Banking/Monetary Reform

[Enishi]

I figured I would start posting arguments and articles related to this topic here instead of bombing other threads.

 

Banking reform, along with environmental devastation, the threat of nuclear warfare and governments encroaching on speech and civil liberties, is one of the most pressing issues we're facing at present.

 

Here's a recent article on public banking:

 

http://www.hcn.org/i...nusual-politics

 

News - From the November 26, 2012 issue by Marshall Swearingen

 

During Tea Party champion Joe Read's first session in the Montana Legislature, in 2011, he drew widespread ridicule for introducing a bill that declared global warming "beneficial to the welfare and business climate of Montana." With another anti-science bill, Rep. Read called for Montana's government to overrule federal regulations on greenhouse gases. He also passed out 170 DVDs of The Secret of Oz, a low-budget video charging that the Federal Reserve system has been corrupted by corporate bankers, symbolized by the "Wicked Witches" in the original Wizard of Oz.

 

The DVDs were part of Read's attempt to create the "Last Chance State Bank," named for a gulch where gold was mined in the 1800s. The colorful name also cut to the urgency of Read's banking concerns: Desperate to fix a broken fiscal system, he envisioned that the Last Chance State Bank would be run by Montana's government.

 

None of those bills became law, but the bank measure attracted a surprising supporter -- Rep. Sue Malek, a Democrat who represents Missoula, a college town. Malek herself sponsored a bill supporting the state-bank idea (which also went nowhere), and Read wholeheartedly supported it.

 

A similar unusual political alignment took shape in Arizona, where Rep. John Fillmore, who brands himself "an ardent small government conservative," championed bills to create an Arizona state bank in 2011, and was asked to speak on the issue at a Tucson meeting of The Progressive Democrats of America.

In Colorado, Bob Bows of the nonprofit Public Banking Institute, founded in 2011, has allied with Marilyn Barnewall, a retired banker active in a Tea Party group called the Save America Foundation, in a fledgling effort to place a state-bank initiative on the 2013 ballot.

 

They're all part of a growing movement to establish public, state-run banks. Since 2010, legislative attempts have been made in 20 states, nine of them in the West, bolstered by grassroots support from small businesses, farmers and labor unions. Some advocates are outraged at the impact of Wall Street greed on local economies; others, like Read, seek independence from the Fed and its imaginary money. But they all agree that states should have more control over their funds and put them to work locally. They even have a model for what they hope to achieve -- the Bank of North Dakota, or BND, the nation's only state-owned bank.

 

Apopulist uprising established North Dakota's state bank in 1919, determined to liberate farmers from an out-of-state cartel of grain brokers, railroad tycoons and private bankers. The Bank of North Dakota's role has changed over time, but it's held fast to its mission of "promoting agriculture, commerce, and industry," by plowing state funds back into local economic development.

 

The Bank of North Dakota is unique in how it gets its money: By law, the state is required to use it as the depository for all taxes and other revenue. (Some counties and cities also participate, although few individuals do.) Even for a sparsely populated state, that amounts to a pile of money: In 2011, the BND's $5.3 billion in assets made it North Dakota's second-largest bank.

 

From its single office in Bismarck, the BND does plenty of normal bank business. Mostly, however, it makes loans -- to students and small businesses, farmers and ranchers, affordable-housing developers and disaster-stricken homeowners. The loans are designed to serve public need, so the terms are generally more favorable than private banks'. Some of the loans are made directly by the BND, but more commonly they're made in partnership with local banks. In such cases, the BND essentially subsidizes the loan in a sort of bulk discount backed by state funds, lowering the interest rate or extending the period of repayment. As a result, small banks are able to make loans they otherwise wouldn't -- whether because of risk, low payoff, or the loan's large size.

 

Neil Effertz got a Beginning Farmers Loan from the BND 20 years ago to help establish his farm along the Missouri River. "We didn't have the collateral to go to a regular bank and get that kind of money," he says. Then in 2011, when his alfalfa was flooded by six feet of water, he went to a local bank and got a low-interest-rate BND Farm Disaster Relief Loan.

 

BND loans aren't a handout; they actually profit the state. The bank has been in the black every year since 1971, earning $70 million in 2011. More than half of the profit goes back into the state's General Fund, offsetting North Dakotans' taxes. The rest goes toward more loans, not CEO bonuses, because BND "execs" are modestly salaried public officials.

 

Other states have similar loan programs, but the money is typically divvied out through legislation in a less-nimble, less-profitable process, according to state-bank advocates. And those states mostly rely on a handful of huge corporate banks to hold their revenues and investments –– even for basic day-to-day tasks like transferring money to businesses and citizens. The corporate banks tend to invest in whatever is expedient and most profitable, sometimes even betting against state bonds. In the current recession, they've also cut back on loans across the board.

 

"You hear that giant sucking sound?" read a flier circulated by the Service Employees International Union in Oregon in 2011. "That's Wall Street's big banks sucking up all the public dollars out of Oregon. (The state) does billions of dollars of business with big banks like Bank of America, JPMorgan Chase, and Wells Fargo ... And what do we have to show for it? 28,000 homes in foreclosure, 10.6% unemployment, and devastating cuts to vital services."

 

In North Dakota, however, the BND has been "ramping up its lending, particularly to small businesses," says Sam Munger, director of the Center for State Innovation, a Wisconsin-based think tank. Some advocates even claim the BND is driving North Dakota's 3 percent unemployment rate –– the lowest in the country.

 

Skeptics say such claims are overblown. The Federal Reserve in a 2011 report said that the BND's "contributions to stabilizing the state economy and finances appear to have been relatively minor." It attributes North Dakota's resilience to the relative stability of its agriculture, coupled with the Bakken oil boom, which since 2010 has pumped more than $535 million into the state's oil tax "Legacy Fund."

On the ground, though, the BND is at the center of the Bakken action, helping to leverage local sales taxes into funding for small businesses, as well as for much-needed multi-family affordable housing and new infrastructure. The boomtowns still have serious problems; but even if the BND is not a cure-all for North Dakota, says Munger, that shouldn't dampen efforts to establish more state-owned banks. The concept is, above all, "a rational way for states to organize their finances."

 

Corporate-bank lobbying, including by bankers' associations in several states, has stalled efforts to create more state banks, but that's not the only obstacle. In Washington state, bills seeking to study the issue as well as create a BND-style Washington Investment Trust were backed by dozens of co-sponsors, but attracted little Republican support. State Treasurer Jim McIntire, a Democrat, helped administer the coup de grâce, claiming that a state bank in Washington -- which lacks North Dakota's budget surplus -- could bind up state funds in loans and burden taxpayers in the event of economic downturn. There were also legal conflicts with that state's Constitution.

 

In Oregon, a bipartisan push to create a brick-and-mortar state bank morphed into proposals for a "virtual" state bank, then into the Oregon Investment Act. That bill passed last April with support from Oregon's state treasurer and governor. It doesn't create an Oregon state bank, but it carries out the spirit by consolidating and expanding state loan programs.

 

In both Colorado and Montana, state-bank advocates haven't hammered out details and the politics continue to shift. Barnewall claims that "a state bank makes it possible for a state to issue its own currency," if the Federal Reserve system collapses; Bows would like to create additional public banks that would be even more local, run by county governments. Read was defeated in his bid for re-election in November, so his thinking that the Last Chance State Bank would invest in coal, timber and oil is somewhat moot. Malek, who was re-elected, thinks a state bank could help small towns in eastern Montana diversify their Main Street economies and survive the sooner-or-later end of the oil-drilling era.

The fundamental benefits of state banks may be more subtle: The Bank of North Dakota "refinances whenever there's a flood, a blight, low crop prices," says Bows. "Basically, they've kept people in their businesses and on their land. One thing that people don't talk about much is the effect on the social fabric."

