(Week 12 - Thursday, Oct. 30)
In the previous two columns I suggested that nether the "loan" from a private bank by which money is created and issued, nor the "debt" that results, are what the words would purport to mean by the dictionary or common sense meaning of the terms. Moreover, I questioned the very legitimacy of both concepts as they are used in this particular transaction.
Attached to the "debt" is a fee, commonly called "interest", that compounds over time until the "loan" is "paid back". The charging of this "interest" fee is commonly attributed to "the cost of money", but the phrase is not justified. The "cost" in real terms is essentially the small effort it takes to lift the pen and write the check.
If a private person had a checkbook out of which he was able to write checks for any amount with no requirement that there be funds somewhere to draw upon, and, further, he chose to "loan" the money so conjured to people who simply did not have that privilege, would it be proper to say that a compounding fee attached to the use of such funds constitutes a "cost of money" to the person writing the check? While a modest incidental levy might be justified, an "interest" charge can assume such proportions that it can total more than the principal amount of the "loan" itself; often a multiple thereof. It can even result in a revolving-door payment on the "debt", with the principal of the "loan" not being retired at all. Can the fact that a particular group has been awarded control of the spigot that dispenses the economic life's blood of society as a whole be attributable to anything but a disparity of privilege?
Money is the most vital element of the commons. How can it be justified for a private corporation to possess the franchise to create it, while everyone else is obliged to pay a heavy tribute for its use?
But, I hear it said, banks are businesses, and like other businesses they are obliged to pay their expenses and earn a profit. This is true, but most of the expenses of banking are covered by the many fees they charge for their services that are not related to "interest". Why, then, are they justified in tacking on an additional compounding surcharge that requires that the money they create out of essentially nothing be "paid back" in quantities that are often multiples of the amount "loaned"?
Others will say that if banks did not charge "interest", what would be the incentive for them to loan out "their money"? They are not loaning out their money; they are "loaning" ours (i.e. the public's). We should be turning the question around and asking, what is the incentive for We the People to "borrow" at "interest" money that is already ours to create? I would add, why are we not asking this question in sufficient numbers to put the monetary issue on the political agenda?
To be complete, I would note that there are banks that do indeed loan out money on deposit. They are generally referred to by specialized names, such as "savings banks", "savings-&-loans" or "credit unions". What are commonly identified as a "banks" within the Federal Reserve System create new money using funds on deposit (called "reserves") as a baseline from which, within the rules of a mathematical (fractional reserve) formula, they are permitted to create new money to "lend".
The Federal government (i.e. We the People through the Federal government) is supposedly in "debt" to the Federal Reserve for a sum that is currently in excess of $10 trillion dollars. Over a period of time, it will cost the government that much and more in "debt" service payments just to avoid defaulting on the "loan" (without ever reducing the "debt"). Will the Fed really have incurred a "cost" of $10 trillion dollars (as measured by what was needed to cover material expenses and employee wages) in servicing the paperwork on the amount "loaned"?
In the private sector a "loan" of $500,000 might well be sufficient to compensate the architect, suppliers, tradesmen and other necessary contributors to the building of a large house, but does it really cost another $1,000,000 dollars ("interest" and fees) over the period of the "loan" (mortgage) merely to manage the paperwork?
Clearly, there is a grossly disproportionate charge for actual services rendered at the very least. In reality a virtually culture-wide denial is happening in matters of money that is effectively camouflaged by euphemistic language and dubious patterns of thought, which, in turn, have become the words and phrases that we as individuals and as a civilization have available to think with.
What needs ultimately to reckoned with is that, due to the compounding "interest" fee attached to bank "loans", the "debt" of society to the banking system can never be "paid off". Again, to be complete, it is technically possible for the "debt" to be satisfied if the "investors" who bought up the "debt" contracts generated by the banks all forego retaining the "interest" payments collected, and return the money as gifts to the social order. In fact, there is some of this that goes on, mainly in the name of philanthropy, but it is hardly the reason that motivates the majority of the gamblers in the monetary casino. Practically speaking, the "debt" that is attached to the public money supply is unpayable.
How then can our children ever "pay" it? More on that tomorrow.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Thursday, October 30, 2008
Wednesday, October 29, 2008
Column #69 WHY OUR CHILDREN WILL NOT INHERIT THE "NATIONAL DEBT" – Part 2
(Week 12 - Wednesday, Oct. 29)
In yesterday's column I offered a description of how the private-bank-loan transaction by which money in the present system is created and issued is not a "loan" in the dictionary or common sense meaning of the term, but is actually a creation-and-issuance procedure by which new money is created when the banker writes the check (or electronically credits the account), and enters into circulation when the "borrower" spends it. The banker is not handing over funds that were on deposit in his bank, but, rather, is bringing an intangible value into existence that is essentially conjured "out of thin air" in a process that could more properly be called "monetization" (the assignment of monetary value to already existent wealth (i.e. collateral)).
