, and it is questionable as to how many of these are "farmers" in the sense of being independent entrepreneurs (as opposed to subcontractors for major food cartels).
In the history of the world there has never been a population that has been evicted off its land, much less from a plain as fruited as the American Midwest, without wrenching trauma. How then was this fiercely rooted rural society removed in little over a generation? It was done by creating a context in which it was not possible for the occupants as a whole to make the ends meet in their financial lives (i.e. pay their expenses, earn a living, and have enough to reinvest into another crop), and then let them work it out in a desperate scramble to see who could hang on.
The factor that made the farm situation untenable was not, as claimed, "over-production" (in a world where tens of thousands of children perish each day of starvation-related causes). It was, rather, the so-called "debt" against a money supply that is "borrowed" into existence from private banks on terms that made it financially "impossible" for the producer (in this case the farmer and supporting rural businessman) to receive enough for his product in the marketplace to avoid the necessity of taking on ever more "debt".
For reasons that are complex, the shortfall of buying power available to complete the market cycle in any "debt-money" regime was directed first in a concerted way against the rural sector (as historically it has generally been). Meanwhile, there were policy papers put out by corporate think tanks that, for example, called for ". . . a program, such as we are recommending here, to induce excess resources – primarily people – to move rapidly out of agriculture." (An Adaptive Program for Agriculture – by the Committee for Economic Development (CED)). The practical way to do this was to manipulate the monetary situation in such a way that farmers could not receive for their product a "parity price" (one that would allow them to make a living, and keep them in structural balance with other participants in the economy).
Fundamentally, the "farm problem" is in reality a monetary problem. Historically, it almost always has been. The key to evicting the rural population from the land was to hide its true nature with a subterfuge ("farmers are being too productive"), and then rig the markets so that their financial collapse played out over a period of time.
Accordingly, farmers were obliged to go broke at a rate of a percent or two per year. Those still struggling to not be one of the losers typically saw no other course but to show up at the auctions of their bankrupt neighbors and pick up the equity in their capital supplies and equipment at pennies on the dollar. Old "debts" (air in the bubble) were wiped out in part because not enough could be salvaged, and the net "indebtedness" of the countryside experienced some relief, but the growth of the bubble resumed, and eventually almost everyone went down, except those who had deep enough pockets, or a position of advantage within the system (e.g. large corporate operations), sufficient to enable them to pick up the pieces of their neighbors' ruined lives. This process was wrenching, both for the rural folk involved directly, and the country as a whole.
The vital rural community is now virtually gone, and what is left effectively are corporate farming contractors (which often are now getting good prices and high subsidies), "Wal-Mart" regional commercial strips (to which there adhere increasingly satellite communities), and food imported from "cheap-labor" plantations (where the Mexican farmer is being economically driven off his land, and effectively compelled to migrate across our southern border).
Of course, since the demise of the rural areas, the "debt-bubble-deflation" scheme has moved on to the manufacturing sector, as our industries (e.g. the automotive complex in Flint) have been shipped overseas. Now the "service industries" are being forced out (e.g. the transfer of customer-service phone banks to India), followed closely by the intellectual sector (e.g. hi-tech programming).
Naturally, this has all been extremely traumatic, but these "adjustments," going back to the pre-WWII days, exist yet in the memory of our more elderly fellow citizens who lived through them. Still, we as a nation have not noticed the economic elephant in the room; i.e. the debt-bubble-deflation-through-bankruptcy process.
The "debt" bubble has to be deflated somewhere, and it was inevitable that the game should move at last to the banking-and-finance sector, which has been most instrumental in bringing this distress to the rest of the economy. This is what is happening at present.
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, September 17, 2008
Tuesday, September 16, 2008
Column #44 "WHERE DID ALL THAT MONEY GO?"
(Week 8 - Tuesday, Sept. 16)
During the recent Bear-Stearns (BS) meltdown, a stock trader friend told me about the billions of dollars that had supposedly been lost, and asked incredulously, "Where did all that money go???" The answer I gave him was "It didn't go anywhere. It wasn't money. It was the air in a speculative bubble." Let me explain.
The morning of the BS crash its stock was trading for $60 (before it fell to two dollars later in the day). This represented a supposed "net worth" for each share then of $60. The next question is "Where was this $60?" The simple answer is that it was an abstract number that was calculated from an anticipated "price-earnings ratio" (i.e. the ratio between the price an "investor" pays for a stock and the amount of money he expects to "earn" from holding it), much as the "value" of bonds, bundled mortgages, and other investment vehicles are reckoned respectively from their "discount rate", "interest rate" or "rate of return".
The concepts these financial expressions refer to are not money. They are only promises (or anticipations in the case of stocks) to pay a "return on investment" at some point in the future. The "value" of stocks expressed in dollars is a theoretical number based primarily on calculations by traders of dividends expected to be paid by the stock, and a subjective estimation of the "risk" that such proceeds might not be realized.