Edited December 1, 2012 by Enishi

[joeblast]

Let's keep this realistic and keep things like carbon dioxide out of the "environmental devastation" category We could burn every single bit of fuel on the planet immediately and it would not overwhelm the planet's "carbon capacity." This can be kept right in the "financial devastation" category since it is merely a scam to get more tax dollars out of people's pockets and causes severe malinvestment, evidence by the slew of green energy failures, noteably Spain's that dried up very badly once the subsidies were cut back.

 

The problem is that governments are using central banks as a means to spend far past their means, and nowhere is it as bad as america.

 

In that sense, the federal debt might be better understood as an American Self-Delusion Index, measuring the ever widening gap between the national mythology (a republic of limited government and self-reliant citizens) and the reality (a 21st-century cradle-to-grave nanny state in which, as the Democrats’ convention boasted, “government is the only thing we do together”).

 

Generally speaking, functioning societies make good-faith efforts to raise what they spend, subject to fluctuations in economic fortune: Government spending in Australia is 33.1 percent of GDP, and tax revenues are 27.1 percent. Likewise, government spending in Norway is 46.4 percent and revenues are 41 percent — a shortfall but in the ballpark. Government spending in the United States is 42.2 percent, but revenues are 24 percent — the widest spending/taxing gulf in any major economy.

 

Its why I had to ask the question earlier if people believed we have a spending problem in the US. The banking and monetary issues are direct extensions of politicians setting things up so that they can obfuscate the amount of money they spend.

 

Its all about getting back to fundamentals. Fundamentals of sound banking, sound money, sound fiscal policy, sound governance.

 

Unfortunately I fully believe that washington is going to have to completely and utterly fail the country with severe ramifications for the populace before people by and large will be willing to admit there's a problem. We're going to have to experience what's happening in Greece right now before people wake up and smell the coffee.

 

Some people just dont think taking in 2.4 trillion/year and spending 3.6 trillion/year, and growing, is a problem. You cant do those things without a central bank to print up money and use "essence absorbing stance" on the entire country.

[Enishi]

'Environmental destruction' is a category that includes not only the climate change debate, but also desalination, deforestation and eroding of the soil. Pollution of the oceans, which is very much an issue now particularly after Fukushima, is another big one. Some government regulations that favor big businesses do play a role I agree, but I have yet to see a convincing argument for how the above problems can be actively addressed without some form of state/public effort.

 

On the subject of spending, I agree that spending in its 'current' form is a massive problem, but the areas of spending need to be looked at more closely. There's the military industrial complex and war efforts, which certainly need to be curtailed. There's also Medicare, a subject where I do in fact disagree with the majority. Karl Denninger does a good job of pointing this out on his Market Ticker blog, even given the most ambitious spending plan Medicare simply WILL NOT remain solvent indefinitely, very deep reforms are needed.

 

Another spending black hole is the banking sector. Subtract bonuses to banker CEOs and administrators, along with the interest collected, and you free up significant room.

 

Excess spending can however pay off if it's funded directly into infrastructure projects, rather than the financial sector. Such attempts were made by FDR, and some of them worked. Reform the banking/monetary, and it will be easier to implement similar efforts.

Edited December 8, 2012 by Enishi

[Enishi]

http://www.scotsman.com/news/alf-young-cashing-in-on-state-owned-banking-1-2654306

 

 

Currently, only one American state owns its own depository bank. It’s been in existence since 1919 and was created by Norwegian and other immigrants, determined, through their Non-Partisan Alliance, to stop rapacious Wall Street money men foreclosing on their farms. Earlier this month, North Dakota voted three-to-two for Republican Mitt Romney, rather than Barack Obama. But, by law, in this sparsely-populated mid-western member of the union, all state revenues have to be deposited with the publicly-owned Bank of North Dakota (BND).

 

There are no bonuses, fees or commissions paid at BND. No advertising. No branches beyond the main office in Bismarck. The bank offers cheap credit lines to state and local government agencies. There are low-interest loans for designated project finance. This public bank underwrites municipal bonds, funds disaster relief and supports student loans. It partners with local commercial banks to increase lending across the state and pays competitive interest rates on state deposits. For the past ten years, it has been paying a dividend to this state, with a population of some 680,000, of some $30m (£18.7m) a year.

 

Intriguingly, North Dakota has not suffered the way much of the rest of the US – indeed much of the western industrialised world – has, from the banking crash and credit crunch of 2008; the subsequent economic slump; and the sovereign debt crisis that has afflicted so many. With an economy based on farming and oil, it has one of the lowest unemployment rates in the US, a rising population and a state budget surplus that is expected to hit $1.6bn by next July. By then North Dakota’s legacy fund is forecast to have swollen to around $1.2bn.

 

With that kind of resilience, it’s little wonder that twenty American states, some of them close to bankruptcy, are at various stages of legislating to form their own state-owned banks on the North Dakota model. There’s a long-standing tradition of such institutions elsewhere too. Australia had a publicly-owned bank offering credit for infrastructure as early as 1912. New Zealand had one operating in the housing field in the 1930s. Up until 1974, the federal government in Canada borrowed from the Bank of Canada, effectively interest-free.

 

Then there are the German Landesbanks, until some of them, led by WestLB, got caught up in an insatiable appetite for get-rich-quick financial exotica, and paid a heavy price. From our western perspective, we tend to forget that, globally, around 40 per cent of banks are already publicly owned, many of them concentrated in the BRIC economies, Brazil, Russia, India and China

 

[Enishi]

For the sake of fairness and balance, I will post articles from the stable money camp as well.

 

http://www.newworldeconomics.com/archives/2012/020312.html

 

Let's Dream a Dream for Greece

 

 

February 3, 2012

 

(This item originally appeared at Forbes.com on February 3, 2012.)

 

http://www.forbes.com/sites/nathanlewis/2012/02/03/lets-dream-a-grand-dream-for-greece/

 

 

In 1949, Japan was a wreck. Four years had passed since the end of World War II, but the economy was still moribund. The major cities, flattened and burned during the war, remained mostly unreconstructed. Only two trains a day ran on the most important rail line, between Tokyo and Osaka. Hyperinflation made normal commerce impossible. What industrial assets remained after the war, such as electricity generation plants and factories, were being stripped by the occupying army as “reparations,” and shipped overseas. The previous government was disbanded, and a new constitution, and a new government, were established. People were on the brink of starvation.

 

This was the beginning of one of the greatest economic advances of the twentieth century.

 

In comparison, Greece’s problems are trivial. Banks are insolvent? That is nothing but paper accounting. Try having your major cities bombed to rubble, and a generation of young men slaughtered on islands in the Pacific. Government default? So what. Hyperinflation? Nowhere to be seen. Starvation? Hardly. Occupation by a hostile foreign military? Not on anyone’s list of worst fears.

 

Nothing particularly bad has happened in Greece. Default and insolvency is nothing but a bookkeeping adjustment. So why can’t the country begin twenty years of outstanding expansion, as Japan did in the 1950s and 1960s?

 

Many people accept the notion that the outcome of these relatively minor developments must be a generation of stagnation and decline. In fact, this is quite common. We often see once-promising countries stumble and fall, and they never seem able to fully recover. Argentina used to be one of the wealthiest countries in the world – the name itself means “moneyland” – but today it struggles to be considered an “emerging market.”

 

Or perhaps the United States today?

 

I often say that the Magic Formula for economic success is Low Taxes and Stable Money. Today, Greece is headed the opposite way. People are clamoring for the introduction of a new drachma, whose sole purpose seems to be devaluation. I say the only reason to introduce a new currency is if it is even more stable and reliable than the euro. What about low taxes? Greece’s government just keeps raising its tax rates, and finding that the only result is more economic deterioration and greater tax evasion. Not only does this reduce tax revenues, it makes even more people dependent on state welfare and state employment, which makes cutting expenditures politically impossible.

