Economics for the Young (At Heart)

Four Horsemen (Ross Ashcroft 2012)

Film Review

 Four Horsemen is full length documentary specifically produced for YouTube and aimed at a younger audience. Its primary goal is to demystify economics, which is a total turn-off for most people because it appears so complicated and uninteresting.

In the view of the filmmakers, a corrupt system of money creation and taxation has enabled a greedy corporate oligarchy to usurp control of western democracy and institute an obscene wealth transfer from the poor to the rich. The corporate elite has cleverly concealed this enormous Ponzi scheme by inventing a kind of voodoo economics to discourage people from taking a closer look at how the economy actually operates.

How Banks Create Money Out of Thin Air

The film provides an elegant description of fractional reserve lending, in which banks create money out of thin air and lend it to us at interest. Although this has been the main form of money creation for centuries (except briefly under Lincoln), most people still mistakenly believe that government issues and controls the money supply.

So do the majority of lawmakers. Ironically the majority of economists also believe that government creates the money we use to run the economy. This is because our banks fund the universities and think tanks where economic theory is taught. In other words, it’s a deliberate deception.

The banks also don’t want us to know where government debt comes from, i.e. that all governments borrow money from banks to fund military, intelligence and public services. Or that repaying all public and private debt would cause the global economy to collapse because this is the only mechanism we have for issue money.

What’s the Solution?

The filmmakers believe that the only solution to the economic, ecological and resource crises faced by humankind is for ordinary people to rebuild a new society from the bottom up.

They have started a YouTube channel called Renegade Economist, as well as publishing a book Four Horsemen: the Survival Manual. According to the authors (Ross Ashcroft and Mark Braund), it describes a model of bottom-up reform that combines government-issued money with a land value tax that replaces income and sales tax.

The second video is a public debate they held a few months after the release of Four Horsemen. The purpose of the debate was to begin public discussion about how to go about how to go about building the new society they envision. In my view the Q&As starting at 47:00 are the most interesting part of the discussion.

Economics to Save Our Civilization

(This is the eighth in a series of posts about ending the role of private banks in issuing money)

“Somewhere in our history we took a wrong turn and today we are reaping the consequences. If we don’t step back to evaluate the root causes of the rolling economic crises, our civilization is in danger of collapse.” – Clive Menzies

A few years back, Clive Menzies, president of British Fund Building and member of the Free Critical Thinking Institute entered into an ongoing dialogue with the London Occupy movement. The result is a radical monetary reform proposal to fix the global economic mess. In the video below, he is presenting it to the Chartered Institute for Securities and Investment (translation: a high-powered group of investment bankers and stock brokers).

In his presentation, Menzies attributes the current crisis, as well as capitalism’s recurrent boom and bust cycles, to the alienation of the vast majority of the global population from the commons (i.e. communal ownership of land and natural resources that ended with the Enclosure Acts) and the prohibition of any discussion of this catastrophic event in contemporary economic discourse. (This is a topic Fred Harrison discusses at length in The Traumatised Society.)

Most of Menzies’s talk focuses on the urgent need to abolish our current debt-based (bank-controlled) monetary system. For five main reasons:

  • It drives systemic inequality by allowing those with more money than they need to exploit those who need money.
  • It drives unsustainable, exponential debt growth because the interest cost rises faster than society can create wealth to pay it.
  • It discounts the future, driving environmental destruction – it makes a forest worth more as sawed timber than as an ecosystem preserved for future generations.
  • It demands exponential GDP growth, rapidly depleting finite resources – 3% GDP growth means the economy doubles every 24 years which means extracting resources at twice the rate and throwing twice as much away.
  • It drives inflation.

He also demolishes the prevailing myth that a person’s existence on this planet is only justified by paid work. In a way it’s deliberate falsehood more than a myth. There is only enough “productive” work for 50% of the adult population and the vast majority of income in contemporary society is generated via “rent-seeking” (i.e. charging interest or rent or extracting and exploiting publicly owned natural resources).

Menzies lays out a monetary reform proposal that would abolish interest exploitation by the private banks who currently issue and control global currencies. Instead it would empower governments to issue interest-free sovereign currency.

An IMF Proposal to Ban Banks from Creating Money

(This is the fourth of a series of posts about ending the ability of private banks to issue money.)

For the past 18 months ago, IMF economists Michael Kumhof and Jaromir Benes have been circulating a proposal to end the ability of banks to create money.