Stocks may have the illusion of being money because, while there is still life in the stock-market game, one can redeem them for cash. This is to say that the owner of a given stock may assume that there is someone out there who will be willing to bet his own cash-in-hand against the prospects that a given stock will pay dividends at a rate that is at least as high as what other traders in the current market expect, and/or there will be other "investors" coming along that will anticipate an equivalent or higher dividend in the future, and thus be willing to pay even more for the stock, thereby allowing the current "investor" to "cash in" (sell his stock) at a profit.
Within a market where participants imagine that they can expect a "10% return on investment" (given the range of financial opportunities available where the "investor" could put his money), for a share stock of in BS to be "worth" $60, there must exist momentarily in the trading culture an anticipation that it will be paying out $6 at the end of its fiscal year. This is affected by many factors, but in general anticipated dividend and perceived risk govern what price traders are willing to pay. Even the most optimistic "investor" realizes that prices of stocks cannot increase exponentially forever, but they are betting that they can buy into the market, and then sell their holdings for a "profit" before the speculative psychology that drives prices up in market goes bust. When it does pop the expectations reverse, and there ensues a stampede to "cash in" one's stocks, such as the one the market experienced yesterday.
I anticipate that there will be cries in the media about how many billions of dollars are being "lost" through this latest market contraction, but this would not be an accurate characterization of what is transpiring. In previous columns we have already seen how virtually every dollar in circulation is created and issued through the process of someone going into a bank and "borrowing" money which the banker creates on the spot with the "writing of a check." If tomorrow's newspaper headlines try to tell us that 'billions of dollars have been lost to the economy' since the morning before, we should ask ourselves, "Does that mean that millions of people were suddenly possessed to walked into banks yesterday, where they took cash out of their pockets or funds out of their accounts, and paid down the principal balances on their loans, whereby the banker was obliged to extinguish (mark "paid") this money, thereby wiping it off of his books, and leaving the nation with billions of dollars less in circulating medium?"
Common sense would tell us that nothing of the sort happened. It follows, then, that there are essentially the same number of dollars in circulation as there were twenty-four hours before. The only change in the money supply will be the net differential between the quantity of dollars "borrowed from" vs. "paid back to" the banking system, as is the case on any given day. What has really happened is that "billions of dollars" worth of speculative air has been let out of the bubble of (unrealistic) expectations that the actual dollars in circulation are expected to support.
Notwithstanding, as we arise to this new day, the papers and morning shows will no doubt be filled with hysteria about how the financial world is about to come undone. A few minutes ago I turned on the radio just in time to hear a financial "analyst" warn that we may be on the verge of another "depression." Such alarming talk carries with it very real danger if it is not carefully considered in that it can become self-fulfilling prophecy all too easily.
We the people have a choice. We can either believe the catastrophic hype we are being bombarded with, or we can look around and see that, as ever, the sun beams down, the rains fall, the plants grow, the infrastructure persists, and the hands, hearts and minds remain willing and able to do the work. The whole "financial crisis" that the world is experiencing right now is not some objective reality that the universe is laying upon us. It is, rather, an illusion that we as a human race have created, believed in, and sacrificed our very life substance to.
This may seem to many to be an extreme, even bizarre, assertion, but it is something that we would do well to contemplate seriously now, as an antidote to being overcome by fears about money. I do not hereby mean to dismiss the very real suffering that people experience under the boot of the monetary system (I suffer with it also), but we can be free of it if we as a society can wake up what is happening. That is what the discourse about money that is being put forth in these columns is intended to be all about.
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
During the recent Bear-Stearns (BS) meltdown, a stock trader friend told me about the billions of dollars that had supposedly been lost, and asked incredulously, "Where did all that money go???" The answer I gave him was "It didn't go anywhere. It wasn't money. It was the air in a speculative bubble." Let me explain.
The morning of the BS crash its stock was trading for $60 (before it fell to two dollars later in the day). This represented a supposed "net worth" for each share then of $60. The next question is "Where was this $60?" The simple answer is that it was an abstract number that was calculated from an anticipated "price-earnings ratio" (i.e. the ratio between the price an "investor" pays for a stock and the amount of money he expects to "earn" from holding it), much as the "value" of bonds, bundled mortgages, and other investment vehicles are reckoned respectively from their "discount rate", "interest rate" or "rate of return".
The concepts these financial expressions refer to are not money. They are only promises (or anticipations in the case of stocks) to pay a "return on investment" at some point in the future. The "value" of stocks expressed in dollars is a theoretical number based primarily on calculations by traders of dividends expected to be paid by the stock, and a subjective estimation of the "risk" that such proceeds might not be realized.
Stocks may have the illusion of being money because, while there is still life in the stock-market game, one can redeem them for cash. This is to say that the owner of a given stock may assume that there is someone out there who will be willing to bet his own cash-in-hand against the prospects that a given stock will pay dividends at a rate that is at least as high as what other traders in the current market expect, and/or there will be other "investors" coming along that will anticipate an equivalent or higher dividend in the future, and thus be willing to pay even more for the stock, thereby allowing the current "investor" to "cash in" (sell his stock) at a profit.
