(Week 12 - Tuesday, Oct. 28)
Debates about the "national debt" (especially as concerns the Federal "debt") are frequently accompanied by admonitions that we need to deal with our "debt" now so our children will not inherit it. Politicians have been professing a sense of urgency about the matter for decades, and the public has come to expect the familiar rhetoric from them. Their proposals are invariably vague and couched in ideological terms, and, it seems, once whoever is elected assumes office the net indebtedness of the nation continues to snowball, except at an accelerated pace.
The "national debt," both public and private, has continued to mount for decades, across the generations, until now it is simply galloping out of control. We are being subjected to the same promises in this election cycle, but the numbers have gotten so immense that it makes one wonder how anyone can have the temerity to utter such claims anymore. It is as if they can't think of anything else to say.
This situation begs a few questions. What is happening here? What is it about debt that we don't get? What are we doing wrong? Is there no way to turn the fiscal corner and finally start paying this thing down? Are we helpless to arrest the mortgaging of our own children's future?
In my view the concern often expressed by politicians and citizens alike about not wanting to burden our progeny's future with our irresponsible financial profligacy is for the most part authentic. The problem is that our most heartfelt efforts are bringing about the very opposite effect. The irony is that the more we resolve to fix the problem, the more we make certain that this downward spiral into "debt" continues. This is a case of unintended consequences run amok.
We are counseled in holy writ, "Wisdom is the principal thing; therefore get wisdom: and with all thy getting get understanding." (Proverbs 4:7). In not wanting our children to fall into indentured servitude to the moneylenders we have indeed embraced "the principal thing," but as a culture we lack the understanding of how to accomplish it.
To get this understanding, I propose that we start by revisiting the private-bank-loan transaction by which virtually every dollar in circulation comes into being. I ask the reader's patience in that this will require an explanation that will unfold over the length of several columns, but understanding its implications is absolutely crucial to seeing how our children's future can be rescued from the irredeemable "debt" that seemingly threatens to foreclose on it now.
When a person borrows from a bank, the banker does not get the money he is "loaning" from funds on deposit in his vault. Rather, he creates the money with the "writing of a check" (or the electronic equivalent of creating deposits in the borrowers account with a few keystrokes on a computer). In other words, the money did not exist the instant before he "made the loan", but it does now. This is the very moment in which new dollars come into existence within the Federal Reserve System.
Already we can see that the banker is not making a "loan" in the dictionary or common sense meaning of the term. That is, he is not handing over something tangible that he is in possession of, and therefore must now do without until the "borrower" returns it. Instead, he is bringing an abstract value into existence that is essentially conjured "out of thin air." It would be more proper to describe this, not as a "lending", but a "monetization" process. Monetization is the creation and issuance of money as an extension of a commodity that exists and has worth so that it, or goods of equivalent value, can be bought and sold.
The existence of this more accurate terminology notwithstanding, the common practice in the world of banking is to call the issuance from this money-creation process a "loan", which by implication results in a supposed "debt".
(to be continued)
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Tuesday, October 28, 2008
Monday, October 27, 2008
Column #67 WHY DON'T THE CANDIDATES TALK SENSE ABOUT THE "DEBT"? – Part 2
(Week 12 - Monday, Oct. 27)
In the last column I posed the question of why the current candidates for President, like almost every candidate for national office in election-cycle-after-election-cycle going back decades, repeats the same mantra about their intention to reduce the Federal deficit by at last reducing "out-of-control spending", in spite of the fact that the Federal "debt" arises from the very process by which money is created and issued in our system (via borrowing money at "interest" from a private banking system), and cannot be effectively addressed within the context of taxing and spending parameters.
In September I had a conversation with Ralph Nader that may shed some light on the riddle. He, of all candidates, has been a strident and knowledgeable critic of the abuses wrought by corporations. I asked him if he realized that a private corporation has been granted a charter (via the Federal Reserve Act of 1913) to issue the nation's money supply, and that it does so by creating and "lending" it out on such terms that our nation as a whole cannot service the "debt" so incurred (due to the attachment of a compounding "interest" fee) without borrowing ever greater quantities of money, and thereby slipping ever further into "debt." I also suggested to him that this private-money-creation franchise was the linchpin of the whole globalist corporate order of which he offers such an impassioned critique, and that the abuses he documents cannot not be effectively resolved until the monetary power is returned to the public sector.
He said that he understood this to be the case. Why, then, I asked him, does he never mention the corporate control of the issuance of the public's money supply in his public pronouncements? He replied that he does indeed mention it in very small gatherings, but he has not found a way to talk about it to the larger public.
From my decades in trying to address the matter in public, I can understand his dilemma. The public's consciousness about money has deteriorated greatly since William Jennings Bryan won Presidential nomination of the Democratic Party for three election cycles after declaring in his famous Cross-of-Gold speech in 1896 that he did not put all the issues he believes in into his platform because: ". . . when we have restored the money of the Constitution, all other necessary reforms will be possible, but until this is done there is no other reform that can be accomplished."
