WALLSTREET

Individuals, families, businesses, governments, organizations, institutions… all find themselves in need of money on a daily basis.  They use it for multifarious purposes, but the monetary system itself is reclusive.  Most people, including members of Congress, not to mention candidates for office, do not understand how it works.  It’s like the engine of a car.  People want it to run.  Most never open the hood.

The way it works is that Congress privatized the monetary system to the bank industry in 1913 with passage of the Federal Reserve Act  and the Internal Revenue Act.  It was the mother of all privatizations.  As a member of the Rothschild family of European bankers put it in the 19th century, “Give me control of a nation’s money and I care not who makes its laws”.

It goes back to a series of secretive meetings of a small group of bankers on Jekyll Island, Georgia, starting in 1910. They were CEOs of the five biggest banks on Wall St, including JP Morgan personally, and their intention was to work out how the country was to be run financially.  Somehow they came up with a system that would provide a substantial, inconspicuous, risk-free, consistently growing revenue stream for their banks — by controlling the government bond industry.

The bank  industry’s product is debt, and the American people are now stuck with an inapprehensible national debt of $17 trillion.  Congress never fails to produce its annual and fictional deficit reducing performance, and as long as there’s any deficit at all, the debt never stops growing.  The interest on $17 trillion has passed Defense as the biggest item in the national budget.

The evolution of money has gone hand in hand with evolution of the human spirit, thereby becoming the root of all evil.  When it comes to manipulating behavior — with people it’s money, with animals it’s food.  An economy without a monetary system would be like dogs without dog food — living on and fighting over scraps of junk food.

Banks create money from thin air.  The way that works is when someone goes to a bank seeking a loan of, say, $10,000, the bank credits the customer’s checking account with $10,000 in exchange for an agreement to make periodic payments back into the bank covering interest and amortization of the loan.  The $10,000 is created out of thin air, which is what banks do, subject to bank regulations and capital requirements.

Banks lend and circulate money.  To the public they supply loans, bank accounts, and currency printed by the government.

The Federal Reserve Bank is a private corporation wholly owned by the bank industry and not required to publish operating data like a corporation with publicly traded stock.

In 1913 the Internal Revenue Act set the initial income tax rates low, to avoid disturbing the public, of which a large majority did not have enough income to be subject to the tax.  WallSt never thought tax revenue would remotely suffice for the government’s needs.  That left borrowing, selling government bonds, government debt, as the principal source of government financing.

In this way Congress, directed by the Constitution to provide a money supply, privatized this fundamentally governmental function to the bank industry.  It was the mother of all privatizations.

Our monetary system consists of the bank industry, the government bond industry, and the tax system, along with mattresses, with the Federal Reserve Bank as central bank.

 

United States government debt has been one of the great growth industries.  The government bond departments of the Wall St banks assumed the marketing and rolling over of federal bond issues, and the national debt has since reached the mind-disorienting level of $17 trillion.  Much of which is rolled over every year.  It would be interesting to know how much in the form of related fees and commissions this generates for the banks on an annual basis.  Not to mention how much altogether in the century since 1913.  One percent of a trillion is ten billion.

Interest on the national debt has now passed Defense as the biggest item in the national budget.  In the world of politicians, however, any notion of balancing the budget is quaint. The political focus is entirely on dogfighting about the deficit.  As long as there’s any deficit at all, the debt will never stop growing.

 

The Wall St banks are currently deemed too big to fail, since it is believed this would disrupt the economy, just as shutting down the interstate highway system would disrupt  the motor vehicle industry. But then in 2008 spectacular mismanagement of derivatives speculation became noticeable and some of these banks did fail. They had to be bailed out. This was done by the Federal Reserve Bank, our central bank.

The bank industry’s product is debt, too much of which has been sold to the public.  Individuals are struggling to get out from under it, which produces personal austerity and depresses consumer demand.  This is causing the current economic downturn.  Private industry corporations have strong cash positions but without consumer demand have no incentive to do anything with it, except maybe buy back some of their own stock.

At the same time the country’s infrastructure is in deplorable condition and there are urgent climate change and environmental protection issues.  Our current needs include a massive public works program putting the American people to work rebuilding the country, while Congress spouts about how the deficit requires belt-tightening.