 

Today, Greece is on the well-worn path to twenty years of deterioration, just as many fear.

 

However, it could be different. Japan’s recovery started with a dream, among politicians and business leaders. In their imagination, Japan would rise from the ashes – actual, real-life ashes – and become again a great and prosperous nation.

 

This clear vision quickly led to a plan of action. The situation in 1949, of hyperinflation and crushing taxes, was plainly not in accordance with the goal of a prosperous Japan, so the leaders set about fixing the problem.

 

They had virtually no resources to do so. The economy consisted mostly of black-market subsistence, tax revenues were negligible, and issuing debt was impossible. Since tax revenue was far less than the government’s needs, the government subsisted mostly by printing money, with the usual consequences.

 

One of the first things they did was to make government debt issuance illegal. It remained so until 1965. Then they refused any more economic aid.

 

In 1949, they pegged the yen to gold, immediately ending the hyperinflation.

 

Then, they eliminated the consumption tax (national sales tax).

 

In 1950, the income tax schedule was revised. The top rate fell to 55% from 85%. But more importantly, the income at which that rate (and others) applied was raised dramatically. This rate originally applied to income of 500,000 yen. By 1957, the 55% tax bracket applied to income of 10 million yen, twenty times higher.

 

In 1951, interest and dividend income were taxed at a separate, lower rate. In 1953, capital gains were exempted from taxation completely. Interest income was taxed at only 10 percent. Businesses received a truckload of favorable treatments, in the form of accelerated depreciation, deductions, and exemptions. In 1955, interest income was made tax-free.

 

Throughout the 1950s and 1960s, the government had a specific goal: to keep tax revenues, and the size of the government, below 20% of GDP. They reasoned that this would be best for the brisk growth of the private sector. It worked.

 

The Japanese people, as we know, became wealthy in those years. Wealthy people are able to pay more in taxes than poor people. Between 1950 and 1970, tax revenues of the central government increased by sixteen times, all in non-inflationary gold-linked yen.

 

As the country became wealthier, and GDP grew, then the services that the government could provide on a budget of 20% of GDP grew as well. Welfare and national healthcare plans were added. Dirt roads were paved. Sewage systems were built. There was no conflict between government services and the private sector. Both became prosperous together.

 

This story is well known to those who follow such things. If someone asks the question – how do we produce fantastic economic advancement? – and they persist with it, soon enough they find the answer. It’s not particularly complicated, or obscure.

 

The real question is: why is it that some people find this path, and others seem to be completely disinterested? Why do some groups have the dream of advancement, and act upon it, as the Japanese leaders did in 1949, and others drift into generations of deterioration?

 

Greece could adopt such a plan today. You simply start with a goal: to become radically prosperous. Then you make a plan. You might adopt something like the flat tax reforms that have been successful in neighboring Albania and Bulgaria. You would have some solution to create “stable money” – either to keep the euro, or, possibly, to introduce an even more stable and reliable alternative. Germany is doing this right now, with preparations for a “Nordic euro” in case the European Central Bank’s mismanagement of the existing euro becomes intolerable.

 

You would have a plan for the size of government, perhaps 20% of GDP as in the Japanese example, or even less, such as the 14% of GDP of Singapore. You would adjust the compensation and headcount of government employees to provide the necessary services efficiently and effectively.

 

You might even dispose of the existing 23% VAT tax. In one go. Pow. Gone. Why not? Japan’s government did it, while simultaneously outlawing debt issuance!

 

Do you see the difference between greatness and mediocrity?

 

That’s how it works. First you dream. Then you plan. Then you make it happen. Alas, even Japan has forgotten how to do this today. By all appearances, they are primed for many more years of hardship.

 

If Greece adopted a plan like this, while the rest of Western Europe continues down its present self-destructive path, we might find twenty years from now that today’s predictions are entirely wrong.

 

We might find, in the year 2032, that Greece has become the wealthiest country in Europe

[Owledge]

The problem is that governments are using central banks as a means to spend far past their means, and nowhere is it as bad as america.

This whole concept of spending beyond someone's means is an illusion, part of the interest-based monetary pyramid scheme. Since virtually all money is debt, making debt is not a sin, but inevitable, and slowing down debt accumulation merely means covering up the effects of the scam for somewhat longer.

[Enishi]

http://www.forbes.com/sites/jamesdorn/2013/01/20/end-the-fed-or-celebrate-its-existence-reflections-on-our-central-banks-100th-anniversary/

 

 

End The Fed, Or Celebrate Its Existence? Reflections On Our Central Bank's 100th Anniversary

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Federal Reserve Building in Washington D.C. - Illustration (Photo credit: DonkeyHotey)

This year marks the 100th anniversary of the Federal Reserve System. There will be many events commemorating the signing of the Federal Reserve Act in December 1913. Many of those events will be occasions for celebrations by Fed officials and staff, but should the public celebrate a century of central banking?

At the annual meeting of the American Economic Association in San Diego earlier this month, Harvard economist Kenneth Rogoff told a large audience that the Fed has been a “remarkably successful institution.” During Q & A, Mark Skousen, author of The Making of Modern Economics, asked why the Fed failed to predict the financial crisis and the Great Recession—but Rogoff failed to answer. Later in that session, Donald Kohn, former vice chairman of the Fed, acknowledged that the Fed had made mistakes and should exercise humility. Yet, he is a firm believer in discretion rather than rules.

In another session, Allan H. Meltzer, the world’s leading authority on the Federal Reserve, and a long-time proponent of a rules-based approach to monetary policy, was highly critical of the Fed’s expansion of its power since 2007 under Ben Bernanke. “No group,” said Meltzer, “should have unrestrained power that the Fed has taken for itself.” The Fed’s failure to anticipate or prevent either the Great Recession or the Great Depression, the continuous rise in the price level since President Nixon closed the gold window in 1971, and the Fed’s use of financial repression to penalize conservative savers while encouraging risk and creating asset bubbles should give pause to celebrating the Fed’s anniversary. Indeed, a growing chorus seems to be following Ron Paul’s call for “ending the Fed,” and its credibility is increasingly being called into question.

Skepticism toward the Fed’s monopoly on money and its growing power is a healthy development in a free society based on limited government, individual freedom, and the rule of law. As Nobel laureate F. A. Hayek noted, “All those who wish to stop the drift toward increasing government control should concentrate their effort on monetary policy.” Of course, Hayek favored the denationalization of money, not central banking. He thought free markets and competition among currencies would lead to better money, as opposed to government monopoly power.

In contrast to Rogoff’s depiction of the Fed’s history as “remarkably successful,” Milton Friedman, the most famous free-market economist of the 20th century and co-author with Anna J. Schwartz of the landmark A Monetary History of the United States, concluded, in 1988, that “no major institution in the U.S. has so poor a record of performance over so long a period, yet so high a public reputation.”

For much of U.S. history, there was no central bank. In a recent study of pre- and post-Fed performance, economists George Selgin, William Lastrapes, and Lawrence H. White found that since the establishment of the Federal Reserve there have been “more, rather than fewer, symptoms of monetary and macroeconomic instability.” (See the summary of their study in Cato Policy Report, November/December 2012).

It is also well known that long-run price stability was achieved under commodity standards but never under pure fiat money. In 1900, when the U.S. was still on the gold standard, the wholesale price index was about where it was 150 years earlier, although it varied throughout the period. During peacetime, commodity standards (silver or gold) worked through market forces to achieve price stability, and thus safeguarded the purchasing power of money. That has not been the case under central banking.