The lesson of this story is that clearly the monetary awareness of the Presidential candidates of the modern era has changed; but so has that of the public. Do the candidates not talk sense on the issue of "debt" because they do not know what is happening, because they are in denial about the facts, or because they cannot find an opportunity in the public discourse to talk about their true thoughts? Is it possible that McCain and Obama have an understanding on this matter that runs deeper than what they are letting on, but feel constrained because, in the current cultural and political climate, any mental processes they might express that fall outside the bounds of the dominant socio/economic/political paradigm (and this would certainly be that) would be interpreted by the pundits and public alike as unintelligible gaffs that would quickly destroy their candidacy? I don't know the answer to that question, but I do know that we need to lay aside the talking points and partisan bombast, and start talking sense with each other on matters of money.
There is an element of cynicism in the country that is convinced that the major candidates are bought-and-paid-for shills of the system, and as such are lying outright to the electorate. I can't prove that that is not so, but the assertion seems to me to be simplistic at best; dangerously irresponsible at worst. I observe that great mass of the electorate, as well as the media pundits that would presume to pose the burning questions of the day in our stead, are themselves virtually universally ready to accept the bromide that it is out-of-control-spending that is causing the "debt", and would likely dismiss any candidate that would dare to suggest otherwise. How, then, could we summarily blame any candidate for not committing political suicide by speaking out?
A more productive course of action, I would suggest, is for each of us to think carefully and self-reflectively through the subject of money for ourselves; always seeking the truth, and leaving aside our pet ideologies, idiosyncratic prejudices and personal interests. From there we can cultivate a dialogue that would bring people together to discuss the subject on a fresh basis. Such an approach would naturally include an invitation for the candidates to join in. This may seem like a futile gesture given the shortness of time before the day of decision and the scope of the issues involved, but it behooves us to look beyond the election. We have to start somewhere.
It has become axiomatic to say that this is a pivotal election cycle, but pivotal around what? If We the People, candidates and voters alike, cannot break out of our habitual unproductive thought patterns concerning the "debt" crisis, I see only precious time lost, and a turn for the worse in our prospects for coming to grips with its monetary cause. But, if we can use the period of heightened public consciousness in the run-up to election day to plant the seed of an authentic dialogue, even if there is not time and opportunity for it to come to fruition by November 4, then truly we can hope to turn the situation for the better. Events are telling us that the monetary matter is urgent, and we have already put it off for too long.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
In the last column I posed the question of why the current candidates for President, like almost every candidate for national office in election-cycle-after-election-cycle going back decades, repeats the same mantra about their intention to reduce the Federal deficit by at last reducing "out-of-control spending", in spite of the fact that the Federal "debt" arises from the very process by which money is created and issued in our system (via borrowing money at "interest" from a private banking system), and cannot be effectively addressed within the context of taxing and spending parameters.
In September I had a conversation with Ralph Nader that may shed some light on the riddle. He, of all candidates, has been a strident and knowledgeable critic of the abuses wrought by corporations. I asked him if he realized that a private corporation has been granted a charter (via the Federal Reserve Act of 1913) to issue the nation's money supply, and that it does so by creating and "lending" it out on such terms that our nation as a whole cannot service the "debt" so incurred (due to the attachment of a compounding "interest" fee) without borrowing ever greater quantities of money, and thereby slipping ever further into "debt." I also suggested to him that this private-money-creation franchise was the linchpin of the whole globalist corporate order of which he offers such an impassioned critique, and that the abuses he documents cannot not be effectively resolved until the monetary power is returned to the public sector.
He said that he understood this to be the case. Why, then, I asked him, does he never mention the corporate control of the issuance of the public's money supply in his public pronouncements? He replied that he does indeed mention it in very small gatherings, but he has not found a way to talk about it to the larger public.
From my decades in trying to address the matter in public, I can understand his dilemma. The public's consciousness about money has deteriorated greatly since William Jennings Bryan won Presidential nomination of the Democratic Party for three election cycles after declaring in his famous Cross-of-Gold speech in 1896 that he did not put all the issues he believes in into his platform because: ". . . when we have restored the money of the Constitution, all other necessary reforms will be possible, but until this is done there is no other reform that can be accomplished."
The lesson of this story is that clearly the monetary awareness of the Presidential candidates of the modern era has changed; but so has that of the public. Do the candidates not talk sense on the issue of "debt" because they do not know what is happening, because they are in denial about the facts, or because they cannot find an opportunity in the public discourse to talk about their true thoughts? Is it possible that McCain and Obama have an understanding on this matter that runs deeper than what they are letting on, but feel constrained because, in the current cultural and political climate, any mental processes they might express that fall outside the bounds of the dominant socio/economic/political paradigm (and this would certainly be that) would be interpreted by the pundits and public alike as unintelligible gaffs that would quickly destroy their candidacy? I don't know the answer to that question, but I do know that we need to lay aside the talking points and partisan bombast, and start talking sense with each other on matters of money.
There is an element of cynicism in the country that is convinced that the major candidates are bought-and-paid-for shills of the system, and as such are lying outright to the electorate. I can't prove that that is not so, but the assertion seems to me to be simplistic at best; dangerously irresponsible at worst. I observe that great mass of the electorate, as well as the media pundits that would presume to pose the burning questions of the day in our stead, are themselves virtually universally ready to accept the bromide that it is out-of-control-spending that is causing the "debt", and would likely dismiss any candidate that would dare to suggest otherwise. How, then, could we summarily blame any candidate for not committing political suicide by speaking out?
