A PRIMER FOR MONETARY SOVEREIGN NATIONS
The world has been conned for years; for centuries in fact; and it is time to do something about it.
Whether we like it or not, our lives revolve around “money.” Despite what various people claim, when it is all boiled down, the only real value and purpose of “money” is as a convenient medium of exchange.
It really doesn’t matter what form “money” takes, whether it is a special kind of stone, carved bits of wood, pieces of gold or silver, bits of pretty coloured paper, some figures written in a book, a few keys punched on a computer keyboard, or the issuing of credit, its only real value is whether it can be exchanged for something else.
It is important to understand that money is not made by the agriculture or manufacturing industries, or in fact, any other type of productive enterprise. Industries and farming create products and services, which, if they can, they exchange for “money” from their customers.
It is an obvious fact that, in a closed community, it is impossible to operate on a profit system without continually increasing the supply of “money”. Individual Nations can be compared to closed communities in this respect, but because of the concerted push for globalisation and “free trade” agreements over the past years, the whole world has now come to resemble a “closed community.”
Hence, the international monetary crisis that is now engulfing the world.
As they say, all history is legend and all legends become history so, it is probably true that Mayer Amschel Bauer Rothschild did say this in 1791, ‘Allow me to issue and control a nation's currency and I care not who makes its laws’.
He is then reputed to have followed up that very accurate statement with this remark. 'The few who understand the system, will either be so interested from its profits, or so dependent on its favours, that there will be no opposition from that class.'
Rothschild was a banker, but the question is, how did he get in the position to issue and control a nation’s money supply?
This brings us to the next bit of historical legend; the birth of modern banking through what is known as the fractional reserve system.
The story goes: - in the days when a lot of the money supply was decreed as gold and silver coins, people who accumulated a lot of these coins needed a safe place to keep them so they couldn’t be stolen. Somebody came up with the idea of a very secure warehouse, and offered to look after these extra coins for a fee. The warehouse man gave the customer a receipt for the coins that were stored in the warehouse, and guaranteed they would be kept safe, and available, whenever the customer wanted them back.
Carrying around heaps of heavy coins could be a risky and inconvenient chore, especially when the customers found they could use their receipt to buy the things they wanted. Initially, this was all fair and above board because, the number of receipts issued by the warehouse man was equal to the amount of coins he kept in his warehouse.
But as the acceptance of the receipts became more common, the warehouse man, being an astute entrepreneur, began to realise that all his customers never came to collect their coins at the same time. So; putting two and two together, the warehouse man realised he could make five by selling someone a receipt which they could then use to buy things. He knew he would always have enough coins in his warehouse to cover the extra receipt if needed, provided only, that all the customers didn’t create a “run” on his warehouse if they became aware of what he was up to.
As time went by, the warehouse man began doing some calculations and came up with an average figure for the number of times his customers actually came to collect their coins. From this calculation he worked out how many additional receipts he could sell without running too great a risk of being caught for, what was essentially, dealing in stolen goods.
Thus, the fractional reserve system was born. If the records showed that only 10% of his customers collected their coins at any one time, the warehouse man figured he could issue extra receipts for the 90% that were always in the warehouse.
But then he twigged to what Rothschild discovered. If he brought the authorities into the scheme, they would be so enamoured by the process that he could kill two birds with the one stone. First, he would protect himself from the law and prosecution, and secondly, he could convert the whole of the coins in his warehouse to represent the 10% reserve he needed to have on hand. This would represent an enormous increase in the number of receipts he could then sell to customers.
While the warehouse man of this story probably started off making his money simply by selling receipts, gradually he found there was more money to be made by converting the receipts to a loan and charging interest on the advance.
It is this latter development that is now standard practice in the banking industry. The private banks, with the protection and permission of the government, can create credit as interest bearing loans, virtually out of thin air, provided each bank has a specified amount of actual cash available as a reserve.
The actual mechanics of the banking process, in the way the reserve funds are handled, and the clearance of “money” transfers between the banks, is a bit more complicated, but the above explanation is, fundamentally, how the system works.
Most of the current world economies survive on the basis of credit, but it is the ownership of this credit which has never been properly understood, or defined.
When it is properly analysed, credit is really just the conversion of future effort into an amount of money that is available today. The thing about credit, and future effort, is that they only pertain to people. In truth, all credit is the property of the people because; only people are capable of producing products and services that will create the ability to repay the advance. A loan is a legal agreement where the borrower promises to repay the money at a later date from the productive effort expended in putting the money to good use.
In this respect, all credit is really public property, and that is the rational and logical justification why a publicly owned banking system should be the foundation of any financial system.
But it seldom works that way, despite the fact that most nations have the power and authority to create their own sovereign and independent supply of money.
As we all know, moneylenders go back to biblical times, and probably long before that, but what is not explained is what is this “money” they were lending and where did it come from?
Whatever it was they were lending, it had to have two undeniable properties, it had to be generally acceptable for the buying of goods or services, and the people had to be confident that the tokens they used were not false tokens.
So; we are dealing with two main issues relating to the creation of any form of money supply, one, that the people must have confidence in the tokens, and two, the tokens must have some sort of guarantee that they are genuine.
It is fairly obvious that the authorities in charge of a nation, which in our modern democratic era, is the Government, is the only authority in a position to provide the confidence and guarantees that the money tokens will be genuine.
To extrapolate this further, it means that only a democratic Government of an independent nation has the power, and the people’s authority, to create the supply of money to act as their nation’s convenient medium of exchange.