Furthermore, under the gold standard, there was a culture of fiscal restraint that helped limit the size and scope of government. As Nobel laureate economist Thomas Sargent has written, “What induced one major Western country after another to run a more-or-less balanced budget in the 19th century and early 20th century before World War I was their decision to adhere to the gold standard.”

There is mounting evidence that the Fed is drifting further and further away from a monetary regime consistent with limited government, economic freedom, and sound money. Martin Feldstein, former chairman of the Council of Economic Advisers under President Ronald Reagan and a professor at Harvard, recently wrote in the Wall Street Journal, “The Federal Reserve is heading in the wrong direction. What the central bank describes as ‘unconventional monetary policy’ is creating dangerous bubbles in asset markets that will lead to higher future inflation and is supporting the explosive growth of the national debt. Its new ‘communications strategy’ will, moreover, only further confuse markets” (“The Fed’s Dangerous Direction,” January 3).

With the 100th anniversary of the Fed, this year is an appropriate one to reflect on the Fed’s performance and, more important, to consider alternatives to discretionary government fiat money. Congress should establish a National Monetary Commission to investigate these issues and think about how to exit the Fed, not just exit current monetary policy. When the next crisis occurs, as it surely will, the U.S. must be ready with alternatives to the current fiat money regime. The public should not let central bankers monopolize that debate.

The late Nobel economist James Buchanan, a pioneer in public choice and constitutional political economy, opposed “unconstrained discretionary monopoly” and urged economists and policymakers to consider “alternative monetary constitutional regimes.” This year would be a good time to heed his advice. And a good place to start would be with Richard H. Timberlake’s forthcoming book, Constitutional Money: A Review of the Supreme Court’s Monetary Decisions (Cambridge University Press, co-published with the Cato Institute).

James A. Dorn directs the Cato Institute’s Annual Monetary Conference and is Editor of the Cato Journal.

[joeblast]

By any objective measure the federal reserve has been a substantial failure...unless of course you're a banking insider and beneficiary of the scam, then of course you'd naturally see it as having worked out rather well, at least for yourself.

 

I wonder if they will even vote on the continuation of the fed, or will it simply be deemed into existence, like some other things?

[Vanir Thunder Dojo Tan]

anyone who is able should grow food and use perishables as the only recognized form of "currency"

[Enishi]

http://www.newworldeconomics.com/archives/2013/010313.html

The World Gold Standard of 1870-1914: the Most Perfect Monetary System Ever Created



January 3, 2013


(This item originally appeared at Forbes.com on January 3, 2013.)

http://www.forbes.com/sites/nathanlewis/2013/01/03/the-1870-1914-gold-standard-the-most-perfect-one-ever-created/



The most perfect monetary system humans have yet created was the world gold standard system of the late 19th century, roughly 1870-1914. We don’t have to hypothesize too much about what a new world gold standard system could look like. We can just look at what has already been done.

Contrary to popular belief, people generally did not conduct commerce with gold coins. Yes, gold coins existed, but people mostly used paper banknotes and bank transfers, just as they do today. In 1910, gold coins comprised $591 million out of total currency (base money) of $3,149 million in the United States, or 18.7%. These gold coins were probably not used actively, and served more as a savings device, in a coffee can for example.

Silver coins were also used, but by then they had become token coins, just like our token coins today. By 1910, most countries in the world officially had “monometallic” monetary systems, with gold alone as the standard of currency value. This eliminated many of the difficulties of bimetallic systems, which had caused minor but chronic problems in the earlier 19th century.

Also contrary to popular belief, there was no “100% bullion reserve” system, in which each banknote was “backed” by an equivalent amount of gold bullion in a vault. In the United States in 1910, gold bullion reserve coverage was 42% of banknotes in circulation.

For other countries, we can refer to Monetary Policy Under the International Gold Standard: 1880-1914, by Arthur Bloomfield. It was published in 1959. Bloomfield provides references to major central bank balance sheets around the world. He summarizes various “reserve ratios,” but includes not only gold bullion but also foreign exchange reserves (i.e., bonds denominated in foreign gold-linked currencies). The “reserve ratios,” on this basis for 1910, were 46% in Britain, 54% in Germany, 60% in France, 41% in Belgium, 73% for the Netherlands, 68% for Denmark, 80% for Finland, 75% for Norway, 75% for Switzerland, 55% for Russia, and 62% for Austro-Hungary. Reserve ratios for gold bullion alone would be, naturally, less than these numbers.

A number of countries had variations on a “gold exchange standard,” which is to say, a currency board-like system linked to a gold-linked reserve currency (usually the British pound). This became more common in the 1920s, and especially during the Bretton Woods period, but it was in regular use pre-1914 as well. Bloomfield lists countries on some form of a “gold exchange standard,” including: Russia, Japan, Austria-Hungary, the Netherlands, most Scandinavian countries, Canada, South Africa, Australia, New Zealand, India, the Philippines, and “a number of other Asiatic and Latin American countries, whose currency systems operated analogously to modern currency boards.” The pre-1914 era was the age of empire, and many of these countries were formally or informally within one or another European empire. Their currency systems also ended up being subsidiary to the currency of the imperial seat.

Most of the leading European countries had some sort of central bank, upon the model of the Bank of England. The U.S. did not, opting for a “free-banking” system (although one dominated by U.S. Treasury-issued banknotes). The countries with central banks also mimicked the Bank of England’s typical operating procedures, which included continuous involvement in credit markets by way of “discount” lending (short-term collateralized lending). This was not at all necessary, but was an outgrowth of the Bank of England’s history as a profit-making commercial bank. Thus, central banks also, in the fashion of the Bank of England, often managed base money supply by way of its lending policy, which included its “discount rate.”

The world gold standard did not produce some sort of “balance” in the “balance of payments” – in other words, no current account deficit or surplus. There was no “price-specie-flow mechanism.” These so-called “balance of payments imbalances” are another word for “international capital flows,” and capital flowed freely in those days. With all countries basically using the same currency – gold as the standard of value – and also with legal and regulatory foundations normalized by European imperial governance, international trade and investment was easy.

It was the first great age of globalization. Net foreign investment (“current account surplus”) was regularly above 6% of GDP for Britain, and climbed to an incredible 9% of GDP before World War I. From 1880 to 1914, British exports of goods and services averaged around 30% of GDP. (In 2011, it was 19.3%.) In 1914, 44% of global net foreign investment was coming from Britain. France accounted for 20%, Germany 13%.

This river of capital flowed mostly to emerging markets. The United States, which was something of an emerging market in those days although one that was already surpassing its European forebears (much like China today), was a consistent capital-importer (“current account deficit”). Most British foreign capital went to Latin America; Africa accounted for much of the remainder.

Gross global foreign investment rose from an estimated 7% of GDP in 1870 to 18% in 1914. In 1938, it had fallen back to 5%, and stayed at low levels until the 1970s.

In 1870, the ratio of world trade to GDP was 10%, and rose to 21% in 1914. In 1938, it had fallen back to 9%.

This explosion of European capital translated into tremendous investment around the world. British-governed India had no railways in 1849. In 1880, India had 9,000 miles of track. In 1929, there were 41,000 miles of railroad in India, build by British engineers, British capital, and Indian labor. British-governed South Africa opened its first railroad in 1860. This grew to 12,000 miles of track, not including extensions into today’s Zimbabwe and elsewhere in Africa.

The arrangement was largely voluntary. There were no fiscal limitations or centralized governing bodies, such as the eurozone has today. The Bank of England served mostly as an example to imitate. Countries could opt out if they wished, and several did from time to time, although they usually tried to rejoin later. The countries that had rather loose allegiance to gold standard principles should be no surprise: Argentina, Brazil, Spain, Italy, Chile, and Greece, among others.