A more productive course of action, I would suggest, is for each of us to think carefully and self-reflectively through the subject of money for ourselves; always seeking the truth, and leaving aside our pet ideologies, idiosyncratic prejudices and personal interests. From there we can cultivate a dialogue that would bring people together to discuss the subject on a fresh basis. Such an approach would naturally include an invitation for the candidates to join in. This may seem like a futile gesture given the shortness of time before the day of decision and the scope of the issues involved, but it behooves us to look beyond the election. We have to start somewhere.
It has become axiomatic to say that this is a pivotal election cycle, but pivotal around what? If We the People, candidates and voters alike, cannot break out of our habitual unproductive thought patterns concerning the "debt" crisis, I see only precious time lost, and a turn for the worse in our prospects for coming to grips with its monetary cause. But, if we can use the period of heightened public consciousness in the run-up to election day to plant the seed of an authentic dialogue, even if there is not time and opportunity for it to come to fruition by November 4, then truly we can hope to turn the situation for the better. Events are telling us that the monetary matter is urgent, and we have already put it off for too long.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Saturday, October 25, 2008
Column #66 WHY DON'T THE CANDIDATES TALK SENSE ABOUT THE "DEBT"? – Part 1
(Week 11 - Saturday, Oct. 25)
As I listen to the rhetoric of the Presidential candidates, the "big two" in particular, concerning the current "debt" crisis, I hear essentially only one proposed response. There are variations of detail that are put forward with great emphasis to be sure, and buttressed by their supposedly contrasting ideological dispositions, but I find them to be distinctions with hardly any difference. Their common answer goes something like this:
"We as a nation have failed to exercise ethical fiscal discipline, both with respect to the private financial sector, and to government taxing-and-spending. Now we have run up this enormous debt that will have to be paid down by instituting the proper constraints and oversight provisions in the private sector, and reigning in out-of-control government spending. Hopefully, we can avoid the abuses of the past, and ultimately pay this deficit down so our children will not have to."
This response is, in my view, hopelessly unrealistic. If the private sector and/or the government for any reason steps down in their ability and/or willingness to borrow, that means that less money will enter into circulation. Private participants in the economy will find themselves increasingly in the position of being unable to pay their bills as the money supply shrinks. That will put greater pressure on the public sector to do the borrowing needed.
Government will at first experience this pressure in the form of having to cover social needs that are no longer being met in the private sector when people are losing their jobs, health insurance, pensions, homes through foreclosure, ability to meet business payroll, and so forth. The levels of government below the Federal will increasingly look to Washington to help out with their mounting budgetary shortfalls caused by increasing social need and falling tax revenues. The Federal government itself will be saddled with the additional problem of keeping the monetary system going by seeing that the monetary pool on which all phases of the economy depend does not run dry. Like it or not, under the present system that means more borrowing.
Faced with these imperatives, I would ask the Presidential candidates how they expect that this mounting national "debt" crisis is going to be redeemed by reigning in "out-of-control spending." Any attempts to "balance the budget" will be futile given the "debt"-based principle on which the monetary system is founded, and under present circumstances could only result in a catastrophic contraction of the money supply, thereby sending the economy into an imploding spiral.
Politicians have for decades virtually always asserted that the "debt" crisis of the moment can only be brought under control through fiscal restraint, but they have virtually always in the exigencies of the moment felt the need to act in a precisely opposite way.
The "conservative" Reagan and Bush I administrations lifted the economy out of the doldrums of the Carter era by running up record deficits, thereby pumping enough money into the economy to restore "confidence".
This allowed President Clinton to claim credit for bringing down the deficit as the ample supply of circulating medium induced private persons to borrow record amounts of money themselves in a euphoria of "economic expansion", and the government could for a time step down as the borrower of last resort; notwithstanding that the country as a whole, public and private combined, continued to slip into "debt" at an undiminished rate.
By the time the second Bush presidency came along, the ability and willingness of private parties to go into still more "debt" was running out, and another source of credit had to be found. The great engine of "debt-money" creation since then has been the Iraq and Afghan wars.
With the decline of the housing market, the biggest source of private "debt" creation (home mortgages) has contracted to the point where even borrowing to finance the current wars is not sufficient as a generator of new money creation, so earlier this year the government felt obliged to borrow even more money and simply pass it out in the form of "tax rebate" checks (as if there were a surfeit of Federal tax receipts).
Confidence in the system has continued to plummet anyway, and now even bankers are so shaken that they are reluctant to lend. Consequently, our national leaders have been at a loss concerning to how to arrest the collapse of the whole monetary order, except to mount a hurry-up effort to borrow the staggering sum of $700 billion and inject it into the speculative financial industry on the basis of vague assurances from the experts (who guided the ship of finance into this storm) that this desperate measure will somehow redeem the situation for the sake of all the people.
The ink has hardly had time to dry on that bill, and already our representatives in Washington are talking about borrowing yet more money to fund a new "stimulus package". Through all of this the public is assured that the abuses will be stopped because there will be some unspecified details written into these "financial packages" that will assure greater scrutiny and control, plus the taxpayers will get their money back out of the "future profits" of these already failed "investments" that the government will buying up. I don't know what is in the minds of the current Presidential candidates, but surely, given their years of experience in government in which they have seen from the inside the futility of trying to wrestle the "debt" dragon into submission through budgetary variables, they cannot possibly have confidence in what they are saying. What is going on here? I will pick up on that question in the next column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
As I listen to the rhetoric of the Presidential candidates, the "big two" in particular, concerning the current "debt" crisis, I hear essentially only one proposed response. There are variations of detail that are put forward with great emphasis to be sure, and buttressed by their supposedly contrasting ideological dispositions, but I find them to be distinctions with hardly any difference. Their common answer goes something like this:
"We as a nation have failed to exercise ethical fiscal discipline, both with respect to the private financial sector, and to government taxing-and-spending. Now we have run up this enormous debt that will have to be paid down by instituting the proper constraints and oversight provisions in the private sector, and reigning in out-of-control government spending. Hopefully, we can avoid the abuses of the past, and ultimately pay this deficit down so our children will not have to."