So; why doesn’t it work this way? To answer this we need to look at some of the relatively recent history, especially from the view of the United States as the US Dollar is the current Reserve currency of the world’ financial system
What’s stuffing it up?
The problem goes back several centuries and grew to the extent that the 19th century became known as the age of the Rothschild's. It was estimated they controlled half of the world's wealth. While their wealth continues to increase today, they have blended into the background and the Rothschild name is used only for a small fraction of the companies they actually control. The Rothschild's had enormous influence over the Bank of England, but in 1816, they supported the creation of the Second Bank of The United States, which received its charter from the fledgling Congress. This was a new privately owned form of a Central Bank for America and was authorised to supply the money to be used by the nation.
But even as early as 1802, Thomas Jefferson understood the danger of allowing the private banks to control the nation’s money supply and is quoted as saying, ‘I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up round the banks will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered…’.
To his immense credit, President Jackson vetoed the Bill to extend the charter of the Second Bank in 1832, and it ceased to operate in 1836. When that happened, the fractional reserve system “moved like a virus” through the other chartered banks and they each began to issue their own form of bank “money” as interest bearing loans.
Otto von Bismark, the Chancellor of Germany, remarked that slavery was not the only cause for the American Civil War. The high financial powers of Europe had decided on breaking up the United States long before the Civil War started. They were afraid that if the US remained as one nation it would attain economic and financial independence, and upset the world financial domination by the European bankers. Their plan was to split America and hand it back to Britain and France.
The Civil war began on the 12th of April 1861 and lasted four long years.
President Lincoln needed money to finance the war effort, but the bankers would only offer loans at 24% to 36%, which Lincoln declined. Colonel Dick Taylor solved the problem by getting Congress to pass a bill to authorise the creation of treasury notes as full legal tender. To distinguish this new legal tender they were printed using green ink on the back, hence the origin of the “greenbacks”.
The solution worked so well that Lincoln seriously considered adopting it as a permanent policy, which would have been great for everyone except the Bankers. The Bankers quickly realised how dangerous this policy would be for them. The London Times, in 1865 wrote an article to discourage this creative financial policy, but in fact, highlighted its benefits for the people. The article stated, "If this mischievous financial policy, which has its origin in North America, shall become endurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without debt. It will have all the money necessary to carry on its commerce. It will become prosperous without precedent in the history of the world. The brains and wealth of all countries will go to North America. That country must be destroyed or it will destroy every monarchy on the globe."
But the Bankers fought back and “lobbied” Congress so successfully that the National Bank Act was passed. From that point on, the entire US money supply was to be created as a debt to the bankers who would buy US government bonds and issue the Government’s bank notes. That system remains in place to this day and is operated by the Federal Reserve Bank. The “greenbacks” continued in circulation as legal tender until 1994 when they were finally phased out.
This process is adopted by all the Central Banks of the Western nations and has continued despite the fact it relies on acts of Parliament/Congress, which can be repealed at any time, if and when, the people rise up and demand that action.
At the time, it was well known that Lincoln intended to repeal the National Bank Act after he was re-elected, but he was unable to do this in the 41 days available to him before he was assassinated.
What we need to know about the Money System
The fact that a nation’s Government has the power and the authority to create their nation’s money supply also means they have the authority, and responsibility, to control every aspect of the nation’s financial system. Although the private banks have long existed, and have become an integral part of the finance sector for most nations, it is unrealistic not to retain their services and incorporate them into a completely reformed system.
History has shown, despite the misleading propaganda blaming the Government, and especially over the last century, the private banks have been the direct cause of the repeated boom and bust cycles, and financial disasters that have been inflicted on the nations around the world. These disasters have occurred despite the creation of the supposedly independent Central Banks that were designed to prevent the disasters.
This has happened because of the control the private banks have been able to wield over the Governments, exactly in line with Rothschild’s pronouncements above.
The time has come to reverse this disastrous position by demanding the people’s Government assert their given authority to administer the nation’s financial sector for the benefit of the people, and not for the benefit of the banks.
As the Government has the sole authority to create the nation’s supply of money, they have it in their power to properly control the financial system and prevent it from controlling the nation and its economy, exactly as Abraham Lincoln did in 1861.
As stated above, the truth is, it really doesn’t matter what is chosen for the medium of exchange as long as it fulfils the two essential conditions of its acceptance by the society and its guarantee of authenticity. In the past, gold fulfilled these conditions up to a point, and for some people, but it ran into problems because of its limited supply. Silver was a good backup, but it too had a limited supply, especially as the population grew and the economy expanded.
For many years the financial systems of the world operated on what was called “the gold standard.” What this meant was the amount of “money” created by the Government depended on the amount of gold they had available. In actual fact, this was quite a ridiculous system because, if the government didn’t have enough gold available they were forced to borrow from the private sector, and pay interest on the borrowings.
Mostly, they didn’t actually borrow physical gold, the Government just gave the private money lenders an IOU, which is now called a Bond and/or a Treasury Note, and the lenders, in effect, let the Government open an account with the private Bank.
It’s all rather nebulous in terms of the complicated details of how it worked, but the end result has always been crystal clear.
The Government got into debt and finished up paying more in interest than the amount they originally borrowed. What this meant was that the Government had to continue borrowing, by rolling over the IOU’s as they became due because, there was never enough “money’ available to pay back what was borrowed.
The private banks loved this system for two main reasons. The first, because, it was really a bookkeeping exercise of transferring numbers from one account to another. But the other reason the private banks were willing to lend to the Government was because, the Governments always had the power to tax their people.