With monetary stability assured by the gold standard system, bond yields fell everywhere to very low levels. Yields on long-term government bonds were 3.00% in France in 1902; 3.26% in the Netherlands in 1900; 2.92% in Belgium in 1900; 3.46% in Germany in 1900. Corporate bonds followed along: the yield on long-term high-grade railroad bonds in the United States was 3.18% in 1900. Unlike today, these rock-bottom yields were not obtained by every sort of central bank manipulation imaginable, but reflected the long history and expectation for monetary and macroeconomic stability that the gold standard system provided. They could continue at these low levels for decades, and often did: from 1821, when Britain returned to a gold standard after a floating-currency period during the Napoleonic Wars, to 1914, the average yield on government bonds of infinite (!) maturity in Britain was 3.14%.

During the 20th century, and now into the 21st, no central bank in the world has been able to match this performance. They are not even in the same galaxy. No world monetary arrangement has provided even a pale shadow of that era’s incredible successes.

We could create an updated version of the world gold standard system of the pre-1914 era. However, there isn’t really much need to change things very much. It worked fine, and would still be working today if not for World War I, and soon after, the rise of Keynesian notions that governments could manage their economies by jiggering the currency. This requires a floating currency, which is why we have floating currencies today.

Once we finally abandon these funny-money notions – probably because of their catastrophic failure – it will be very easy to create, once again, a superlative world gold standard system.

[Owledge]

I' not sure how much the mentioned gold standard deviates from the later practice (too long didn't read), but some say the problem with a gold standard is that it favors or gives control to those who own gold.

[Enishi]

I' not sure how much the mentioned gold standard deviates from the later practice (too long didn't read), but some say the problem with a gold standard is that it favors or gives control to those who own gold.

I agree, although the writer's arguments on his website are more nuanced and factual than those of many gold advocates, the "gold is REAL money!" assertion is one that I don't have much regard for anymore. It's really a form of gold mysticism that ought to be discarded. If one wants a sound currency, pegging it to the world's sum total of limited and sustainable resources and adopting a term like the "eco" would be a better bet imo.

Edited January 27, 2013 by Enishi

[Enishi]

Here's another good article on who controls the Fed and why it needs to be replaced:

http://www.monetary.org/is-the-federal-reserve-system-a-governmental-or-a-privately-controlled-organization/2008/02

 

 

Students of our monetary system quickly encounter this important question, normally phrased as whether the Federal Reserve System is part of the U.S. Government or is a private organization. The importance people are placing on the answer is indicated by the over 36,000 web sites the question raises on internet search engines.

We’ll examine evidence in the Federal Reserve legislation; in how the Fed operates; from Congressional testimony; from statements from the Federal Reserve’s publications; in statements by former Chairmen of the House Banking Committee; and in official rulings by US courts, to show why we conclude that although there are some elements of ambiguity, the Federal Reserve system is essentially dominated and controlled by private financiers, not our government; and to the extent that there is ownership of it, it is entirely private. Therefore despite the ambiguity – and confusion – the Fed is more accurately seen as a private, not a governmental institution, though with substantial governmental ties.

The ambiguity arises from a combination of misleading appearances; the fact that our President appoints (with consent of the Senate) the Chairman of the Fed to four year terms, and the 5 member Board in Washington to 14 year terms; the fact that the Fed is supposed to promote governmental fiscal policy; and the fact that the system was originally set up in law by Congress in 1913 and can be altered, nationalized or even dismantled by Congress.

Most Americans understand that the Fed controls our money system, but they believe its part of our government, as would be expected of any organization holding that much power over the destiny of our country. Americans also erroneously believe the banking business consists of accepting deposits from clients and then re-loaning them to borrowers at a higher rate of interest. Though the number is definitely growing, most Americans have no idea that money (or more accurately interest bearing bank credits – purchasing media which serves as money) is created by the banking system when loans are made, through the fractional reserve provisions. This is understood by few novices, and often economists and even bankers fail to comprehend that they function as part of a money creation system, when they issue credits, and deposit them into their client’s accounts when loans are extended.

Therefore most Americans would be surprised to learn that almost all of what we use for money is not issued by our government, but by private banks. They have been “allowed” to form erroneous assumptions about our money and banking system that are far from reality and that serves to shield from closer scrutiny, whether the Fed is truly operating in the public interest or advancing more private agendas, either on purpose or by default.

Organization And Ownership:

The Federal Reserve consists of 12 regional Federal Reserve banks, with boards of Directors, under an umbrella direction of the 7 member Federal Reserve Board in Washington, with the power to determine major aspects of banking activity, such as setting interest rates, and the reserve and other operational requirements. There are no shares of the Washington Fed Board organization; the only “ownership” of the Fed is in shares of each of the 12 regional banks which are entirely owned by the private member banks within their respective districts, according to a formula based on their size (they must subscribe to the shares with 3% of their capital plus surplus). The ownership is highly restricted in that such ownership is mandatory; the shares can’t be sold; and they pay a guaranteed 6% annual dividend..

Thus the stories that the Federal Reserve is “owned” by foreign bankers (the Rothschild’s and other prominent banker names usually come up) are not accurate and these types of rumors have mainly served to discredit wholesome criticism of the banking system. While it is true that our first central bank, the First Bank of the United States, upon dissolution in 1811 was found to be three quarters owned by British and Dutch interests, that bank was structured simply as a private share company on the Bank of England model.* The control of the Federal Reserve System is more difficult to untangle and is not just a matter of counting shareholder votes. While foreign bankers might indirectly own shares of the regional Federal Reserve Banks through ownership of American banking companies, such ownership would be reported to the SEC if any entity held more than 5% of the American corporation. This however does not exclude strong, potentially undue foreign influence, for example through the Bank for International Settlements (BIS).

A “Non-Profit” Organization?

The Federal Reserve System puts itself forward as a non-profit organization that turns over its operating profits to the U.S. Treasury, after all expenses, including the 6% dividend to member banks. However this misses the point on several scores. First, the banking profits coming through the privileged money creation process mainly occurs at the member bank level of operation, and those profits are not turned over to the Treasury. That is, the net earnings from the member banks seigniorage privilege are not turned over to our government but kept by the private member banks. For England this amount has been estimated at 41 Billion Pounds per year. For the US we think it’s between $100-200 billion per year; but we need to know the amount more precisely from the Fed itself.

This money creation which is put into the system when the banks extend loans, eventually becomes a source of funding when our government’s bonds are sold to the public. Here is how Wright Patman, former House Banking and Currency Committee Chairman for 16 years criticized that process:

“I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money….I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with the Congress for sitting idly by and permitting such an idiotic system to continue.”

We think the time has come.

Secondly, how extravagant are the FED’s operating expenses? Reputedly quite high, but in order to determine that for sure a proper audit would be necessary. Just where did the extensive real assets of the Fed come from if all the earnings are turned over to the Treasury? (Fed capital as of June 28, 2006 was $29.462 billion) Perhaps some part of it comes from member bank subscriptions to the regional Fed shares. Another question for the audit to address. (If memory serves correctly, the Fed used to turn over 90% not all, of its earnings over to the Treasury; but now its 100%.

Control:

Private ownership does not guarantee private control – they can be two different things. Although ownership of the fed is admittedly private in a restricted way, it is control which is the more important factor in regarding the Fed as private, not governmental. Remember the question is whether the control rests more in private or governmental hands, not whether it rests directly in shareholders hands.

It will be clear from the following points that the Fed is definitely not part of the US Government:

* The Fed is not organized within the Executive, Legislative or Judicial branches of our government.

* Who pays the Fed’s bills and determines its budget? Not any part of our government. The Fed gets its funding from its own specially privileged operations. The Fed Board determines Fed budgets.