This response is, in my view, hopelessly unrealistic. If the private sector and/or the government for any reason steps down in their ability and/or willingness to borrow, that means that less money will enter into circulation. Private participants in the economy will find themselves increasingly in the position of being unable to pay their bills as the money supply shrinks. That will put greater pressure on the public sector to do the borrowing needed.
Government will at first experience this pressure in the form of having to cover social needs that are no longer being met in the private sector when people are losing their jobs, health insurance, pensions, homes through foreclosure, ability to meet business payroll, and so forth. The levels of government below the Federal will increasingly look to Washington to help out with their mounting budgetary shortfalls caused by increasing social need and falling tax revenues. The Federal government itself will be saddled with the additional problem of keeping the monetary system going by seeing that the monetary pool on which all phases of the economy depend does not run dry. Like it or not, under the present system that means more borrowing.
Faced with these imperatives, I would ask the Presidential candidates how they expect that this mounting national "debt" crisis is going to be redeemed by reigning in "out-of-control spending." Any attempts to "balance the budget" will be futile given the "debt"-based principle on which the monetary system is founded, and under present circumstances could only result in a catastrophic contraction of the money supply, thereby sending the economy into an imploding spiral.
Politicians have for decades virtually always asserted that the "debt" crisis of the moment can only be brought under control through fiscal restraint, but they have virtually always in the exigencies of the moment felt the need to act in a precisely opposite way.
The "conservative" Reagan and Bush I administrations lifted the economy out of the doldrums of the Carter era by running up record deficits, thereby pumping enough money into the economy to restore "confidence".
This allowed President Clinton to claim credit for bringing down the deficit as the ample supply of circulating medium induced private persons to borrow record amounts of money themselves in a euphoria of "economic expansion", and the government could for a time step down as the borrower of last resort; notwithstanding that the country as a whole, public and private combined, continued to slip into "debt" at an undiminished rate.
By the time the second Bush presidency came along, the ability and willingness of private parties to go into still more "debt" was running out, and another source of credit had to be found. The great engine of "debt-money" creation since then has been the Iraq and Afghan wars.
With the decline of the housing market, the biggest source of private "debt" creation (home mortgages) has contracted to the point where even borrowing to finance the current wars is not sufficient as a generator of new money creation, so earlier this year the government felt obliged to borrow even more money and simply pass it out in the form of "tax rebate" checks (as if there were a surfeit of Federal tax receipts).
Confidence in the system has continued to plummet anyway, and now even bankers are so shaken that they are reluctant to lend. Consequently, our national leaders have been at a loss concerning to how to arrest the collapse of the whole monetary order, except to mount a hurry-up effort to borrow the staggering sum of $700 billion and inject it into the speculative financial industry on the basis of vague assurances from the experts (who guided the ship of finance into this storm) that this desperate measure will somehow redeem the situation for the sake of all the people.
The ink has hardly had time to dry on that bill, and already our representatives in Washington are talking about borrowing yet more money to fund a new "stimulus package". Through all of this the public is assured that the abuses will be stopped because there will be some unspecified details written into these "financial packages" that will assure greater scrutiny and control, plus the taxpayers will get their money back out of the "future profits" of these already failed "investments" that the government will buying up. I don't know what is in the minds of the current Presidential candidates, but surely, given their years of experience in government in which they have seen from the inside the futility of trying to wrestle the "debt" dragon into submission through budgetary variables, they cannot possibly have confidence in what they are saying. What is going on here? I will pick up on that question in the next column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Friday, October 24, 2008
Column #65 TO BORROW, OR NOT TO BORROW: THAT IS THE $700 BILLION QUESTION
(Week 11 - Friday, Oct. 24)
I reported in yesterday's column about someone who sought my advice concerning whether she should borrow money from a bank for what she deemed to be a creative, but not strictly necessary, purchase; and thereby take on more "debt" that she, and ultimately the larger society, would have to bear. I recommended that she follow as much as possible the best option available with respect to benefiting life, and let whether that meant borrowing money, or not, take its course.
Our nation has recently passed through a similar point of choice, though on a vastly greater scale. This was in reference to the decision about whether Congress should pass and the President sign legislation by which the Federal government would borrow $700 billion from the Federal Reserve in an attempt to "rescue", supposedly, the failing financial system. Within the context of the present monetary system one could make a case for either course of action.
For purposes of this discussion, I would first make an argument in favor of the measure. There is a chance that such an injection of funds will succeed in restoring a measure of order and confidence in the financial system that, in a nation which has largely lost its local subsistence capabilities, we all depend on literally for survival. Standing by while it implodes is not an option. In addition, the bill will put into play billions of dollars of circulating medium that are sorely needed to expedite essential economic activities that people in many areas of life are looking for funds to accomplish. This runs the gamut from paying mortgages, to financing business activity, to investing in alternative energy, to repairing infrastructure, to hiring school teachers, to providing health care, to getting the homeless off the street, to feeding the hungry, to (fill in the blank). It is inevitable that some of the money will reward speculation and end up financing otherwise unproductive and unethical enterprise, but is that any reason to let economic activity that is in this moment needed for pressing human needs to go unrealized?