The gold standard system eventually fell apart in 1971 when President Nixon was forced to renege on the promise to foreign holders of US Bonds that they could exchange them for gold from FortKnox in the US. There simply wasn’t enough physical gold available to cover the Notes and Bonds the US Government had been issuing.
Thus, everything about the now abandoned and obsolete gold standard system changed on that fateful day of August 15th, 1971. Until then, all the world’s major currencies had been linked to the US dollar, and thereby to gold, through an agreement hammered out, originally in 1944 at Bretton Woods in the US. Forty four countries signed the agreement that established the World Bank, set the gold price at $35 an ounce and the US dollar as the basic currency against which all the other currencies of the world were compared.
Once that very nebulous and fragile remaining connection to gold was severed, all the world’s currencies became “paper money”, subsequently known as “fiat currencies”, and legitimised through their designation as “legal tender” by the Governments issuing the currency.
The deliberate misrepresentation to maintain the Status Quo
The Capitalist political system that currently dominates the world, and that includes the so called Communist countries as well, are tied into the “pseudo science” of Economics. That’s why we need to ask, “What is this “pseudo science” of Economics trying to achieve?”
Rational people judge theories, policies, and practices by how well they satisfy the intentions that led to their implementation. Unless the intentions are known, no sound judgment can be made.
Over the past 200 years that classical economics has been used as the basis of orthodox capitalism, it has not brought a stable level of prosperity to the peoples in any of the countries where it is practiced. Spurts of apparent prosperity have been continuously destroyed by economic crashes that, over and over again, have ruined the lives of millions.
Maybe, the intent of Economics has never been the promotion of the people's prosperity?
When viewed in a completely objective manner, the overwhelming evidence confirms that, for the past 200 years, the intent of capitalism has consistently been to protect the wealth of the privileged and to maintain the status quo. Today, this evidence is even more starkly presented with the international kowtowing to the banking fraternity around the world.
Today, the world is in crisis through the default of Governments. These Governments have granted uncontested power to a relatively small group of financiers and allowed them to dictate and control the issue of “tokens” used to facilitate trade. This is exactly in line with Rothschild’s statement above. “Allow me to issue and control a nation's currency and I care not who makes its laws.”
The current and established debt-money system makes every society sink into financial debt in proportion to its development and enrichment, which it achieves through the productivity, enterprise and initiative of its citizens.
Many countries today are certainly richer, in real wealth, than they were 50, or a 100 years ago. But when comparing the current national debt of those countries today against what it was 50 or a 100 years ago, the increase is both, astronomical and growing.
If these countries are so much richer, why are they wallowing in ever mounting debt; some to the point of bankruptcy?
It is the people who have produced this enrichment by their labour and their know-how, but it is they who are collectively indebted for the result of their own activities.
The schools, the municipal works, the bridges, roads and every other part of the public infrastructure, is built by the people. These are the builders of the country. The people who supply them with the needed materials are the manufacturers of the country. People can be employed in enriching their society through building public works because there are other kinds of workers who produce food, clothes, shoes, who supply all the things and services required for the wants of the constructors and manufacturers. And let’s not forget the Education system, and all the teachers who have a responsibility to educate the young so they are equipped to face the challenges of the future.
Thus the whole population of a country, by its work of different kinds, produce all those developments. If goods must be obtained from abroad, nationally produced goods are exported in an effort to balance the degree of international trade.
The great paradox of this system is that citizens are taxed to pay the interest and return of capital that Governments borrow from the banking system to build those schools, those hospitals, those bridges, roads and other public works. The people, as a collective, are thus compelled to pay for what they produce to increase the wealth of their nation.
This was the gold standard system, which had been imposed on the nations of the world by the finacial heirachy and its compliant Governments.
But in 1971, all that changed. The world was forced to adopt fiat currencies as their official legal tender. Unfortunately, very few governments, academics and economist understood the the new parameters that came into effect. They all continued to falsly, if not deliberately, apply the parameters of the gold standard to the new system. Thus, the Governments continued the unnecessary issuing of government bonds and continued their reliance on taxation and borrowing. Of course, the banking fraternity enthusiastically endorsed this approach. They did all in their power to blindfold the general public about how the fiat currency system could work to the people’s advantage in every nation that has the sovereign power to create their own money supply.
The Proper Way a Money System can and should Work
Despite all the gut wrenching, hoo ha and fear mongering about paper money and printing presses, the “fiat currency” system has given the world its first opportunity in many centuries to initiate a money system that can truly work for the benefit of the people.
President Lincoln knew exactly how a fiat currency system worked back in 1861 when he created the “greenbacks”.
He is quoted as follows, "The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers..... The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government's greatest creative opportunity. By the adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power."
It can do all of the above, and totally eliminate any need to borrow money from the private sector. It can allow the government to create interest free money to fund it’s approved and agreed programs, without burdening any future generation. The “fiat currency” system offers the nation the ability to achieve readily-available economic prosperity that has previously been restricted. The idea that a physical policy cannot be carried out unless there is sufficient money available is an illusion fostered by the Banking industry.
When unused productive capacity and massive unemployment arises to create a situation of “poverty amid plenty”, – it becomes obvious - this is the time to question the basic flaws of the financial system.
Systems were made for men and not men for systems. The interest of man is self development and that is above all systems whether theological, political or economic.
A lot of people around the world are slowly beginning to grasp the significance of the changes to the financial system that was ushered in by that decision in 1971.
That decision completely altered the parameters applying to the way “money” can be created and used. It transformed the monetary system into a system that has the power to benefit every member of the society by relieving them, and their society, of the ever growing burden of debt.