* Who monitors and oversees Fed activities? Again the Fed itself. While some important elements of proper auditing have taken place, there has not yet been a comprehensive independent audit, by the Government Accountability Office as proposed in a recent letter from Ralph Nader to new Fed Chairman Ben Bernanke, calling for greater monetary transparency.

* Federal Reserve Employees are not part of the US Civil Service System and are not covered by government employees’ health insurance or pension programs. Who does the hiring and firing? Except for the highly publicized Chairman and 7 member Washington Board, this is in private, unelected hands.

* Federal Reserve Banks are not listed as government organizations by the telephone companies, a small but telling fact.
Here is how the Fed describes the Control situation, in the FAQ’s on its website:

“As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as “independent within the government.”

We’d suggest the phrase “independent within the government” is much too ambiguous and has the effect of conveying great power while avoiding responsibility.

The Fed’s FAQ’s continue regarding control:

“The Federal Reserve’s ultimate accountability is to Congress, which at any time can amend the Federal Reserve Act. Legislation requires that the Fed report annually on its activities to the Speaker of the House of Representatives, and twice annually on its plans for monetary policy to the banking committees of Congress. Fed officials also testify before Congress when requested.

“To ensure financial accountability, the financial statements of the Federal Reserve Banks and the Board of Governors are audited annually by an independent outside auditor. In addition, the General Accounting Office, as well as the Board’s Office of Inspector General, can audit Federal Reserve activities.”

We agree with Mr. Nader that it is time for the General Accountability Office to carry out this full audit of the Federal Reserve System. We take at face value the Fed’s statement that the only way for our government to exert necessary societal controls on the Fed is through legislation altering the Federal Reserve Act.
The Federal Reserve Act

Reading the Act with the question of control in mind, what one finds are primarily an enumeration and description of vast powers over our monetary system being ceded to the non – governmental Federal Reserve. Primary among these are the powers necessary to administer a fractional reserve banking system in which the creation of money – what we use for purchasing media – is in private hands.

One is struck by the general absence of governmental controls over Fed activity, and lack of requirements toward our elected representatives.

One is struck by the lack of accountability of the Fed to our governmental officials or bodies.

One is struck by the lack of any specified penalties should the system be found to not be promoting governmental public policy at all.

One is struck by the lack of formal oversight procedures to determine whether that is happening or not.

The Act requires the Chairman to appear before Congress and Congressional committees four times a year, and requires the Board to submit two written reports to Congress annually. To understand that this is not sufficient oversight, one need only read Congressman Bernie Sanders questioning of Chairman Greenspan, from the Congressman’s website. When tough questions were put to the Chairman, as Congressman Sanders did, forms of stalling non-answers came back until the announcement, “Your time is up Mr. Congressman.”

While the act specifies that the Comptroller of the Currency has the power to directly examine any member bank in the system, he is not empowered to examine Federal Reserve Regional banks – that is in the hands of the Washington Board. 14 year appointments – a one time event for them – places them outside the influence of our elected officials, in other words outside the democratic process.

Probably this “independence” was sold as a good thing! From the time of Adam Smith, there has been a growing attack against government, as being incapable of managing the monetary system. Despite the evidence that government has a far better record controlling money than private bankers have*; despite the fact that government is the only organizational form with ability to stand between the people and the “Enrons” of the world. It is time to rethink this “independence” question and examine the actual evidence, rather than to continue relying on free market ideology – really a form of elitist propaganda. It would be smarter to examine mankind’s actual experience with government controlled money systems – especially in America. For what reason did the Federal Reserve Act envision that it would be saints serving on the Fed Board?
Some Conclusions from Court Cases

Several legal proceedings further illuminate the private aspects of the Fed. This case refers to several of those cases.

1) JOHN L. LEWIS, Plaintiff/Appellant, vs. UNITED STATES OF AMERICA, Defendant/Appellee.

(No. 80-5905, UNITED STATES COURT OF APPEALS, NINTH CIRCUIT

680 F.2d 1239; 1982 U.S. App. LEXIS 20002; March 2, 1982, Submitted; April 19, 1982, Decided)

[Lewis had been injured by a car owned by the San Francisco Fed and sued the US Government for damages. Note that this ruling particularly applies to the regional Federal Reserve Banks, not necessarily the Federal Reserve Board. Thus even more ambiguity!]

Excerpts from the ruling:

The district court dismissed, holding that the Federal Reserve Bank is not a federal agency within the meaning of the Federal Reserve Act and that the court therefore lacked subject matter jurisdiction….

“Federal agency” is defined as: the executive departments, the military departments, independent establishments of the United States, and corporations acting primarily as instrumentalities of the United States, but does not include any contractors with the United States.

There are no sharp criteria for determining whether an entity is a federal agency within the meaning of the Act (28 U.S.C. § 2671), but the critical factor is the existence of federal government control over the “detailed physical performance” and “day to day operation” of that entity…. Other factors courts have considered include whether the entity is an independent corporation…, whether the government is involved in the entity’s finances…. and whether the mission of the entity furthers the policy of the United States… Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Reserve Banks are not federal instrumentalities for purposes of the FTCA, but are independent, privately owned and locally controlled corporations.

Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stockholding commercial banks elect two thirds of each Bank’s nine member board of directors. The remaining three directors are appointed by the Federal Reserve Board. The Federal Reserve Board regulates the Reserve Banks, but direct supervision and control of each Bank is exercised by its board of directors. 12 U.S.C. § 301. The directors enact by-laws regulating the manner of conducting general Bank business, 12 U.S.C. § 341, and appoint officers to implement and supervise daily Bank activities. These activities include collecting and clearing checks, making advances to private and commercial entities, holding reserves for member banks, discounting the notes of member banks, and buying and selling securities on the open market. See 12 U.S.C. §§ 341 [**5] 361….

It is evident from the legislative history of the Federal Reserve Act that Congress did not intend to give the federal government direction over the daily operation of the Reserve Banks: It is proposed that the Government shall retain sufficient power over the reserve banks to enable it to exercise a direct authority when necessary to do so…. In other words, the reserve-bank plan retains to the Government power over the exercise of the broader banking functions, while it leaves to individuals and privately owned institutions the actual direction of routine…[Note: neither the Act, nor this court explained how that is done] the Federal Reserve Banks, though heavily regulated, are locally controlled by their member banks. Unlike typical federal agencies, each bank is empowered to hire and fire employees at will. Bank employees do not participate in the Civil Service Retirement System. They are covered by worker’s compensation insurance, purchased by the Bank, rather than the Federal Employees Compensation Act. Employees traveling on Bank business are not subject to federal travel regulations and do not receive government [**7] employee discounts on lodging and services.

The Banks are listed neither as “wholly owned” government corporations under 31 U.S.C. § 846 nor as “mixed ownership” corporations under 31 U.S.C. § 856, … a factor considered in Pearl v. United States, 230 F.2d 243 (10th Cir. 1956), which held that the Civil Air Patrol is not a federal agency under the Act. … Additionally, Reserve Banks, as privately owned entities, receive no appropriated funds from Congress. …The Reserve Banks have properly been held to be federal instrumentalities for some purposes….The Reserve Banks are deemed to [**10] be federal instrumentalities for purposes of immunity from state taxation…. The Reserve Banks, which further the nation’s fiscal policy, clearly perform an important governmental function….Performance of an important governmental function, however, [**11] is but a single factor and not determinative in tort claims actions…. Brink’s Inc. v. Board of Governors of the Federal Reserve System, 466 F. Supp. 116 (D.D.C.1979), held that a Federal Reserve Bank is a federal [**12] instrumentality for purposes of the Service Contract Act, 41 U.S.C. § 351. … For these reasons we hold that the Reserve Banks are not federal agencies for purposes of the Federal Tort Claims Act and we affirm the judgment of the district court. [end of excerpts]

 

Is the Fed Operating in the Public Interest and Promoting Governmental Policy?