Within a market where participants imagine that they can expect a "10% return on investment" (given the range of financial opportunities available where the "investor" could put his money), for a share stock of in BS to be "worth" $60, there must exist momentarily in the trading culture an anticipation that it will be paying out $6 at the end of its fiscal year. This is affected by many factors, but in general anticipated dividend and perceived risk govern what price traders are willing to pay. Even the most optimistic "investor" realizes that prices of stocks cannot increase exponentially forever, but they are betting that they can buy into the market, and then sell their holdings for a "profit" before the speculative psychology that drives prices up in market goes bust. When it does pop the expectations reverse, and there ensues a stampede to "cash in" one's stocks, such as the one the market experienced yesterday.
I anticipate that there will be cries in the media about how many billions of dollars are being "lost" through this latest market contraction, but this would not be an accurate characterization of what is transpiring. In previous columns we have already seen how virtually every dollar in circulation is created and issued through the process of someone going into a bank and "borrowing" money which the banker creates on the spot with the "writing of a check." If tomorrow's newspaper headlines try to tell us that 'billions of dollars have been lost to the economy' since the morning before, we should ask ourselves, "Does that mean that millions of people were suddenly possessed to walked into banks yesterday, where they took cash out of their pockets or funds out of their accounts, and paid down the principal balances on their loans, whereby the banker was obliged to extinguish (mark "paid") this money, thereby wiping it off of his books, and leaving the nation with billions of dollars less in circulating medium?"
Common sense would tell us that nothing of the sort happened. It follows, then, that there are essentially the same number of dollars in circulation as there were twenty-four hours before. The only change in the money supply will be the net differential between the quantity of dollars "borrowed from" vs. "paid back to" the banking system, as is the case on any given day. What has really happened is that "billions of dollars" worth of speculative air has been let out of the bubble of (unrealistic) expectations that the actual dollars in circulation are expected to support.
Notwithstanding, as we arise to this new day, the papers and morning shows will no doubt be filled with hysteria about how the financial world is about to come undone. A few minutes ago I turned on the radio just in time to hear a financial "analyst" warn that we may be on the verge of another "depression." Such alarming talk carries with it very real danger if it is not carefully considered in that it can become self-fulfilling prophecy all too easily.
We the people have a choice. We can either believe the catastrophic hype we are being bombarded with, or we can look around and see that, as ever, the sun beams down, the rains fall, the plants grow, the infrastructure persists, and the hands, hearts and minds remain willing and able to do the work. The whole "financial crisis" that the world is experiencing right now is not some objective reality that the universe is laying upon us. It is, rather, an illusion that we as a human race have created, believed in, and sacrificed our very life substance to.
This may seem to many to be an extreme, even bizarre, assertion, but it is something that we would do well to contemplate seriously now, as an antidote to being overcome by fears about money. I do not hereby mean to dismiss the very real suffering that people experience under the boot of the monetary system (I suffer with it also), but we can be free of it if we as a society can wake up what is happening. That is what the discourse about money that is being put forth in these columns is intended to be all about.
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 15, 2008
Column #43 A PROPOSED BREATHER
(Week 8 - Monday, Sept. 15)
With six weeks worth of this column having gone out, it is perhaps time to take a look at how it has been received so far, and how it might proceed into the future. The response has been gratifying; more so than I could have expected. I say this with respect to numbers of people who have opted-in, and the many thoughtful questions, comments and critiques received. This is all greatly appreciated.
There are at least two places on the net where these columns are posted (on the initiative of others) as they come out, and a complete set maintained. These are listed at the bottom of this page. Others have offered to do the same, set up a dedicated website, or otherwise help to get these and other of my writings out. There have been more offers than I have been able to follow up on so far, but I am grateful for every one. I am moved by the news that a number of people have indicated that they make hard copies of the columns and give them to people they know who might be interested.
The greatest challenge with the columns so far, I am informed, is that some folks are having a difficult time keeping up with the volume of reading. These articles are meant to be short enough in length to read over the proverbial "morning cup of coffee," but people today often lead harried lives (got to keep up with the monthly "interest" payments, after all), and have a difficult time in finding place for even the smallest tasks. Many are indeed keeping up with whatever they hope to get out of the content, but others are not.
The content is designed to be a tightly reasoned and integrally connected discourse that can (supposedly) in a step-by-step manner help the reader awaken to a wholly different perspective about money than is offered in the conventional dialogue. I write each article in mindfulness that there may well be readers who are joining in for the first time, or rejoining after an absence. Consequently, each installment has to be at least minimally decipherable to the uninitiated within the terms and context presented in any given piece. That said, much groundwork for understanding is laid as the series unfolds, and if parts are missed something is inevitably lost. There are many readers who, according to the feedback I am getting, feel the same way, and experience frustration if they "fall behind." There are others who work to consolidate their understanding by going back over past installments.