Next I would make an argument against the bill. Sure it might restore a measure of order and confidence in the system, but only temporarily, and at what price? Taking on yet another round of "debt" will come down as an additional burden on the already buckling shoulders of the productive participants in the economy, and will in the long run only serve to compound the problem and put it off to a more terrible day of reckoning? Admittedly it will provide a useful injection of currency into the economy, but in the larger picture is it not really cruel to allow a society that is addicted to "debt" one more fix of the very substance that is bringing it down? In any case, much of this supposedly needed economic activity is not "needed" at all. A large share of the money will go to reward usury (using money to make money at the expense of one's brother or sister, instead of acting as a financial partner to expedite genuinely beneficial enterprise), and it is doubtful whether the added level of economic activity financed will be worth the damage done.
Whatever one's view of the choice that was presented, the bill has been passed. My purpose in revisiting the decision is not to second-guess the road taken, but to use it as an example for how we might approach such dilemmas. The nation could not have avoided selecting on outward course of action, but inwardly we must explore what we are evidently doing wrong that causes such mutually problematic choices to be seemingly our only options.
We need to step up out of the to-borrow-or-not-to-borrow catch-22 into a new way of thinking for the future. Right now financiers, pundits, academicians, politicians and other "leaders of public opinion" are for the most part not offering much of a conversation to help We the People do that.
Too often in the political realm, for example, the options are presented as ideological arguments. We can hear this reflected in the debate between the Presidential candidates at present where the rhetoric of one is designed to sound plausible to a "conservative" base, and the other a "liberal."
It is interesting to note that history has shown that once a President is in office, or a party in power, the demands of their new duties dictate that they act a lot less differently with respect to each other than their ideological pronouncements would have one believe. Witness in this case how Senators McCain and Obama strain to highlight supposed differences in their respective approaches to the present financial crisis, but in the end support the essentially the same course of action. This is a tacit recognition that, when it comes to coping with real-life situations, ideologies don't matter. Acting out of one's highest consciousness of what is needed in the moment matters.
What, then, is needed in this moment? It is not recriminations about whether the $700 billion deed should have been done. The real question is what have we gained from this experience that can help up us move into the future? Cleary, the monetary problem has not been solved, but if the "bailout" is "successful" some time has been bought. This time of "crisis" is truly a gift if we know what to do with it. I say this, not in the spirit of taking lightly the suffering that people have experienced through its travail, but in the fervent hope that such sacrifice can be redeemed to good account, and its lessons contribute ultimately to their economic liberation.
This hope will be in vain if we cannot lift ourselves up into a higher plane than the one on which the to-borrow-or-not-to-borrow-$700-billion issue was debated. To be sure, we need to make the best of whatever options present themselves in the exigencies of the moment, but it is imperative to leave dogmatic biases about whether, or not, to take on more "debt" out of the question. A primary lesson of this whole "debt crisis" episode, I would suggest, is that ultimately we have no choice but to get serious about the matter of restoring the monetary franchise to the public domain.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
I reported in yesterday's column about someone who sought my advice concerning whether she should borrow money from a bank for what she deemed to be a creative, but not strictly necessary, purchase; and thereby take on more "debt" that she, and ultimately the larger society, would have to bear. I recommended that she follow as much as possible the best option available with respect to benefiting life, and let whether that meant borrowing money, or not, take its course.
Our nation has recently passed through a similar point of choice, though on a vastly greater scale. This was in reference to the decision about whether Congress should pass and the President sign legislation by which the Federal government would borrow $700 billion from the Federal Reserve in an attempt to "rescue", supposedly, the failing financial system. Within the context of the present monetary system one could make a case for either course of action.
For purposes of this discussion, I would first make an argument in favor of the measure. There is a chance that such an injection of funds will succeed in restoring a measure of order and confidence in the financial system that, in a nation which has largely lost its local subsistence capabilities, we all depend on literally for survival. Standing by while it implodes is not an option. In addition, the bill will put into play billions of dollars of circulating medium that are sorely needed to expedite essential economic activities that people in many areas of life are looking for funds to accomplish. This runs the gamut from paying mortgages, to financing business activity, to investing in alternative energy, to repairing infrastructure, to hiring school teachers, to providing health care, to getting the homeless off the street, to feeding the hungry, to (fill in the blank). It is inevitable that some of the money will reward speculation and end up financing otherwise unproductive and unethical enterprise, but is that any reason to let economic activity that is in this moment needed for pressing human needs to go unrealized?
Next I would make an argument against the bill. Sure it might restore a measure of order and confidence in the system, but only temporarily, and at what price? Taking on yet another round of "debt" will come down as an additional burden on the already buckling shoulders of the productive participants in the economy, and will in the long run only serve to compound the problem and put it off to a more terrible day of reckoning? Admittedly it will provide a useful injection of currency into the economy, but in the larger picture is it not really cruel to allow a society that is addicted to "debt" one more fix of the very substance that is bringing it down? In any case, much of this supposedly needed economic activity is not "needed" at all. A large share of the money will go to reward usury (using money to make money at the expense of one's brother or sister, instead of acting as a financial partner to expedite genuinely beneficial enterprise), and it is doubtful whether the added level of economic activity financed will be worth the damage done.