The fiat currency system is not a free-for-all and must adhere to a strict discipline on fiscal policy, of which an important aspect should always be, the responsibility for maintaining sustainable levels of employment and stable prices. That policy also depends on what is accepted as the primary purpose for creating a government in the first place.
The Fiat currency system provides the opportunity to irretrievably alter the status quo, and at last, make the financial system work for the benefit of all mankind, and not just an elite few at the top.
The potential and the opportunity are there, but it will not evolve of its own accord.
There are two words that define what modern economics is all about; those two words are “Monetary Sovereignty.” It is not a theory or a hypothesis, or a philosophy. It is the essence of how Government financing actually works.
A Monetarily Sovereign government has the exclusively unlimited power to create its sovereign currency. Monetary Sovereignty is the foundation of economics.
Anyone who doesn’t understand the differences between Monetary Sovereignty and monetary non-sovereignty, doesn’t understand economics.
What Monetary Sovereignty Means
The following 7 points very briefly explain what Monetary Sovereignty means:
1. A Monetarily Sovereign entity has the unlimited ability to create its sovereign currency. Every Government of a monetary sovereign nation has the ability to mark up numbers in any respective denominated book of account, including its own bank accounts. It can never run short of its currency, and any debts denominated in that currency, no matter how large, are easily serviced.
2. The previous “gold standard” restrictions on the world’s Governments were officially abandoned on August 15, 1971. With the demise of the Bretton Woods Agreement, the 44 nations that were party to that agreement automatically had their monetary systems converted to fiat currencies. By contrast, the States, Counties, cities and villages, businesses and the people of those nations are, and always have been, monetarily non-sovereign. They can run short of money, and they can borrow money and run up debt, but they can’t create their own “legal tender” in competition to the Government.
3. The euro nations, apart from the UK, are monetarily non-sovereign, and they sacrificed their monetary sovereignty the day they signed the Euro pact. By being forced to use a common currency they were compelled to borrow the “money’ from the Central Bank and immediately created a national debt.
4. Today’s money — irrespective of what denominations are used, whether they are dollars, yen, euros et al, only appear to exist in physical form. All the coins and paper “money” are really just receipts with numbers designating the denomination of the currency used by the different countries. All of today’s “money” is just accounting notations, and the designated currency is just numbers on a balance sheet.
5. A Nation that has the unlimited ability to create its own currency means the government does not need an income. It does not need to borrow money, or to impose taxes in order to get money. Both borrowing and taxing are relics of the previous “gold standard” era. The private sector is monetarily non-sovereign and they do need income. State and local Governments get this income from taxes and borrowing, while businesses and people get theirs from wages and salaries, sales, investments and borrowing.
6. A Nation’s government creates their currency by spending. It buys goods and services from the private sector, and it employs people who in turn spend their income in the private sector. Effectively, money is delivered to the private sector by crediting the client’s bank account, thus increasing the savings capacity of the private sector. Any government that sets up a tax regime is effectively destroying the saving’s capacity of the private sector.
7. While a monetary sovereign government has no need to borrow from the private sector, if it does so through the issue of Treasury Notes, or bonds, it simply represents a change in the savings mechanism for the private sector. The “loan” occurs by debiting the private sector bank account and crediting the Government account. However, the private sector does derive additional benefits to its savings capacity when the Government spends the money it has unnecessarily borrowed.
8. Any Government deficit of a monetary sovereign nation is merely the accounting differences between taxes received and the money a government spends. A deficit actually represents the amount of money the government has added to the economy. It is possible to have government deficits without debt, and it is possible to have government debt without deficits. In essence, debits and credits for a monetary sovereign nation are really just notions applied to the system of double entry bookkeeping.
The deliberate deadly distortions of Economic Policy
While the above points relate to any monetary sovereign nation, there are a number of commonly held distortions about how a financial system works, Warren Mosler has described these distortions as “innocent” frauds in his book, “Seven Deadly Innocent Frauds of Economic Policy”, but there is little that is “innocent” about them. They are all deliberately promoted, as is the eighth fraud of comparing the macro economy of a Government with the micro economy of households and businesses in the private sector.
In brief, these fraudulent distortions are as follows:
- Fraud No 1: That government finance is supposed to be similar to household finance.
Private and household spending can only occur through earning an income, using savings, and/or borrowing, which means they must finance their spending prior to the fact. Government spending is exactly the opposite because, a Government, as the issuer of the currency, can simply spend without the necessity of seeking funds in advance. This is quite an irresponsible fraud that is deliberately promoted to shore up the status quo.
- Fraud No 2: That a monetary sovereign government needs to tax and borrow first before it can spend.
Such a government can always make any and all payments in its own currency, no matter how large the deficit, or how few taxes it collects. A monetary sovereign government cannot become insolvent. In truth, taxpayers do not fund anything in a fiat currency system - governments fund spending by spending – taxes simply reduce the savings capacity of the private sector.
- Fraud No 3: That today's deficits burden future generations with government debt.
Everything produced in the future will be consumed in the future. How much will be produced depends on how productive the economy is at that time. This has nothing to do with the public debt today; a higher public debt today does not reduce future production - but if it motivates wise use of resources today, it may increase the productivity of the economy in the future.