In light of these considerations, plus other commitments coming up in the near future, I am contemplating taking a two-week breather from October 5 through 19 during which no new installments will come out. The series would pick up again starting October 20, and presumably focus on the issues that have gained public attention during the run-up to election day on November 4. I would welcome whatever thoughts anyone has about this.
There is yet much that needs to be said about money and the economic times that we live in. I don't anticipate that subject will ever be exhausted. Accordingly my commitment to getting this dialogue out, through New View on Money and other channels, remains ongoing. Thank you for your patience with this process and continuing interest.
I close with a monetary thought for the day:
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Thomas Jefferson, letter to the Secretary of the Treasury Albert Gallatin (1802)
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
With six weeks worth of this column having gone out, it is perhaps time to take a look at how it has been received so far, and how it might proceed into the future. The response has been gratifying; more so than I could have expected. I say this with respect to numbers of people who have opted-in, and the many thoughtful questions, comments and critiques received. This is all greatly appreciated.
There are at least two places on the net where these columns are posted (on the initiative of others) as they come out, and a complete set maintained. These are listed at the bottom of this page. Others have offered to do the same, set up a dedicated website, or otherwise help to get these and other of my writings out. There have been more offers than I have been able to follow up on so far, but I am grateful for every one. I am moved by the news that a number of people have indicated that they make hard copies of the columns and give them to people they know who might be interested.
The greatest challenge with the columns so far, I am informed, is that some folks are having a difficult time keeping up with the volume of reading. These articles are meant to be short enough in length to read over the proverbial "morning cup of coffee," but people today often lead harried lives (got to keep up with the monthly "interest" payments, after all), and have a difficult time in finding place for even the smallest tasks. Many are indeed keeping up with whatever they hope to get out of the content, but others are not.
The content is designed to be a tightly reasoned and integrally connected discourse that can (supposedly) in a step-by-step manner help the reader awaken to a wholly different perspective about money than is offered in the conventional dialogue. I write each article in mindfulness that there may well be readers who are joining in for the first time, or rejoining after an absence. Consequently, each installment has to be at least minimally decipherable to the uninitiated within the terms and context presented in any given piece. That said, much groundwork for understanding is laid as the series unfolds, and if parts are missed something is inevitably lost. There are many readers who, according to the feedback I am getting, feel the same way, and experience frustration if they "fall behind." There are others who work to consolidate their understanding by going back over past installments.
In light of these considerations, plus other commitments coming up in the near future, I am contemplating taking a two-week breather from October 5 through 19 during which no new installments will come out. The series would pick up again starting October 20, and presumably focus on the issues that have gained public attention during the run-up to election day on November 4. I would welcome whatever thoughts anyone has about this.
There is yet much that needs to be said about money and the economic times that we live in. I don't anticipate that subject will ever be exhausted. Accordingly my commitment to getting this dialogue out, through New View on Money and other channels, remains ongoing. Thank you for your patience with this process and continuing interest.
I close with a monetary thought for the day:
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Thomas Jefferson, letter to the Secretary of the Treasury Albert Gallatin (1802)
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, September 13, 2008
Column #42 THE WRONG ANSWER TO THE MORTGAGE CRISIS
(Week 7 - Saturday, Sept. 13)
Over that last year, the reading and viewing public has been increasingly regaled with personal horror stories about vulnerable people being lured by shady mortgage brokers into signing contracts using deceptive practices and on falsified terms. Such contracts typically were loaded with questionable financial gimmicks such as "adjustable rate mortgages," "balloon payments" and "zero-principal mortgages," and had principal loan balances that were simply beyond the financial reach of the borrower.
It is becoming evident that the "sub-prime housing crisis" is only the tip of the proverbial iceberg. Now it appears that the nation's two largest mortgage finance companies, Fannie Mae and Freddie Mac, will need a massive injection of capital (some reports say as high as $300 billion dollars), or an outright takeover by the Federal government, to keep them in business.
So, what has gone wrong? The media is filled with finger-pointing and recrimination about how with the "sub-prime," and now the "prime," mortgage industries have been driven to the verge of collapse. There seems to be a growing consensus that the politically ballyhooed deregulation of the financial industry over the last three decades has allowed unscrupulous financial entrepreneurs to run amok, and that this is the prime cause of the crisis. If only, so the wistful thinking goes, there had been sound financial management in the industry this crisis would never have happened.
That unscrupulous financial entrepreneurs have run amok is beyond doubt, but does it follow that had more prudent financial stewardship been in place, then arriving at a point of crisis would have been avoided? Let us examine the question.
Suppose that the financial industry had not been deregulated and/or had been more conservatively managed. Then hundreds of thousands, if not millions, of these reckless loans would presumably not have been made. This also means, it should be noted, that many billions of dollars of new money would not have been created by the banking system, and loaned into circulation.