By the terms of the contract that the "borrower" is required to sign to get the money, he agrees to take on a "debt" to the bank in spite of the fact that the money could not be properly said to have been a "loan", but rather an assignment of monetary value to the property (collateral) of the "borrower".
It must be asked, where did the bank get the privilege to effectively write the money that created a "debt" which the citizen who applied for the "loan" is obliged to bear? It proceeds from the exclusive franchise to create money granted to a private corporation by the Federal Reserve Act of 1913. The granting to a private corporation of the franchise to create the nation's money supply is unconstitutional because such authority is a legislative power, as stipulated in the Art 1, Sec 8, Para 5 of the United States Constitution (Congress shall have the power to . . . coin Money (and) regulate the Value thereof).
Notwithstanding that they have done so, it is no more justified for the Congress to abdicate this Constitutional mandate than it would be for the President to contract out his executive duties, or the Supreme Court its decision-making trust to a private contractor. President Andrew Jackson stated the matter succinctly in his message to Congress on the occasion in 1832 of vetoing the charter of the Second Bank of the United States (an institution much like the Federal Reserve):
"But if they (the Congress) have . . . power to regulate the currency, it was conferred to be exercised by themselves, and not to be transferred to a corporation. If the bank be established for that purpose . . . Congress have parted with their power for a term of years, during which the Constitution is a dead letter."
In assuming the authority to create money, the private banking system (under the direction of the Federal Reserve) has usurped a power that properly belongs to the citizenry as a whole. That it then "loans" the money so created back to them is an act of civic effrontery that We the People cannot accede to without becoming as a body citizenry accomplices to the act, and at length indentured serfs to the private interests that have been vested with this misplaced prerogative.
The resulting "debt", then, is not a common-sense debt any more than the "loan" that supposedly created it is a common-sense loan. Indeed, the very legitimacy of both concepts must be called into question. There is one more factor in this line of reasoning that needs to be established before it can be stated definitively (in my view) why our children will not inherit the "national debt". That will be the topic of tomorrow's column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
In yesterday's column I offered a description of how the private-bank-loan transaction by which money in the present system is created and issued is not a "loan" in the dictionary or common sense meaning of the term, but is actually a creation-and-issuance procedure by which new money is created when the banker writes the check (or electronically credits the account), and enters into circulation when the "borrower" spends it. The banker is not handing over funds that were on deposit in his bank, but, rather, is bringing an intangible value into existence that is essentially conjured "out of thin air" in a process that could more properly be called "monetization" (the assignment of monetary value to already existent wealth (i.e. collateral)).
By the terms of the contract that the "borrower" is required to sign to get the money, he agrees to take on a "debt" to the bank in spite of the fact that the money could not be properly said to have been a "loan", but rather an assignment of monetary value to the property (collateral) of the "borrower".
It must be asked, where did the bank get the privilege to effectively write the money that created a "debt" which the citizen who applied for the "loan" is obliged to bear? It proceeds from the exclusive franchise to create money granted to a private corporation by the Federal Reserve Act of 1913. The granting to a private corporation of the franchise to create the nation's money supply is unconstitutional because such authority is a legislative power, as stipulated in the Art 1, Sec 8, Para 5 of the United States Constitution (Congress shall have the power to . . . coin Money (and) regulate the Value thereof).
Notwithstanding that they have done so, it is no more justified for the Congress to abdicate this Constitutional mandate than it would be for the President to contract out his executive duties, or the Supreme Court its decision-making trust to a private contractor. President Andrew Jackson stated the matter succinctly in his message to Congress on the occasion in 1832 of vetoing the charter of the Second Bank of the United States (an institution much like the Federal Reserve):
"But if they (the Congress) have . . . power to regulate the currency, it was conferred to be exercised by themselves, and not to be transferred to a corporation. If the bank be established for that purpose . . . Congress have parted with their power for a term of years, during which the Constitution is a dead letter."
In assuming the authority to create money, the private banking system (under the direction of the Federal Reserve) has usurped a power that properly belongs to the citizenry as a whole. That it then "loans" the money so created back to them is an act of civic effrontery that We the People cannot accede to without becoming as a body citizenry accomplices to the act, and at length indentured serfs to the private interests that have been vested with this misplaced prerogative.
The resulting "debt", then, is not a common-sense debt any more than the "loan" that supposedly created it is a common-sense loan. Indeed, the very legitimacy of both concepts must be called into question. There is one more factor in this line of reasoning that needs to be established before it can be stated definitively (in my view) why our children will not inherit the "national debt". That will be the topic of tomorrow's column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Tuesday, October 28, 2008
Column #68 WHY OUR CHILDREN WILL NOT INHERIT THE "NATIONAL DEBT" – Part 1
(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
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
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
Subscribe to:
Posts (Atom)