As FDR and the WPA and John Maynard Keynes taught us 80 years ago, government belt-tightening is the exact opposite of dealing effectively with a depression.

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So the government needs more money.  A lot more.  Raising taxes and further borrowing are exhausted options.  With $17 trillion in debt the magnitude of the issue is historically great.

Congress is not qualified for this.  Congress, with its extreme politicization, gets off on issues like abortion, welfare, health insurance, gun control, etc.  Incredibly, even contraception has been taken up.  This is dogfighting, which is what Congress does.  They think it gets them votes.  They have also learned to sit up and beg for the lobbying industry’s cash.  With their owners grooming them financially, their biennial elections are like dog shows.

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Throughout the world it is generally accepted that banks can create money out of thin air.  This is what banks do, subject to capital requirements.  When they make a loan they exchange a current amount created from thin air for a future repayment schedule.  If someone borrows $10,000, the amount is credited to the borrower’s checking account, and the country’s money supply is increased by $10,000.  If a million people, out of a population of 300,000,000, did this, it would increase the money supply by $10 billion.  Out of thin air.

As borrowers put the money to work in economic activity, money circulation is increased but the money supply is not.  Economic activity produces earnings, and interest and amortization payments are made.  Money going back into the banks in this manner reduces the money supply.

This is not true of money going into banks in the form of deposits in checking and savings accounts.  Money in these accounts is not the bank’s money and is part of the money supply.

When the banks pays its expenses  —  salaries, utilities, etc. —  it is creating the money from thin air and adding to the money supply.

Bank failure occurs when the demand for withdrawals exceeds deposits, to which the ability to create money from thin air cannot be applied.

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Government does not have capital requirements and its payments into the economy for goods and services increase the money supply while receiving tax payments reduces it.

The overriding economic fact here is that a sovereign government, unlike a bank, can create out of thin air, print as legal tender, all the money it needs.  There is the risk of runaway inflation, which would be followed by regime collapse, so a control mechanism is required.  There is at least the possibility we could manage this.  With $17 trillion in ineluctably growing debt, there is no dog food..

This is what Abraham Lincoln had in mind in 1865 when he wanted to print greenbacks to pay down Civil War debt, and was assassinated.  A few years later in 1880 President James Garfield was addressing monetary issues and was also assassinated.  In 1963 President John F Kennedy ordered the Treasury Department to print United States Notes instead of Federal Reserve Notes, and was assassinated.  The M.O.s were the same in each case. (Which is also true of the assassination of President William McKinley in 1910).

Garfield had only 4 months in office.  For Secretary of the Treasury he was insisting on someone “free from the influence of eastern bankers” (Miller Center, University of Virginia).

In his first week in office President Lyndon Johnson reversed Kennedy’s order.

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Individuals find they have to work for a living and, having been led to believe government financing requires taxation and borrowing, don’t relate to the idea of money being created out of thin air.

Just recently, however, the Federal Reserve Bank demonstrated its ability to create money from thin air —  by saving WallSt from its own mismanagement and by open market operations with government bonds to keep interest rates down, none of the money for any of which came from tax revenue and all of the money for all of which amounted to enough in terms of trillions to pay off the national debt.

The government could not have borrowed the money for the Fed’s open market operations because then it would have been selling bonds to raise the money to buy bonds.

If government can create trillions out of thin air to bail out WallSt and to manipulate the bond market, it can create trillions out of thin air to put the American people to work.

If government can create trillions out of thin air, then why do we have a monstrous government bond industry?

Maybe Abraham Lincoln, whose intellectual power by himself was probably greater than what Congress gets by putting its heads together, was right.  We don’t need a government bond industry.  Nor do we need a tax system.  The fact that we have them mainly benefits the banks, which collect the billions in costs arising from managing $17 trillion in debt.

Not to mention millions of work welfare queens like CPAs and tax lawyers.

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Eliminating the federal tax system and the government bond industry is an idea that would be immediately dismissed by Congress and the media as a wing-nut absurdity.  However,  it makes sense.  (Local taxes should be maintained, as should the availability of government bonds to the investment community as a risk-free investment option.)

The federal tax system creates an adversarial relationship between government and citizens, who become emotionalized by, for example, hyped notions of welfare queens driving Cadillacs.  This sort of thing becomes part of our money- and hype-driven political discourse.