When a bank makes a loan for a mortgage, the new money this transaction generates goes from the pocket of the buyer, to that of the seller, and then continues to circulate as he spends it into the money supply. Over the last several decades, the mortgage market has been flogged by government policy and financial practice for all it is worth as an engine of new money generation for the economy. If there had not been all this bloated "prime" and "sub-prime" borrowing, hundreds of billions of dollars that are circulating in the economy right now would not exist. That means that much of the money in the typical person's wallet or bank account would not be there. With a greatly diminished monetary pool, there would be much less money in circulation to make payments on mortgages that had been contracted before the latest wave of borrowing, and less circulating to meet the needs of commerce.
This is a classic catch-22 situation. If we borrow more money from the banks, then we experience a bubble of prosperity, followed by a crisis of excessive "debt" when the payments come due. If we refrain from borrowing, then not enough money enters into circulation to meet old "debts," plus maintain an adequate money supply to do our business. For the last half-century we have chosen the path of rapidly increasing borrowing. The more frugal option, then, is the road not taken, and so we do not experience its effects. Nonetheless, there is a "debt" crisis at the end of either scenario.
The answer to the mortgage crisis is to stop borrowing our money supply at "interest" from a private banking system, and start issuing it publicly through the U.S. Treasury. This would take away the impetus to manipulate the housing market towards higher prices decade-after-decade as the primary engine for "debt"-money creation. Publicly-issued money is the path, I suggest, to a stable market with prices that are consistent with the actual physical cost and human effort required to build and maintain the housing we live in.
None of this is to say that the cavalier conduct of unscrupulous financial entrepreneurs is in any way justified, or that it has not greatly exacerbated the cost in personal suffering of the "debt" crisis. The reality, though, is that a "debt" crisis was sure to emerge, in one form or another, regardless of their conduct. Fiscal stewardship is an administrative problem, but the mortgage crisis is at root a consequence of faulty money creation.
Already in the newspapers I see proposed various schemes to fix the mortgage industry, virtually all of which involve borrowing ever more massive quantities of money to finance so-called "bailouts," and giving yet more control to the people and institutions that have presided over the present fiasco. This is the wrong answer.
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
Over that last year, the reading and viewing public has been increasingly regaled with personal horror stories about vulnerable people being lured by shady mortgage brokers into signing contracts using deceptive practices and on falsified terms. Such contracts typically were loaded with questionable financial gimmicks such as "adjustable rate mortgages," "balloon payments" and "zero-principal mortgages," and had principal loan balances that were simply beyond the financial reach of the borrower.
It is becoming evident that the "sub-prime housing crisis" is only the tip of the proverbial iceberg. Now it appears that the nation's two largest mortgage finance companies, Fannie Mae and Freddie Mac, will need a massive injection of capital (some reports say as high as $300 billion dollars), or an outright takeover by the Federal government, to keep them in business.
So, what has gone wrong? The media is filled with finger-pointing and recrimination about how with the "sub-prime," and now the "prime," mortgage industries have been driven to the verge of collapse. There seems to be a growing consensus that the politically ballyhooed deregulation of the financial industry over the last three decades has allowed unscrupulous financial entrepreneurs to run amok, and that this is the prime cause of the crisis. If only, so the wistful thinking goes, there had been sound financial management in the industry this crisis would never have happened.
That unscrupulous financial entrepreneurs have run amok is beyond doubt, but does it follow that had more prudent financial stewardship been in place, then arriving at a point of crisis would have been avoided? Let us examine the question.
Suppose that the financial industry had not been deregulated and/or had been more conservatively managed. Then hundreds of thousands, if not millions, of these reckless loans would presumably not have been made. This also means, it should be noted, that many billions of dollars of new money would not have been created by the banking system, and loaned into circulation.
When a bank makes a loan for a mortgage, the new money this transaction generates goes from the pocket of the buyer, to that of the seller, and then continues to circulate as he spends it into the money supply. Over the last several decades, the mortgage market has been flogged by government policy and financial practice for all it is worth as an engine of new money generation for the economy. If there had not been all this bloated "prime" and "sub-prime" borrowing, hundreds of billions of dollars that are circulating in the economy right now would not exist. That means that much of the money in the typical person's wallet or bank account would not be there. With a greatly diminished monetary pool, there would be much less money in circulation to make payments on mortgages that had been contracted before the latest wave of borrowing, and less circulating to meet the needs of commerce.
This is a classic catch-22 situation. If we borrow more money from the banks, then we experience a bubble of prosperity, followed by a crisis of excessive "debt" when the payments come due. If we refrain from borrowing, then not enough money enters into circulation to meet old "debts," plus maintain an adequate money supply to do our business. For the last half-century we have chosen the path of rapidly increasing borrowing. The more frugal option, then, is the road not taken, and so we do not experience its effects. Nonetheless, there is a "debt" crisis at the end of either scenario.