However,all the discussion and debate about debt for a monetary sovereign Government using fiat currency is a deliberate fraud. It aims to hide the fact the economy is no longer operating under the parameters of the “gold standard” era. The financial sector desperately needs to keep the public in the dark that Government borrowing, and taxes are no longer necessary for the Government to function. Taxation and borrowing were intrinsically tied to the government’s management of its gold reserves, which in turn, determined the nation’s capacity for growth. In essence, this was quite a ridiculous situation and unrelated to the needs of a growing economy. If insufficient gold were available to a nation, its growth could only be achieved by going into debt and borrowing funds from private sources. The two monetary systems are very different and the economics of the gold standard cannot apply to the modern monetary system. Unfortunately, most commentators, professionals and politicians, cannot grasp the significance of this and continue to use the old logic when dealing with the current policy options. It is a basic fallacy and prevents the sensible discussion about what the government should be doing. All the fear mongering about the size of the deficit and the size of the borrowings, and the logic of borrowing in the first place, are all based on paradigms that are totally inapplicable to the fiat monetary system.
- Fraud No 4: That deficits absorb today's saving.
In the real world, public deficits serve to increase the savings potential in the private sector. Any government deficit always EQUALS, exactly, the total net increase in the financial assets in the private sector, that is, businesses, households, residents and non-residents. It is an accounting fact, not theory or philosophy that Government deficits must ADD exactly that amount to the nation’s savings potential.
- Fraud No 5: Social Security has promised pensions and healthcare that it will never be able to afford.
All the government does when it makes a Social Security payment is increase numbers in the beneficiary's accounts, and decrease numbers in the accounts used to fund Social Security. There are no operational constraints on a government's ability to meet all Social Security payments in a timely manner. Social Security payments cannot be a ‘drain’ on the economy, because the beneficiaries spend the money to purchase goods and services in the private sector. This is all part of the production/consumption chain. It is a totally ludicrous argument to propose the privatising of Social Security services in a monetary sovereign nation.
- Fraud No 6: That trade deficits dangerously indebts a nation to the whims of foreigners - who might decide to cut off the supply of loans that the nation needs.
As already explained above, a monetary sovereign nation does not need to borrow its own currency from anyone. So; a foreign entity that wants to use any accumulated currency of another country, may choose to buy that country’s Government bonds and/or Treasury notes. It would only do that if the returns were better than investing the excess funds in other assets, or there is a benefit in supporting the foreign country’s currency.
Any trade imbalance means that one country has received physical products and the other country has received a heap of foreign money. A nation’s real wealth is assessed from all it produces and keeps for itself, plus all it imports, minus what it must export.
The claim that foreign trade imbalances dangerously indebts a nation to the whims of foreigners, and the risk of being deprived of loans the nation needs, is simply not applicable to a monetary sovereign nation.
- Fraud No 7: That savings are needed to finance investment, and thus leading to smaller government budgets and less government involvement in investment.
There are two types of money usage in today’s world; “financialised money” used by the financial sector for gambling and profit taking, and money used for the production of private and public goods and services. The “financialised money” is used to blow inflationary bubbles in stocks, real estate and commodities that increase the costs of the real economy through price rises and greater debt repayments. This, ultimately, devours demand in the real economy. Governments are lobbied to endorse this through tax-advantaged savings incentives, such as pension funds, future funds, and all sorts of tax-advantaged institutions that accumulate reserves on a tax deferred basis.
The really damaging impact of this fraud is the need to manage this massive pool of funds for the future beneficiaries. The trillions of dollars compounding in these funds are the support base of the dreaded financial sector. Thousands of fund managers use these vast sums of money to gamble on any available market. Feeding on these "bloated whales," are the inevitable sharks - the thousands of financial professionals in the brokerage, banking and financial management industries who owe their existence to this deadly fraud.
- aud No 8: That higher budget deficits imply taxes will have to be higher in the future.
As stated in Fraud No2, taxpayers don’t fund anything because; a monetary sovereign government does not need to tax to get money.
There are two points with this issue; first, corporations never actually pay any taxes as this cost is always built into their pricing structure. The second point is taxes reduce the purchasing power of the consumer.
As long as employment is used as the principle means of distributing purchasing power to the general public, it is in the nation’s interest to maximize employment opportunities. This can be done through deficit spending and/or minimising taxes if unemployment levels are high.
It is indisputable that the dynamics of the monetary system is driven by the crucial relationship between government and non-government sectors. It is this inter-dependent relationship that allows the private sector to save and accumulate net financial wealth.
The size of Government is not really a crucial issue as long as the Government operates in the interests of its nation. How those interests and policies are defined and implemented are the crucial issues.
The Role of Government
There are four axioms that need to be accepted, if they are not, then the rest of this discussion is pointless. The first, as stated above, is that governments are created to serve a public purpose. If that purpose were defined as advancing the public interest, then the guarantee of individual rights, the provision of essential services, planned and coordinated infrastructure, the nation’s health, its education, its financial and banking system and a justice system, equally available to all, would come under this definition. What we can say without fear of argument is that governments are there for the benefit of the society, and society is not there for the benefit of the Government.
The other axiom is that Governments are not created to make a profit at the expense of their citizens. Any government that budgets for a surplus is obviously profiteering, especially so in the case of a government operating on a monetary sovereign basis. Such a Government can always fund any obligations to which it chooses to commit itself. It can never go bankrupt, and can never default, unless it voluntarily chooses to do so for some totally irresponsible and vindictive reason.
The third axiom is that the rational citizens of a society consider they have certain inalienable rights to their freedom and liberty, which are protected by a constitutionally controlled government operating within a system of laws.
The fourth axiom is that our society operates a mixed economy with the government having certain identified responsibilities and obligations, but coexisting with a private sector, which is principally responsible for manufacturing, production, resource development, distribution, marketing and selling. Individual enterprise and entrepreneurialship are encouraged, but monopolies are prohibited, and the myth of “free enterprise” exists only to the limits allowed by social standards, as proclaimed through government regulation.