Short answer: No.

Some Details:

Macroeconomic policy goals are generally agreed to include: full employment, stable prices, satisfactory balance of payments; and sustainable economic growth.
A) The Full Employment Laws

Last April at a Levi Institute April conference (Bard College), Fed Governor Donald L. Kohn gave his luncheon talk, and nobody had a question for him (economists seem afraid of Fed officials) so I stood up and asked “Whatever happened to the Fed’s full employment directive?” (Well that got a rise out of Jamie Galbraith, who was sitting at the next table!) Gov. Kohn’s answer (paraphrasing) was “Yes we consider that, but we also consider price stability.”

Price stability is the economists mantra for tight money policies, that put a special strain on the barely employed. The important employment question especially indicates how the Fed does not implement Governmental policy. Two laws were passed by Congress on this and both are being effectively ignored by the Fed:

The 1946 Employment Act directed policy makers to pursue policies promoting full employment. This apparently was not enough. The Humphrey-Hawkins Act had to be passed in 1978 requiring monetary policymakers to pursue full employment and non-inflationary economic growth.

And what has been the result? Games are played with the unemployment statistics. Unemployment is grossly underestimated by ignoring those whose unemployment benefits have run out; by not counting those who have given up looking, or who have accepted jobs requiring only a small part of their qualifications at low wages, or who have accepted part time work in desperation. The Fed has done little or nothing to gain and publicize an accurate estimate of unemployment in America.

A case could probably be made that the Fed Board is flaunting the Humphrey-Hawkins Law.

There have been unsuccessful attempts through former Senator Mack of Florida and Congressman Saxton of New Jersey to promote legislation which would render the employment question moot, by making “price stability” the Fed’s priority. That the “full employment” language is considered an annoyance is indicative of the Fed’s political bias against middle class Americans.

Several additional societal/governmental problems with direct connection to monetary policy follow below. Taken individually, they might leave room for question, or even be characterized as “anecdotal,” Greenspan’s favorite description for inconvenient facts; but when seen in their entirety they demonstrate to reasonable minds that the Fed has not been operating in the public interest, except incidentally. The Fed has been promoting, or at least supporting plutocracy – the rule by wealth. (The connection between the Fed’s monetary policy, and governments funding abilities should be fairly clear, but just in case, we are writing a longer explanation that does connect those dots.)

When a long string of events and factors evinces a particular design or motivation behind them, we should draw the proper inference, just as the American Declaration of Independence did. In the Fed’s case we infer that a form of class warfare has been an inextricable part of its make up from its beginning. It’s not really hidden now. Billionaire speculator Warren Buffet recently remarked “If there is a class war, my class has won.” Buffet was being facetious. He would not characterize the destruction of the most vulnerable among us and their children, as “winning.” He would probably join with me in calling it cannibalism, and predicting that indigestion is sure to follow.

This warfare is not all the Fed’s fault, a large part of the warfare is inherent in the present day make up, definitions and assumptions of economics itself. But the single most decisive factor in that wealth concentrating “victory” has been the privately controlled monetary system.
The appalling condition of America’s crucial infrastructure

The American Society of Civil Engineers gives our infrastructure an overall “D” rating, and predicts it will fall to D- soon. They tell us it will cost $1.6 trillion to bring it up to safe levels. The education sector already receives a failing F grade! This represents an unanswerable indictment of the present monetary system as either unwilling or unable to handle these crucial pillars of our society.
C) The growing concentration of wealth

Under 1% of the population is claiming ownership to almost 50% of the wealth. This spells disaster for our democracy unless quickly corrected. Private control of the money system is the most powerful engine continuing this destructive concentration process. It has become the primary tool of class warfare. I’ve only heard from one Fed official, the President of one of the regional Federal Reserve banks, who seemed to care; but in a private conversation. Yet hearing that from her was the one human signal I’ve encountered from the Fed in all the years I’ve watched it.
D) The previous Chairman, media darling Alan Greenspan Promoted Warfare and Bad Tax Cuts

Greenspan promoted the dual disasters of de-funding government through tax cuts to the super-rich, and paving the road to war in Iraq. Who can defend these “errors?” In effect they became “Fed policy” for our country.

E) Health care and education

Some figures say 45 million of us are without health insurance. Other estimates place it much higher. Then there are all those who think they are insured, but will find out otherwise when a health problem does strike. Regarding education, just the physical plant is graded F (failing) by our engineers. Is that American public policy? Or is it a financial system gone amuk?
F) The Real Estate Bubble

This is a double negative for the Fed. Counter to their professed price stability goal, they created massive inflation in housing costs, since about 70% of all Fed money creation goes into real estate loans. Then they look at soaring house prices and say “Aren’t we wise – the collateral we loaned on is worth much more than we allowed” – instead of saying “look at what our loans are doing to the real estate market – putting it further out of reach for too many.” (And now we see where this has led, in the banking debacle misnamed the “sub prime” mortgage crisis).

G) Stock market bubbles

Past pandering of Greenspan’s Fed to the financial sectors led to stock market bubbles, still being unwound. Exclamations of “irrational exuberance” was just talk, when he had the power to act on margin requirements, for example, but did nothing.

H) Attempts to Remove the Estate Tax on the Super Wealthy

Predictably, we heard nothing from Fed officials on why this would be one of the worst fiscal acts to take against America.

I) Worker Earnings Dropping since 1973

Since when is it U.S. public policy to pressurize workers incomes? In effect the Fed has placed the working sector into a form of deflation, while at the same time running a grand inflation in property values (until the inevitable collapse!).
J) Child mortality

Believe it or not, the U.S. ties for the worst ranking among all “developed” nations, by recent U.N. Figures.
K) And We Haven’t Looked at New Orleans Yet

Instead of our government being able to spend the $12 billion to repair levees and protect a key port city, we’re going to spend at least $400 billion to repair the damage. This too should be laid at the Fed’s doorstep, including the thousands of unnecessary deaths of our people. The Fed facilitated that well publicized maniac who wants to make our government small enough so that he can drown it in a bathtub.
L) Nuclear Weapons face off

We continue to be in an ever more dangerous face off with the Russians involving potentially thousands of nuclear detonations on our land. Just a few of these would end our civilization. When one examines the control of the monetary system, it’s not just about money. It is about the mis-direction of humanity. Money plays such a large role in that process that this nuclear stalemate too must be laid in part at the Feds door. Not entirely, because the Soviet Union had a hand in it too.
M) The Balance of Payments Fiasco

Shipping American jobs overseas has led to an imbalance of payments that has benefited financiers, but devastated working people. Where has the Fed ever issued a warning about this process?
N) And Now the Inflation

These misdirected monetary policies are finally taking a toll on inflation. The CRB Price Index has reached 409 decisively surpassing its former all time high of 338 reached in 1980, a year of surging metals prices, and a near 20% prime rate! But with much of the work force experiencing deflation in their earnings, it is a nightmare that they are now facing real inflation in their daily expenditures, for example for fuel and electricity.

O) More to come!

P) etc

Q) etc

R) etc

Foreign Influence Through the Bank for International Settlements (BIS)

We’ll examine this important question in a continuation of the discussion in the future articles.

The Effect of Ambiguity

Ambiguity of control has resulted in the monetary power being misused. It has allowed great power to be wielded without responsibility. No amount of false PR will change that.