The answer to the mortgage crisis is to stop borrowing our money supply at "interest" from a private banking system, and start issuing it publicly through the U.S. Treasury. This would take away the impetus to manipulate the housing market towards higher prices decade-after-decade as the primary engine for "debt"-money creation. Publicly-issued money is the path, I suggest, to a stable market with prices that are consistent with the actual physical cost and human effort required to build and maintain the housing we live in.
None of this is to say that the cavalier conduct of unscrupulous financial entrepreneurs is in any way justified, or that it has not greatly exacerbated the cost in personal suffering of the "debt" crisis. The reality, though, is that a "debt" crisis was sure to emerge, in one form or another, regardless of their conduct. Fiscal stewardship is an administrative problem, but the mortgage crisis is at root a consequence of faulty money creation.
Already in the newspapers I see proposed various schemes to fix the mortgage industry, virtually all of which involve borrowing ever more massive quantities of money to finance so-called "bailouts," and giving yet more control to the people and institutions that have presided over the present fiasco. This is the wrong answer.
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 12, 2008
Column #41 POST-SEPTEMBER 11 REFELCTIONS
(Week 7 - Friday, Sept. 12)
On September 11, 2001 two hijacked airliners slammed into the Twin Towers of the World Trade Center in New York City, another into the Pentagon in Washington DC, and a fourth went down in a field in Pennsylvania. This cathartic event is destined to define the world for our time, perhaps for all time, contingent upon whether we choose to be merely reactive, or to grow in the face of the reckoning it presents. Do the commonly invoked religious/ideological arguments, a supposed "clash of civilizations," or even the phenomenon of terrorism constitute the most fundamental questions presented by this event? Is it not, rather, about whether humanity is able take a quantum evolutionary step up upon this calamity, or instead succumb to a descent into deepening acrimony, violence and darkness. Fear ripples out, the Constitution is subverted, military forces deploy, dark specters haunt the media, and World War III is talked about by pundits as a foregone conclusion. America, many fear, slides towards losing its principles, its mission, and its destiny, much to the detriment of the world at large.
Seven years have passed. The task of civilization now is to redeem horror of "9/11" to a new meaning. In a veritable sense, this tragic event was a culminating convergence of an unrecognized historical malady that has its roots in ancient times. To a great extent, it arose out of the failure of humankind to come to a profound realization of the true nature of "Money." To be sure, heated debate in the public discourse that touches upon money swirls around the event, but because it rarely talks about how and by whom it is created and issued, it is for the most part a distraction that misses the mark. The blessing that the medium of money potentially represents has been co-opted for gain, much to the undoing of human well-being and edification.
Those gleaming towers were magnificent structures, but to many of the impoverished masses around the world they seemed to mock their desperate plight. In an address to the nation shortly after the catastrophe our President, George W. Bush, asked rhetorically "Why do they hate us?", and then answered, "They hate our freedoms." I have no doubt that there are those who peer at America with hateful, envious eyes, and covet the intention of doing it violence, but we are a nation of providence, constituted to bring something new to the world.
The American Revolution was a three-legged stool. Two of the legs any schoolboy who does his lessons is familiar with; i.e. (1) personal freedom within the context of (2) democratically-determined law. But, what was the third leg? It was the bringing of a new economic order founded on the ideal that the people are sovereign, and endowed with the essential right of the sovereign; 'to coin our own money and regulate the value thereof,' and thereby possessed of the means to not fall under the heel of the moneylender.
Our consciousness of that third mandate has slipped, almost to nothing, until we are become the world agent of the Bank-of-England (now Federal-Reserve) "debt-money" system; the very foe that our colonial forebears defeated on the battlefield, and the people have through episodes of our history striven to eradicate.
I would suggest that "they" (the resentful millions of the world, to the extent that that is the case) do not hate us for our freedom, but for our failure to live up to its promise. We have let our nation become the instrument for exporting the private-debt-money tyranny that those who came before us once had the inspiration and common sense to resist. Fortunately, the dream does not die easily, as the people of the world still await the awakening of America to its authentic calling.
The world is now one world, and faces all-together a convergence to a terrible 'end-of-time'; or the opening up to a liberating new dispensation. The providential moment of ultimate choosing is at hand, and the 911 event was a throwing down of the gauntlet. This assault was meant to take the world from us; let us resolve to take it back, and this time rectified to a more perfect truth.
Emphatically, none of this is to absolve the heinous acts that were committed on that terrible September morning, nor to say that those responsible need not be brought to justice. Rather, it is a call to regain our destiny as individuals, as a nation and as a world community.
In holy writ we are admonished to "get wisdom; and with all thy getting get understanding." Horrific images of 9/11 and its fallout have been burned into the hearts and minds of people in every niche of the globe. It is necessary now that they be informed with new understanding. Rather than seek vengeance out of a feeling of being victimized, it is imperative that we the people of this nation, and indeed the world, embrace the opportunity for maturation that this crisis presents, and step up upon it to a new vision; one founded upon true brotherhood in a just social order, and that made manifest in a transformed economic life.