Thus, if a government, especially a monetary sovereign one, operates on the basis of these axioms it is in a position to foster a healthy, competitive economy and a vibrant, productive private sector, capable of providing the level of employment to sustain the national and international consumption capacity, in keeping with the nation’s resources and demand.
However, there seems to be one insoluble problem that is common to every form of “leadership” and/or “Government” that has evolved throughout history. They all, without exception, succumb to the “power syndrome” and act in a way that they always believe they are “right”. As a result, they resent opposition, and often adopt extreme measures in suppressing it. Usually, that has only been a short-term remedy as is evidenced by the continuous uprisings and revolutions throughout history. Modern day politics have developed a system called “democracy” which shrouds this resentment of opposition by officially allowing an “opposition party” to exist. Unfortunately, all political parties are tarred with the same brush, and they all resent opposition whenever they get to hold the reins of “power”. So far, no solution has been found to overcome this problem, but if a remedy is available that doesn’t involve violence, the best prospect lies in a Constitution that properly limits the powers of the leadership within the rule of law. That, of course, presents another problem because; it necessitates an independent and incorruptible legal system that upholds the Constitution.
Modern Monetary Theory (MMT)
There are two prominent positions that need to be adopted if we are to understand the proper way a fiat currency system can be made to work. In no order of priority, one position is to understand what is known as the Modern Monetary Theory, (MMT) and the second position is the establishment of publicly owned banks.
The Modern Monetary Theory explains how the economics of a Monetary Sovereign nation can be applied. There is quite a large amount of information available on the Internet, as well as in the print media that provides a detailed analysis, and explanation, of this “theory”. In actual fact, it really isn’t a theory; it is much more like a practical blue print as to how the fiat currency system works.
Quite a few prominent people are actively involved in promoting this information, and to name just a few, Prof. Bill Mitchell, Prof. L Randall Wray, Stephanie Kelton, J. D. Alt, Dan Kervic, William K Black and Warren Mosler.
The foundation for MMT is the following
- Governments are created to serve a public purpose
- Governments have the overriding authority to authenticate a nation’s money supply and define what shall be used as legal tender.
- One of the Government’s economic responsibilities is to maximise employment opportunities for every citizen willing and able to work.
- That a properly controlled fiat currency system can work for the benefit of society without causing inflation or deflation.
However, the one thing MMT does not address is the Fractional Reserve system used by the private banks to create “money” out of thin air. The “money” created by these banks is always as interest bearing “credit” and advanced as a “loan” to the borrower.
When we look at the current “money” supply as it applies in today’s economy, on average, only about 3% of the “money” is in circulation as hard currency, that is coins and notes, while the 97% is digital “money” created by punching keys on a keyboard. Approximately, two thirds of that 97% is created by the private banks and the remaining third by the government.
Thus, it becomes important to really examine the role of Government in respect to the economy in general and the financial sector in particular. What role does the Government currently play and what role should it play?
The Role of Government in respect to Finance and the Economy
Setting aside the problem relating to “power” and opposition, the issue is how best to make a nation’s economy work. All economic activity, but not necessarily physical activity, is conditioned by the amount of “money” available. Too much money leads to inflation, while too little leads to stagnation and recessions. The key is to relate the money supply to the production and consumption demands of a growing economy. As long as that supply can equate to the goods and services available for consumption, then inflation does not become a problem. The weak link in that chain is the consumption demand. It is obvious; there is absolutely no point in producing anything if it is not going to be consumed. Such production, whether it is in goods or services, is a complete waste of energy, resources, time and money if it isn’t consumed. Thus, it should become relatively clear that the major concern for a society is finding the best and most efficient means, of distributing purchasing power to the general population. To date, no really effective solution has been adopted, although there are some very valid ones proposed.
Employment as the Primary Means of Distributing Purchasing Power
Historically, employment has been used as the practical solution to the problem of distributing purchasing power to the general population. However, over the last two centuries, as the industrial revolution took hold, the remuneration from employment alone was no longer sufficient to keep pace with the quantity of goods produced. The private banking sector leapt into the breach the filled the gap with an inexhaustible supply of interest bearing credit. With the connivance of the government, they were able to create this credit, virtually, out of thin air. This free flow of credit was able to ensnare whole populations into a lifetime of debt.
Thus, the modern consumer society, and all the vast improvements in every aspect of the standards of living, has been developed on this foundation of ever-increasing debt. Like so many other aspects of life, debt is a two edged sword, if properly managed, it comes with its blessings, but if wantonly used, it can be an unforgiving curse.
But the point is, that despite the fact the last 200 hundred years has been progressively aimed at producing more with less human effort, in other words, putting people out of work, employment is still perceived as the most effective means of distributing purchasing power to the general population. As long as this approach remains in vogue, it is incumbent on the part of the Government to foster the best policies to promote employment for everyone willing to work.
To do otherwise invites a host of social problems, starting with the loss of income, the increased costs of damaged physical and mental health; family breakdown; increased alcohol and substance abuse; increased crime rates;
loss of skills, and various other side effects.
It is ridiculous for the Government to claim that society must tolerate the pain and suffering associated with high unemployment, because it leads to a “stronger” economy, when that “economy” is only measured by the bottom line of the financial and banking sectors.
Any government that considers maximising employment opportunities is not a legitimate responsibility has forsaken their obligations to their society. How can a policy that promotes suffering and hardship from unemployment be considered a good and moral policy?