A United States citizen, buried in 50,000 pages of tax regulations  (a work welfare gold mine for tax lawyers)  literally can’t do anything without tax consequences.  Can’t be born, grow up, get an education, get a job, start a business, hire help, get married, buy a home, have children, make a gift, make a personal interest-free loan to a relative or friend without taxable “imputed” interest, accumulate savings or investments for financial security, get a divorce, educate children, experience injuries or illness, retire, die, leave an estate – everything.

What could be more gratifying than getting rid of all this crap?  That is, dogshit.

To deal with the Great Recession, what greater immediate economic stimulus could there be?

In this free country someone who is successful – entrepreneur, entertainer – can accumulate enough money so that children, even grandchildren, don’t have to work for a living.  If a country is going to be great, its wealth must be turned into culture.  The government can and does do a great deal along these lines but family wealth is primary here.  Andrew Carnegie: “Surplus wealth is a sacred trust which its possessor is bound to administer for the good of the community.”

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Would it be inflationary?

Inflation comes about when the money supply exceeds the capacity of the economy.  “Too many dollars chasing too few goods.”  We are currently in an opposite deflationary period with a growing multi-trillion dollar gap between a shrinking money supply and the economy’s capacity, brought on by the debt cycle. This is dragging us into a depression.  There will be no inflation on the horizon indefinitely.

As the public embraces personal austerity and pays down debt, it is shrinking the money supply, which eats away at consumer demand and aggravates the depression.  In order to offset this the government would have to see to it that its expenditures into the economy, plus what there is in the way of credit creation by the banks, together exceed overall debt servicing payments and tax receipts.  The money for this could be created out of thin air.

(It’s worth noting here that in an inflationary period, the word among citizens is borrow all you can, pay it back later with cheaper dollars, as anyone who experienced “the great inflation” of the late 1970s will remember.  This creates spiraling inflation, calling for extremely high interest rates and increased taxes, making this, rather than now, the time for Congressional belt tightening.)

Trillions for public works now would go directly into and increase the money supply, create consumer demand, relieve some individual hardship, and address critical environmental and infrastructure needs.  Trillions to bail out Wall St banks does little if anything along these lines.  It just puts a lot of money in the banks, where in the absence of loan demand it’s basically useless, beyond financing speculation in credit default swaps and maintaining obscene levels of executive compensation.

It’s the banks that own the Fed.

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Getting rid of the tax system would have an interesting variety of benefits.

Republicans, including Grover Norquist, not to mention wordy Rush Limbaugh, would find themselves, like many dogs  —  “fixed”.

The tax avoidance industry would go the way of uncollected dog ejectamenta on city sidewalks.

Work welfare queens like tax lawyers could be put to work on clean water projects.  The congressional marketplace for tax breaks could be replaced by honest subsidies, with transparency.

It wouldn’t be the first time major industries were displaced by “progress”.  Think of carriage makers, number please telephone operators, manufacturers of steam locomotives, luxury ocean liners…

The IRS, with its million or so trained accountants, could take over managing, culling and enforcing our monumental accumulation of government regulations.  Instead of devastating the privacy of citizens, it could focus on the integrity and efficiency of government. Administer a whistle-blower rewards program, etc.

Money would be available for legitimate and needed programs.  Winding down the national debt in an orderly manner, which would take generations, could be commenced by WallSt’s government bond departments.  The environment…  climate change…   government funded research…   a strong social safety net…  Etc.  Etc.  Etc.

The world is already overpopulated with humanity.  The solution to this is not difficult to find.  It would only be necessary to educate women.

The amount of money that could be created out of thin air for government use depends on the size or capacity of the economy.  Growth in the economy is a function of the free enterprise system, which responds to consumer demand, either inherent or created out of thin air by the advertising industry.  If we want a prosperous country we need a prosperous free enterprise system that is not gasping in tax consequences.

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Major changes would be entailed, like an amendment to the constitution to provide a fourth branch of government.  We now have the executive branch, the legislative branch and the judicial branch.  We need an independent fourth branch, an economic branch comprised of a central bank owned by and functioning for the benefit of the people, charged with imposing budgetary boundaries on Congress and maintaining an absence of inflation.

This would be the control mechanism.  If you  —  progressives who vote, members of government  —  want major change  —  to ward off a depression and open up a great future for the country  —  you should consider this.

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