Whatever one's view of the choice that was presented, the bill has been passed. My purpose in revisiting the decision is not to second-guess the road taken, but to use it as an example for how we might approach such dilemmas. The nation could not have avoided selecting on outward course of action, but inwardly we must explore what we are evidently doing wrong that causes such mutually problematic choices to be seemingly our only options.
We need to step up out of the to-borrow-or-not-to-borrow catch-22 into a new way of thinking for the future. Right now financiers, pundits, academicians, politicians and other "leaders of public opinion" are for the most part not offering much of a conversation to help We the People do that.
Too often in the political realm, for example, the options are presented as ideological arguments. We can hear this reflected in the debate between the Presidential candidates at present where the rhetoric of one is designed to sound plausible to a "conservative" base, and the other a "liberal."
It is interesting to note that history has shown that once a President is in office, or a party in power, the demands of their new duties dictate that they act a lot less differently with respect to each other than their ideological pronouncements would have one believe. Witness in this case how Senators McCain and Obama strain to highlight supposed differences in their respective approaches to the present financial crisis, but in the end support the essentially the same course of action. This is a tacit recognition that, when it comes to coping with real-life situations, ideologies don't matter. Acting out of one's highest consciousness of what is needed in the moment matters.
What, then, is needed in this moment? It is not recriminations about whether the $700 billion deed should have been done. The real question is what have we gained from this experience that can help up us move into the future? Cleary, the monetary problem has not been solved, but if the "bailout" is "successful" some time has been bought. This time of "crisis" is truly a gift if we know what to do with it. I say this, not in the spirit of taking lightly the suffering that people have experienced through its travail, but in the fervent hope that such sacrifice can be redeemed to good account, and its lessons contribute ultimately to their economic liberation.
This hope will be in vain if we cannot lift ourselves up into a higher plane than the one on which the to-borrow-or-not-to-borrow-$700-billion issue was debated. To be sure, we need to make the best of whatever options present themselves in the exigencies of the moment, but it is imperative to leave dogmatic biases about whether, or not, to take on more "debt" out of the question. A primary lesson of this whole "debt crisis" episode, I would suggest, is that ultimately we have no choice but to get serious about the matter of restoring the monetary franchise to the public domain.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Thursday, October 23, 2008
Column #64 TO BORROW, OR NOT TO BORROW: THAT IS THE QUESTION
(Week 11 - Thursday, Oct. 23)
During a workshop I conducted in Wisconsin, one participant posed a question about a personal financial dilemma in which she felt morally torn between the possibility of borrowing money to purchase a 20 acre parcel of land that was contiguous to a like-sized parcel she was living on, or foregoing the opportunity and thereby obviating the need to go to the bank. She had what she felt were a number of moral reasons for wanting to make the deal, but wasn't sure that such factors adequately justified taking on more "debt". Clearly in this case, to borrow and buy would not be a justification-by-necessity act, but she felt that it could be a humanly creative choice. She wanted my advice on whether she should borrow the money and make the purchase, or not. It was a question for which I could not give a direct answer, but could instead offer conversation that might help her in her determination of what course to take.
I suggested that in making her decision, it might be wisest to ignore the monetary implications with respect to whether or not it would cause more "debt" to come into existence. This seemed to her like a strange response, given that I had just delivered a long dissertation about how borrowing money from a bank causes more compounding "debt" to enter the system, which winds up being carried by the society as a whole on a never-ending basis into the future even after one's loan from the bank is technically paid off. This happens because the proceeds from the "interest" payments are typically converted into more "debt" by "investors" who have purchased the right to be the recipients of these payments. They "recycle" these funds back into circulation by loaning them out at "interest", this time without even the benefit of newly created bank money entering the money supply (see Col. #5, "Where Does Our Money Go?").
How, then, does ignoring the monetary implications of whichever course is taken make sense? It is because, monetarily speaking, the "to borrow, or not to borrow" dilemma is really a Hobson's choice (one with two equally problematic alternatives).
On the one hand, if one goes ahead and borrows the money, whatever benefit flows from the purchase that is financed by the loan is compromised by the burden to the individual and society of the "debt" thereby taken on. It should be noted that if the borrowing was done through a bank, the additional money created does continue to circulate through the money supply after the initial outlay, and this, in turn, does provide to the economy always-needed (but never enough) additional circulating medium.
On the other hand, if one does not take out the loan the "debt" burden is averted, but so is the benefit that might have transpired through whatever the money would have paid for. It should be noted that not borrowing also does not cause additional circulating medium to enter the money supply, and so in effect occasions a contraction of the economy relative to the level of activity it could have supported had the loan been made.
There are other nuances to this choice that could be traced out at length, but the upshot is, I believe, that considered as merely a monetary question, the decision "to borrow, or not to borrow" is, as an economist might say, a "wash" (a choice which has diametrically different, but equally offsetting, outcomes). The reasonable course, then, is to make the decision on the basis of the human merits of the case, and let whether or not the trip to the bank is made follow.