Conclusions and Solution:

The money power vested in Congress by the Constitution has been improperly delegated to private interests without sufficient public interest benefit, if any. Congress must resume the power vested in it. Had such delegation of power been shown to work in the public interest, one could consider maintaining or adjusting the present system. But look what it has done. This calls for a major shifting of how our money system operates and is controlled. Anything less, with minor benefits that merely alleviate the problems temporarily, will allow the destructive process to eventually resume.

The ambiguity must cease.

The American Monetary Institute has been working on comprehensive legislation called The American Monetary Act, to remedy this problem at its root, summarized in our brief statement, The Need for Monetary Reform and presented in full at our web site http://www.monetary.org

This Act puts into legal terminology the reform proposal put forward in Chapter 24 of The Lost Science of Money book, by Stephen Zarlenga.
(available at http://www.monetary.org/lostscienceofmoney.html). Chapters 1 thru 23 give the historical background and case studies on which the reforms are based.

We realize that this Act has its best chance of passage under emergency conditions. The idea is to have it ready and to inform enough citizens and lawmakers around the country about it.

At the same time, it is necessary to begin action now and there is a “small step” called the Monetary Transparency Act, attached below. It starts the process of making the Fed more accountable to the Congress, by requiring the compilation of certain statistics which are otherwise difficult to get. These are numbers which almost automatically point the way toward better public policy decisions.

Please be assured of our desire to provide whatever assistance we can in helping create a monetary system for America that is in harmony with our best possibilities as a nation. That’s an explicit part of our 501c3 mission statement. Those of you who really want to help in this process should read The Lost Science of Money, and consider makng a donation to the American Monetary Institute. See http://www.monetary.org

Sincerely,

Stephen Zarlenga
Ami

Edited January 27, 2013 by Enishi

[joeblast]

As far as I'm concerned, the federal reserve is an illegal entity that's been enjoying the fruits of millions upon millions' labor for a hundred years now, and its about time this cancer was dissolved. Never going to get monetary influence out of politics so long as the federal reserve exists.

[Vmarco]

This whole concept of spending beyond someone's means is an illusion, part of the interest-based monetary pyramid scheme. Since virtually all money is debt, making debt is not a sin, but inevitable, and slowing down debt accumulation merely means covering up the effects of the scam for somewhat longer.

 

Well said.

 

You may enjoy this youtube,...which references the contrived system of economics

 

http://www.youtube.com/watch?v=DCWNgSa7GvA Minute 11:00 - 17:43

[Vmarco]

As far as I'm concerned, the federal reserve is an illegal entity that's been enjoying the fruits of millions upon millions' labor for a hundred years now, and its about time this cancer was dissolved. Never going to get monetary influence out of politics so long as the federal reserve exists.

 

Yes,...but who has the balls to establish a Resource Based Economy,...certainly not the Tea Party.

[joeblast]

This whole concept of spending beyond someone's means is an illusion, part of the interest-based monetary pyramid scheme. Since virtually all money is debt, making debt is not a sin, but inevitable, and slowing down debt accumulation merely means covering up the effects of the scam for somewhat longer.

Such a view only focuses on the busted "money creation" scheme that we're subjected to under the fed and does not address the fact that regardless of whether you have money or not, you have a mass of resources of various forms at your disposal and can leverage them to some ends. The problem with a central bank that has different interests aside from the people, making money by the sheer action of printing it, translates to them being all too eager to fund things the nation cant afford, inflation means more dollars for them to charge interest on. This removes the fundamental limit of resource leverage and allows severe indebtedness to happen.

 

Yes,...but who has the balls to establish a Resource Based Economy,...certainly not the Tea Party.

if you go by what huffpo tells you of the tea party, of course you're going to think whacked out things. especially since it is diverse and there is no single aim outside of getting the government to spend within its mean and rein in the debt bomb before it explodes. I cant help if you poison yourself with fantasies, I can only point them out to you when you parrot them.

[Vmarco]

Such a view only focuses on the busted "money creation" scheme that we're subjected to under the fed and does not address the fact that regardless of whether you have money or not, you have a mass of resources of various forms at your disposal and can leverage them to some ends. The problem with a central bank that has different interests aside from the people, making money by the sheer action of printing it, translates to them being all too eager to fund things the nation cant afford, inflation means more dollars for them to charge interest on. This removes the fundamental limit of resource leverage and allows severe indebtedness to happen.

 

if you go by what huffpo tells you of the tea party, of course you're going to think whacked out things. especially since it is diverse and there is no single aim outside of getting the government to spend within its mean and rein in the debt bomb before it explodes. I cant help if you poison yourself with fantasies, I can only point them out to you when you parrot them.

 

 

I usually get my Tea Party info from the Tea Party itself,...seldom view huffpo. Politically, I was for Gary Johnson. Tea Party Fascists hate him.

[Owledge]

As far as I'm concerned, the federal reserve is an illegal entity that's been enjoying the fruits of millions upon millions' labor for a hundred years now, and its about time this cancer was dissolved. Never going to get monetary influence out of politics so long as the federal reserve exists.

Someone should write a book in the category "national self-help literature":

"How to Get Rid of the Federal Reserve Without Getting Your President Killed"

[joeblast]

Someone should write a book in the category "national self-help literature":

"How to Get Rid of the Federal Reserve Without Getting Your Constitution Killed"

fixed for ya dont care who's resident, so long as they respect the doc. its been too long since we've had one that did.

[joeblast]

scathing truth

 

[Vmarco]

fixed for ya dont care who's resident, so long as they respect the doc. its been too long since we've had one that did.

 

Exactly! Who was the last National Politician who didn't put their faith-based agenda before their oath to the Constitution? Not in my lifetime.

[Enishi]

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=9566#.UQd2UPL4LFE

 

 

 

JAY: Okay. So if breaking up the banks isn't a really viable alternative, then let's go where you were going. Then what is the alternative?

 

 

PANITCH: Well, you know, part of the problem of the American left political culture is that it has this—you know, like the right, it has this image that capitalism would be fine if it was only made up of small competitors. In fact, small competitors, when you have that, tend to pay their workers a lot less, tend to be more right-wing, very often, than the large capitalists, who are, if anything, a little more knowledgeable with regard to how the system works and how you have to keep the legitimacy of the under class. This has always been an illusion on the American left, and one's hearing it again, as if the culture of small bankers on Main Street in some Midwest or Texas town is actually more progressive than the culture of Wall Street. It's not.

 

 

But beyond that, the much more pragmatic and possible thing to do is to take these very large banks into the public domain and turn them into public utilities and have them serve the functions that are needed, in terms of a financial market, in a way that is determined by state policy and by a system of democratic planning, so that the decisions they now make about where things will be invested and into what they'll be invested would be made in relation to democratic public policymaking, that to—of course, I entirely grant, to imagine democratic public policymaking would entail a fundamental change in the American state and the party system.

 

 

It's not just that the banks are too powerful outside the Treasury and Fed. The Treasury and Fed are part of the Wall Street nexus, and they are organized in such a way, and the people who work in them are trained in such a way, as to be reproducing the current system. So one's talking about when one says this: not just a change on Wall Street, where these banks become public utilities, but a change in Washington. Obviously this is the case. And in order to be able to get that, you have to have a change in a different type of democratic politics you have in the United States, an opening in the political system.

 

 

All of this is a very long-term process. It isn't going to happen quickly. Neither are you going to break up the big banks quickly, if at all. But it does mean that at least one's educating people to the type of long-run goals and the type of political project, the type of new political institutions we need in order to realistically get beyond a situation in which our state is engaged in what Geithner calls failure containment, recognizing that these crises are inevitable, but that the capitalist system is dependent on them, and all the state can try to do is contain the crises when they happen.

 

 

Edited January 31, 2013 by Enishi

[Owledge]

Can I get a TL;DR for that one please?

[Enishi]

Sorry about that, I will shorten the quote.