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
On September 11, 2001 two hijacked airliners slammed into the Twin Towers of the World Trade Center in New York City, another into the Pentagon in Washington DC, and a fourth went down in a field in Pennsylvania. This cathartic event is destined to define the world for our time, perhaps for all time, contingent upon whether we choose to be merely reactive, or to grow in the face of the reckoning it presents. Do the commonly invoked religious/ideological arguments, a supposed "clash of civilizations," or even the phenomenon of terrorism constitute the most fundamental questions presented by this event? Is it not, rather, about whether humanity is able take a quantum evolutionary step up upon this calamity, or instead succumb to a descent into deepening acrimony, violence and darkness. Fear ripples out, the Constitution is subverted, military forces deploy, dark specters haunt the media, and World War III is talked about by pundits as a foregone conclusion. America, many fear, slides towards losing its principles, its mission, and its destiny, much to the detriment of the world at large.
Seven years have passed. The task of civilization now is to redeem horror of "9/11" to a new meaning. In a veritable sense, this tragic event was a culminating convergence of an unrecognized historical malady that has its roots in ancient times. To a great extent, it arose out of the failure of humankind to come to a profound realization of the true nature of "Money." To be sure, heated debate in the public discourse that touches upon money swirls around the event, but because it rarely talks about how and by whom it is created and issued, it is for the most part a distraction that misses the mark. The blessing that the medium of money potentially represents has been co-opted for gain, much to the undoing of human well-being and edification.
Those gleaming towers were magnificent structures, but to many of the impoverished masses around the world they seemed to mock their desperate plight. In an address to the nation shortly after the catastrophe our President, George W. Bush, asked rhetorically "Why do they hate us?", and then answered, "They hate our freedoms." I have no doubt that there are those who peer at America with hateful, envious eyes, and covet the intention of doing it violence, but we are a nation of providence, constituted to bring something new to the world.
The American Revolution was a three-legged stool. Two of the legs any schoolboy who does his lessons is familiar with; i.e. (1) personal freedom within the context of (2) democratically-determined law. But, what was the third leg? It was the bringing of a new economic order founded on the ideal that the people are sovereign, and endowed with the essential right of the sovereign; 'to coin our own money and regulate the value thereof,' and thereby possessed of the means to not fall under the heel of the moneylender.
Our consciousness of that third mandate has slipped, almost to nothing, until we are become the world agent of the Bank-of-England (now Federal-Reserve) "debt-money" system; the very foe that our colonial forebears defeated on the battlefield, and the people have through episodes of our history striven to eradicate.
I would suggest that "they" (the resentful millions of the world, to the extent that that is the case) do not hate us for our freedom, but for our failure to live up to its promise. We have let our nation become the instrument for exporting the private-debt-money tyranny that those who came before us once had the inspiration and common sense to resist. Fortunately, the dream does not die easily, as the people of the world still await the awakening of America to its authentic calling.
The world is now one world, and faces all-together a convergence to a terrible 'end-of-time'; or the opening up to a liberating new dispensation. The providential moment of ultimate choosing is at hand, and the 911 event was a throwing down of the gauntlet. This assault was meant to take the world from us; let us resolve to take it back, and this time rectified to a more perfect truth.
Emphatically, none of this is to absolve the heinous acts that were committed on that terrible September morning, nor to say that those responsible need not be brought to justice. Rather, it is a call to regain our destiny as individuals, as a nation and as a world community.
In holy writ we are admonished to "get wisdom; and with all thy getting get understanding." Horrific images of 9/11 and its fallout have been burned into the hearts and minds of people in every niche of the globe. It is necessary now that they be informed with new understanding. Rather than seek vengeance out of a feeling of being victimized, it is imperative that we the people of this nation, and indeed the world, embrace the opportunity for maturation that this crisis presents, and step up upon it to a new vision; one founded upon true brotherhood in a just social order, and that made manifest in a transformed economic life.
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 11, 2008
Column #40 HOW CAN WE HELP THE CANDIDATES?
(Week 7 - Thursday, Sept. 11)
It is a feature of the growing malaise in American politics that, no matter who we elect, they seem to do essentially the same thing once they get into office. The sharp distinctions the candidates were at pains to draw between themselves prove to be of little consequence because once they assume their duties their real mandate is to keep the bankruptcy re-organization process moving forward so the country can at least function while the "debt" continues to climb.
To make the game palatable to the electorate, they inherit a tacit public relations mandate, which is to deflect attention from the fact that the "debt" is a monetary problem that is caused by the nation having given up the power to create its own money supply. Instead, they will feel obliged to exhort the people endlessly that if only we adopted the right taxing and spending priorities, then budgets would be balanced, the economy would "grow," and the "debt" would start to be paid. Such rhetoric only obscures the real problem.