In the case of the lady at the workshop who wanted to know whether she should borrow more money to buy the adjacent land, the decision would presumably be based on a comprehensive consideration of the actual physical and human factors involved. To be sure, such deliberations can run deep, and may even extend in the minds of many to spiritual considerations which are wholly out of the domain of calculation, but whatever the case the question is by its nature uniquely personal, and precisely fitted to the actual people, circumstances and unit of time in which it takes place.
This is not to say that the human cost of carrying a resultant "debt" burden is necessarily not a factor that should be weighed in, but the decision in principle about whether to borrow, or not, is another matter.
The long and short of my advice (if I might presume to offer such) is, when making any economic decision, to follow as much as possible the best option available with respect to benefiting life, and let the finances take their course. Ultimately, the monetary system in its current configuration is not sustainable whether people borrow at a high or low rate. The important point is to not let life suffer anymore than it has to due to the pernicious workings of the system in the knowledge that any determination concerning whether or not to take on "debt" arrived at truly will in the short run avail life, and in the long run buy time for people to come to their senses and remedy the flawed foundation upon which the system is founded. That, in my view, is an optimum course of action, however it might play out in detail in any particular case.
The example we have examined here pertains to the finances of one particular person, but how does that relate to the to-borrow-or-not-to-borrow question for society as a whole? That is a question I will take up in tomorrow's column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
During a workshop I conducted in Wisconsin, one participant posed a question about a personal financial dilemma in which she felt morally torn between the possibility of borrowing money to purchase a 20 acre parcel of land that was contiguous to a like-sized parcel she was living on, or foregoing the opportunity and thereby obviating the need to go to the bank. She had what she felt were a number of moral reasons for wanting to make the deal, but wasn't sure that such factors adequately justified taking on more "debt". Clearly in this case, to borrow and buy would not be a justification-by-necessity act, but she felt that it could be a humanly creative choice. She wanted my advice on whether she should borrow the money and make the purchase, or not. It was a question for which I could not give a direct answer, but could instead offer conversation that might help her in her determination of what course to take.
I suggested that in making her decision, it might be wisest to ignore the monetary implications with respect to whether or not it would cause more "debt" to come into existence. This seemed to her like a strange response, given that I had just delivered a long dissertation about how borrowing money from a bank causes more compounding "debt" to enter the system, which winds up being carried by the society as a whole on a never-ending basis into the future even after one's loan from the bank is technically paid off. This happens because the proceeds from the "interest" payments are typically converted into more "debt" by "investors" who have purchased the right to be the recipients of these payments. They "recycle" these funds back into circulation by loaning them out at "interest", this time without even the benefit of newly created bank money entering the money supply (see Col. #5, "Where Does Our Money Go?").
How, then, does ignoring the monetary implications of whichever course is taken make sense? It is because, monetarily speaking, the "to borrow, or not to borrow" dilemma is really a Hobson's choice (one with two equally problematic alternatives).
On the one hand, if one goes ahead and borrows the money, whatever benefit flows from the purchase that is financed by the loan is compromised by the burden to the individual and society of the "debt" thereby taken on. It should be noted that if the borrowing was done through a bank, the additional money created does continue to circulate through the money supply after the initial outlay, and this, in turn, does provide to the economy always-needed (but never enough) additional circulating medium.
On the other hand, if one does not take out the loan the "debt" burden is averted, but so is the benefit that might have transpired through whatever the money would have paid for. It should be noted that not borrowing also does not cause additional circulating medium to enter the money supply, and so in effect occasions a contraction of the economy relative to the level of activity it could have supported had the loan been made.
There are other nuances to this choice that could be traced out at length, but the upshot is, I believe, that considered as merely a monetary question, the decision "to borrow, or not to borrow" is, as an economist might say, a "wash" (a choice which has diametrically different, but equally offsetting, outcomes). The reasonable course, then, is to make the decision on the basis of the human merits of the case, and let whether or not the trip to the bank is made follow.
In the case of the lady at the workshop who wanted to know whether she should borrow more money to buy the adjacent land, the decision would presumably be based on a comprehensive consideration of the actual physical and human factors involved. To be sure, such deliberations can run deep, and may even extend in the minds of many to spiritual considerations which are wholly out of the domain of calculation, but whatever the case the question is by its nature uniquely personal, and precisely fitted to the actual people, circumstances and unit of time in which it takes place.
This is not to say that the human cost of carrying a resultant "debt" burden is necessarily not a factor that should be weighed in, but the decision in principle about whether to borrow, or not, is another matter.
The long and short of my advice (if I might presume to offer such) is, when making any economic decision, to follow as much as possible the best option available with respect to benefiting life, and let the finances take their course. Ultimately, the monetary system in its current configuration is not sustainable whether people borrow at a high or low rate. The important point is to not let life suffer anymore than it has to due to the pernicious workings of the system in the knowledge that any determination concerning whether or not to take on "debt" arrived at truly will in the short run avail life, and in the long run buy time for people to come to their senses and remedy the flawed foundation upon which the system is founded. That, in my view, is an optimum course of action, however it might play out in detail in any particular case.
The example we have examined here pertains to the finances of one particular person, but how does that relate to the to-borrow-or-not-to-borrow question for society as a whole? That is a question I will take up in tomorrow's column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Wednesday, October 22, 2008
Column #63 "WHAT CAN I DO ABOUT MONEY?"
(Week 11 - Wednesday, Oct. 22)
The most common question I hear is "What can I do about money?" This is commonly meant in one of two ways, one inward looking, the other outward.