Financial Options for a Government
As stated above, the supply of “money” available to the modern day nation is crucial in determining every aspect of its existence, and the welfare of its society.
Obviously, the amount of “money” needs to be conditioned by some logical and rational parameters. If, as is currently accepted,
the nation’s Government is the only authority authorised by the people to create “legal tender” then the Government has the responsibility for establishing the necessary parameters.
At the moment, the investment side of the financial system has become a gigantic gambling casino through the creation of a multitude of dubious financial products. These derivative products have no productive benefit to the society, but do have an incredibly destructive potential for the financial systems around the world.
The notional value of all outstanding derivatives now totals approximately $1.144 QUADRILLION.
This means that the size of this unregulated derivatives market is something like 20 times the value of all products produced on the planet.
How could supposedly intelligent people be party to such utter stupidity?
Logically, this sort of thing should not be allowed to exist, but if this is portrayed as an example of “free market” innovation, then it must be totally divorced from any Government support or involvement at every level of Government.
The so-called “free trade” agreements championed by most politicians of all shades over the past few decades, has always been less about trade and more about restricting the policy options of governments through treaties.
Although this derivative market is described as having a “notional value; somewhere along the line, an enormous amount of fictional “money” has been created. How was this done? Who created it? Who allowed it to be created if the Government is supposed to be the only authority with the power to create legal tender? Is there a way to defuse this enormous financial time bomb? What really would happen if these huge international investment banks were to collapse into the cesspit of their own corruption? How would it really affect the billions of ordinary people who have no connection with this so-called “high finance”?
If the answer happens to result in the Governments being forced to recognise the “public purpose” for which they are created, and to also realise they can actually make the financial system work for the benefit of the people, and not the bankers, might this not be a good thing?
Every monetary sovereign nation must take full responsibility for the financial system they allow to exist. So; what are the options available to properly control the money supply for a nation?
The Parameters for controlling the Nation’s “Money” supply
The first step is to establish the controlling parameters which dictate the amount of “money” a nation can rationally absorb without creating inflationary or employment problems. As the basic purpose of “money” is to act as a convenient medium of exchange that means it is intimately related to trade, and trade is directly connected to production and consumption. Thus, we arrive at the logical conclusion stated above, that any nation’s supply of “money” must use production and consumption as the parameters to monitor the rate by which “money” is created. These parameters must apply to both the private sector and the public sector.
The financial needs of the public sector are relatively easy to determine when the “public purpose” of the Government is defined as advancing the public interest, guaranteeing individual rights, providing the essential services of the nation, which includes the construction and maintenance of planned and coordinated infrastructure, the nation’s health, its education, its financial and banking system and a justice system, equally available to all. What tends to be entirely misunderstood about public spending is that every dollar spent ends up in the private sector.
As the primary interests in the private sector revolve around the needs and wants of the individuals, this financing can be left to the private sector as dictated by market forces.
As stated above, the private sector is the domain of the manufacturers, of production, resource development, distribution, marketing and selling, all of which go to service both private and public spending.
In a rational world, production has one single purpose and that is consumption. If production does not lead to consumption then the whole exercise is a waste of energy and resources. To date, the consumption factors are a combination of income, savings and borrowing, but both optimised production and consumption are capable of being calculated to relative levels for determining the “money” supply.
A Method of Monitoring and Controlling the “Money” Supply
There is little dispute that a growing economy, and population, requires an expanding supply of ‘money’. This increasing supply of ‘money’ has to be related to the productive capacity of the goods and services required by the expanding society. If this applies, then the new ‘money’ will be backed by physical assets, and thereby, constitute the creation of a ‘sound’ money supply. The contention that ‘sound’ money can only be created if it is related to gold or silver, is a spurious argument that only applies if ‘money’ is treated as a commodity rather than the ‘ticket’ system which it really is.
A Government is in the position to establish a genuine, honest and practical banking system based on the creation of ‘sound’ money related to physical assets. The primary objective of this system must be to serve the needs of the public in providing effective banking services.
While the fractional reserve system is essentially a ‘ponzi’ scheme, it can be modified and properly controlled to serve the benefit of society. By reversing the current procedure, and instead of allowing the private banks to create ‘new’ money as they currently do, the Government, on behalf of the people, creates this ‘new money’ and sells it to the private banks. Obviously, the creation of this ‘new money’ would be a simple bookkeeping, or computer spreadsheet activity, exactly as it currently applies. The private banks would be set up in the same manner as presently in place, by obtaining capital from investors through the issuing of shares, debentures or bonds. As legitimate registered businesses, they would be eligible to apply for, and purchase, ‘new money’ from the government at a low enough price to allow them to “re-sell” it to their customers. The amount of ‘new money’ they request would be set as a ratio of their capital, plus money they hold in deposit from their customers. That ratio can vary depending on the economic activity of the nation. As the economy grows so would the customer’s deposits, thus allowing the banks to apply for additional ‘new money’ to support the continued growth. The necessary controlling regulations would be related to the nation’s productivity and consumption factors, which the Government would monitor as the primary determination for the creation of ‘new money’.
Establishing a Public Banking System
Specifically, the Government would set up a publicly owned Bank to monitor the nation’s productivity factors and handle the sale of ‘new money’ on behalf of the people. Public finance would be reserved for the publicly owned Bank which could provide the necessary investment funds, at cost to the Federal and State Governments, and municipal organisations, in accordance with independently assessed cost/benefit analysis for any proposed projects.
The other major role of the Public Banks would be to monitor the financial parameters of the nation, logically on a State by State basis, and arrange the issue of “new money” according to the respective State requirements and demand.