I have followed the pronouncements of both Obama and McCain carefully and have heard no evidence that either is at all aware that of the true nature of the "debt" problem, though that is not to assume that they don't have thoughts in private. Several of the other Presidential aspirants have given some indication that they possess a measure of understanding. These are Ron Paul, Dennis Kucinich and Ralph Nader. Unfortunately, none has demonstrated the level of urgency on the matter that would show that they realize that, without rectification of the monetary system, their otherwise laudable intentions will be in the end moot (to be fair, Ron Paul might be an exception, but his cure, the gold standard, is as bad as the disease).
This has not always been the case in American Presidential campaigns. At the Democratic Convention in Chicago in 1896, Williams Jennings Bryan declared, in what has come to be known as his "Cross of Gold" speech, "If they ask us why we do not embody in our platform all the things that we believe in, we reply that when we have restored the money of the Constitution, all other necessary reforms will be possible, but until this is done there is no other reform that can be accomplished."
The nominating conventions of that era were not choreographed media events. They were actual deliberative conclaves. The public at that time was savvy about the basic principles of money, and the delegates knew what Bryan was talking about (would the delegates of today?). In fact they were so moved that the speech propelled him from being the dark-horse candidate, to the party's nominee (the position Obama occupies now) for three election cycles.
What does all this say about the monetary knowledge, understanding and wisdom of, not only the current Presidential candidates, but also we the people who elect them? Shall we passively watch them on TV while they pour themselves out to pander for our approval, or would it be better to seek a way to help them become edified through this process? After all, one of them will be our next President. We the people certainly have no stake in their futility. Let us hope that whoever is elected will have a better chance to lead than merely manage the bankruptcy of our nation.
So, how might this be done? I would suggest that we the people take on the task of learning about money, and then work to open up a public discourse in which the candidates can feel free to join in. I have reason to believe that they have thoughts and questions about the subject, but do not feel free to give them voice. Many of us complain that they are scripted, but with our often gaff-obsessed, litmus-issued judgmental attitude, we keep them imprisoned in their script. Their evident failings notwithstanding, these are bright, talented and motivated people. Surely they are capable of the monetary conversation.
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
It is a feature of the growing malaise in American politics that, no matter who we elect, they seem to do essentially the same thing once they get into office. The sharp distinctions the candidates were at pains to draw between themselves prove to be of little consequence because once they assume their duties their real mandate is to keep the bankruptcy re-organization process moving forward so the country can at least function while the "debt" continues to climb.
To make the game palatable to the electorate, they inherit a tacit public relations mandate, which is to deflect attention from the fact that the "debt" is a monetary problem that is caused by the nation having given up the power to create its own money supply. Instead, they will feel obliged to exhort the people endlessly that if only we adopted the right taxing and spending priorities, then budgets would be balanced, the economy would "grow," and the "debt" would start to be paid. Such rhetoric only obscures the real problem.
I have followed the pronouncements of both Obama and McCain carefully and have heard no evidence that either is at all aware that of the true nature of the "debt" problem, though that is not to assume that they don't have thoughts in private. Several of the other Presidential aspirants have given some indication that they possess a measure of understanding. These are Ron Paul, Dennis Kucinich and Ralph Nader. Unfortunately, none has demonstrated the level of urgency on the matter that would show that they realize that, without rectification of the monetary system, their otherwise laudable intentions will be in the end moot (to be fair, Ron Paul might be an exception, but his cure, the gold standard, is as bad as the disease).
This has not always been the case in American Presidential campaigns. At the Democratic Convention in Chicago in 1896, Williams Jennings Bryan declared, in what has come to be known as his "Cross of Gold" speech, "If they ask us why we do not embody in our platform all the things that we believe in, we reply that when we have restored the money of the Constitution, all other necessary reforms will be possible, but until this is done there is no other reform that can be accomplished."
The nominating conventions of that era were not choreographed media events. They were actual deliberative conclaves. The public at that time was savvy about the basic principles of money, and the delegates knew what Bryan was talking about (would the delegates of today?). In fact they were so moved that the speech propelled him from being the dark-horse candidate, to the party's nominee (the position Obama occupies now) for three election cycles.
What does all this say about the monetary knowledge, understanding and wisdom of, not only the current Presidential candidates, but also we the people who elect them? Shall we passively watch them on TV while they pour themselves out to pander for our approval, or would it be better to seek a way to help them become edified through this process? After all, one of them will be our next President. We the people certainly have no stake in their futility. Let us hope that whoever is elected will have a better chance to lead than merely manage the bankruptcy of our nation.
So, how might this be done? I would suggest that we the people take on the task of learning about money, and then work to open up a public discourse in which the candidates can feel free to join in. I have reason to believe that they have thoughts and questions about the subject, but do not feel free to give them voice. Many of us complain that they are scripted, but with our often gaff-obsessed, litmus-issued judgmental attitude, we keep them imprisoned in their script. Their evident failings notwithstanding, these are bright, talented and motivated people. Surely they are capable of the monetary conversation.
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
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