The inward looking is focused on what the inquirer can do to preserve, expedite or otherwise conduct his or her personal financial situation in a way consistent with the greater realities in the world today. The outward is aimed at determining how he or she can act in a way beneficial to the larger economic concerns of the world from his or her own unique position in it.
What I find encouraging at present is that people are asking ever more earnest questions about the nature and realities of money itself. Heretofore, it has been treated more as a given, and the main concern has been to about how to catch one's share of its currents as it passes through from wherever it came, to wherever it goes. Now people are waking up to the more fundamental questions of "What is money?", "Where does it come from?", "What is its effect?" and "What can I do about it?"
I am not a financial advisor, political pundit or ideological proponent, and have no specific answers or moral judgments to render. My inclination is to offer a conversation out of my own experience that can perhaps help others to clarify their own thoughts and feelings related to matters of money, and thereby come to a determination of what in their life is to be done with it.
This is not to say that matters of substantive personal relevance can't be talked about; only that it is incumbent upon each of us to come to our own final determination of what is to be done.
One thing that can be offered of which I have a sense of certainty is that, whatever our disposition with respect to money, any contemplation needs to begin with ourselves. In a phrase, what is called for is "soul searching". My observation is that the human race has a most disorderly and disharmonious relationship to money at present, and virtually every one of us has contributed to, and indeed continues to participate in, the problem. There is no criticism or judgment in this, in that it is a natural stage in the evolution of a soul from innocence to adulthood.
But now we are adults, and are called upon by the demands of maturity to put away childish things.
Like children looking for whom to blame, the public dialogue on our current monetary straits is filled with expressions of accusation, recrimination and denial. If only, so the thinking goes, we could find out who is responsible for this mess, then we could hold them responsible and somehow clean it up. The culprits may include bankers, the Fed, Wall Street financiers, politicians, the "conservative right", the "liberal left", communists, the media, the corporations, the mega-rich, a coddled middle class, the destitute poor, welfare moms, the Chinese, Islamic terrorists . . . The list goes on ad infinitum.
To be sure, people in each of these spheres have played a role, but the realities they live with are never simple. It would serve the situation well to hold the attitude of removing the beam from one's own eye before attempting to extract the mote from the other.
In the modern world we are all economic creatures, and the actions we take, both by commission and omission, have an economic dimension. Even to move to the woods and live like a hermit is a profound economic act. This is a condition of our age, and it cannot be avoided.
The attitude that we are all responsible, then, becomes the starting point for an intrepid introspection that will lead ultimately to a unique answer for each to the question, "What can I do about money?" I will have more specific thoughts to offer on this in the next few columns.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The most common question I hear is "What can I do about money?" This is commonly meant in one of two ways, one inward looking, the other outward.
The inward looking is focused on what the inquirer can do to preserve, expedite or otherwise conduct his or her personal financial situation in a way consistent with the greater realities in the world today. The outward is aimed at determining how he or she can act in a way beneficial to the larger economic concerns of the world from his or her own unique position in it.
What I find encouraging at present is that people are asking ever more earnest questions about the nature and realities of money itself. Heretofore, it has been treated more as a given, and the main concern has been to about how to catch one's share of its currents as it passes through from wherever it came, to wherever it goes. Now people are waking up to the more fundamental questions of "What is money?", "Where does it come from?", "What is its effect?" and "What can I do about it?"
I am not a financial advisor, political pundit or ideological proponent, and have no specific answers or moral judgments to render. My inclination is to offer a conversation out of my own experience that can perhaps help others to clarify their own thoughts and feelings related to matters of money, and thereby come to a determination of what in their life is to be done with it.
This is not to say that matters of substantive personal relevance can't be talked about; only that it is incumbent upon each of us to come to our own final determination of what is to be done.
One thing that can be offered of which I have a sense of certainty is that, whatever our disposition with respect to money, any contemplation needs to begin with ourselves. In a phrase, what is called for is "soul searching". My observation is that the human race has a most disorderly and disharmonious relationship to money at present, and virtually every one of us has contributed to, and indeed continues to participate in, the problem. There is no criticism or judgment in this, in that it is a natural stage in the evolution of a soul from innocence to adulthood.
But now we are adults, and are called upon by the demands of maturity to put away childish things.
Like children looking for whom to blame, the public dialogue on our current monetary straits is filled with expressions of accusation, recrimination and denial. If only, so the thinking goes, we could find out who is responsible for this mess, then we could hold them responsible and somehow clean it up. The culprits may include bankers, the Fed, Wall Street financiers, politicians, the "conservative right", the "liberal left", communists, the media, the corporations, the mega-rich, a coddled middle class, the destitute poor, welfare moms, the Chinese, Islamic terrorists . . . The list goes on ad infinitum.
To be sure, people in each of these spheres have played a role, but the realities they live with are never simple. It would serve the situation well to hold the attitude of removing the beam from one's own eye before attempting to extract the mote from the other.
In the modern world we are all economic creatures, and the actions we take, both by commission and omission, have an economic dimension. Even to move to the woods and live like a hermit is a profound economic act. This is a condition of our age, and it cannot be avoided.
The attitude that we are all responsible, then, becomes the starting point for an intrepid introspection that will lead ultimately to a unique answer for each to the question, "What can I do about money?" I will have more specific thoughts to offer on this in the next few columns.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
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