Detailed information on the principles, benefits and practicality of publicly owned banks are being well promoted by many people, including Ellen Brown, a lawyer, who is the author of "The Public Bank Solution" and the President of the Public Banking Institute
The arrangement for a controlled fractional reserve ‘ponzi’ system is a way of increasing the money supply in keeping with the needs of a growing economy. It achieves two major objectives (a) it allows the private banks to operate in the private sector and (b) it gives the Government the overriding control of the money supply that is conditioned to properly defined productivity measures.
This would effectively control inflation as the volume of money would keep pace with the volume of goods and services available. The public sector would avoid the subsequent unnecessary interest charges relating to bond issues and borrowing from the private sector. This would have a major impact on the cost of Government and municipal services.
To ensure the private banks operated in a prudent manner and for the benefit of the nation, there would be a clear understanding that the Government would not be a lender of last resort should a bank get into financial difficulties. Private Banks would take out a level of insurance cover to protect their customer’s deposits as part of their standard business practice. If a bank is properly managed, this should not present a problem. If it couldn’t obtain the insurance, it would lose its licence to operate.
The advancing of credit will always carry an element of risk for the lender. This can be mitigated to a degree by due diligence analysis and/or a requirement of the borrower to supply some collateral. Theoretically, there would be no restrictions on how a private bank used their funds, other than those imposed by their shareholders. Any time private banks request additional ‘new money’ they would need to present an audited statement of their accounts showing their current assets and liabilities along with proof of their reserve holdings.
While the banks would have no direct control over the way their client’s use any credit given them, that risk would, in part, be covered by the collateral held and the reliability of their customers. As the banks are fully aware they are entirely responsible for any financial risk involved, and cannot expect any bailout or rescue package from the Government, this should be sufficient for their shareholders to demand prudent management.
Controlling the Money Supply by the Government
Probably, the greatest concern for any reader who is unfamiliar with the terms “Monetary Sovereignty” and “fiat currencies” is the concept of a Government having the complete monopoly to “print” any amount of “money” it desires.
It is an unfortunate fact that there are very few, if any, Governments in this world that function entirely for the benefit of their citizens. In every democracy, the Government operates in the interest of the Party rather than the nation as a whole. Other Governments operate in the interest of maintaining power and controlling the people. Monarchies operate in the interests of maintaining the status quo, and the privileges and superiority of the aristocracy.
To give any of these Governments the unrestricted “power” to create unlimited amounts of money can be a recipe for disaster. However, if the concepts proposed in this paper are in place, they would establish limitations on the amount of money a responsible Government could create.
For example, there would be no bailing out of the banks – the Government would not be the lender of last resort. The obvious limit on how much the Government could spend would depend on the goods and services available from the private sector.
Defence spending would need to be restricted to what the term means – defence – and not war mongering aggression against other countries.
Monetary controls would need to be constitutionally embedded relating the money supply to the parameters of the nation’s production and consumption capacity.
The people’s inherent distrust of politicians, and Governments, stems from the potential for the corruption that is always associated with power structures. Historical evidence justifies that distrust, but it is not impossible to create a regulatory and administrative framework that would minimise the opportunity for corruption.
So, why don’t Governments Control their Nation’s Finance?
The simple answer is – blackmail.
Any Government that proposes to operate outside the established system is immediately threatened with sanctions and ostracized from the global market to the point that no international trade is allowed. All sources of foreign investment capital are frozen; as are any foreign investments or bank accounts that nation might have overseas.
Three recent, and tragically clear examples of what happens to nations that try to trade outside of the US dollar Reserve system are the illegal invasion and destruction of Iraq, the overthrow of Gaddafi and the deliberate bombing of Libya, and the sanctions against Iran because they set up their own bourse to trade their oil.
While the US military has assumed the role of the world’s “policeman,” in reality, it is carrying out the policies of the cartel of Central Banks whose apex in the Bank for International Settlements (BIS), located in Basel, Switzerland.
BIS was founded in 1930, and apart from being described as “the most exclusive, secretive, and powerful supranational club in the world” it is
a private bank, owned and controlled by the world’s central banks, which are themselves, private corporations. The BIS is, in effect, the “central bank of all the central banks”.
While the BIS currently has a membership of Central bankers from 55 nations, the real business gets done by done by the Central Bankers from Germany, the United States, Switzerland, Italy, Japan and England. This inner committee has two common beliefs; that central banks should act independently of their home governments, and politicians cannot be trusted to decide the fate of the international monetary system.
Today, BIS has governmental immunity, it pays no taxes, has its own private police force, and is, as Mayer Rothschild envisioned, above the law of any nation.
Thus, the BIS sets the rules for the Central Banks of 55 nations around the world, and the job of each of those Central Banks is to provide their governments with the nation’s currency as interest bearing debt. This network is so tight, so connected and so powerful that no independent nation can challenge its control.
So, while all the above information about monetary sovereignty and fiat currencies is true and accurate, it can never be put into practice as long as BIS and its membership control the finances of the world.
Unless …… maybe ……. someone challenges the standing of the US dollar as the world’s reserve currency!
Graham Paterson is the author of this paper, which he freely admits is, in part, plagiarised from a whole series of different sources, some acknowledged, some not (through lost data). The purpose of the paper is to bring these disparate sources together in an effort aimed at coordinating their valuable contribution into a coherent whole. The hope is to try and explain the way this “pseudo discipline” of economics affects the lives of ordinary people, and suggest how it can be made to work for their benefit if the distorted and fraudulent beliefs, promulgated by the banking fraternity, can be overcome.