As Kumhof explains in the Nov 2013 video below, the perception that governments create money is totally false. In the current global economic system, only about 3% of money (mainly coinage) is created by government. The other 97% is created by private banks out of thin air when they generate new loans. See Economic Justice: the Rolling Stone Version

For various reasons, which Kumhof explains in the video, he and Benes believe that unlimited and unregulated private money creation by banks is responsible for the current economic crisis. And that full recovery is only possible if the privilege of creating and controlling the money supply is restored as a government function.

In addition to assuming sovereign control over the money supply, national governments would also require banks to hold 100 percent reserves for the loans they initiate. This effectively terminates the ability of private banks to create money out of thin air. And this, in turn, massively reduces their political power.

Ironically, the proposal isn’t new. Entitled the Chicago Plan, it was first put forward by University of Chicago professors Henry Simons and Irving Fisher during the Great Depression.

The History of Private vs Sovereign Money

During the Q&A at the end, Kumhof briefly discusses previous experiments with government-issued sovereign money, which have mainly occurred in the US. Sovereign money funded the original 13 colonies, the American War of Independence and the Civil War.

In their paper The Chicago Plan Revisited, he and Benes trace the history of sovereign money back to the ancient Greeks and Romans. During the Middle Ages and Renaissance, all currencies were publicly controlled (by kings and the Pope) until 1666, when Charles II transferred control of money creation to private banks with the English Free Coinage Act of 1666.

The slides, which are difficult to see in the video, are available here

For me the high point of the video is Kumhof’s disclaimer that he doesn’t represent the IMF – that he’s only doing research. Yeah right. I sure wish I had an understanding boss who let me run around making radical proposals to strip investment banks of their power and wealth.

It seems more likely that people in high places know the ship of capitalism is going down – that this is a last ditch effort to save it.

Economic Justice: the Rolling Stone Version

(This is the first in a series of posts about ending the right of private banks to create money.)

In January Jesse Myerson, writing in the Rolling Stone, called for five seemingly radical economic reforms in an article entitled Five Economic Reforms Millenials Should be Fighting For:  guaranteed jobs for everyone, Social Security for all (a guaranteed Universal Basic Income for all citizens), Land Value Tax (which I blog about in Progress and Poverty ), creation of a Sovereign Wealth Fund (enabling government to buy back and own public assets), and a state-owned bank (like the Bank of North Dakota) in every state.

Personally I found the article disappointing and a little sad. Myerson seems to deliberately overlook the most pernicious problem in our present economic system:  the power we give private banks to issue and control our money supply.

Contrary to popular opinion, the government doesn’t issue money, except for a limited amount of notes and coins. As the film below explains, 97% of the money supply is electronic and created by private banks when they issue loans.

A lot of people have the mistaken impression that banks use other depositors’ money when they loan us money to buy a house. What actually happens is that the bank creates the money out of thin air by entering numbers into a computer.

Another common erroneous belief is the the Federal Reserve, which serves as the US central bank, is a government agency. It’s not. It’s a consortium of private banks.

97% Owned (Positive Money 2012) makes the case that the only solution to the current economic recession is to ban private banks from issuing money. They argue for making money creation publicly accountable by restoring this function to government (ironically this is where most people mistakenly believe it lies). Until we make this happen, private banks will continue to use their control of the monetary system to undermine genuine economic and political reform.

Was Occupy Wall Street Coopted?

OccupyNewPlymouthphotoOccupy New Plymouth (NZ) Oct 15, 2011

Deeply curious where the Occupy movement had disappeared to, I recently ran across an article about a new project called Rolling Jubilee. It seems a coalition of Occupy groups has joined up to pay off individuals’ personal debt. Rolling Jubilee is a project of Strike Debt, a group formed in November 2012 by a coalition of Occupy groups. It seeks to oppose all forms of debt imposed on society by banks.

The aim of Rolling Jubilee is to abolish millions of dollars of personal debt by purchasing it (at random) on the secondary debt market, as collection agencies do. The latter commonly purchase debt for as little as 1% of its value and then reap enormous profits by demanding debtors pay the full amount. Instead of seeking repayment from debtors, Rolling Jubilee simply erases the debt.

In its first six months of operation Rolling Jubilee raised sufficient funds to buy and abolish more than $8.5 million worth of debt. They list debt they have purchased and eliminated on the Rolling Jubilee website. Most appears to be medical debt, i.e debt incurred for treatments that aren’t covered by health insurance.

A Far Cry from Ending Corporate Rule

At first glance Rolling Jubilee strikes me as a typical feel-good kind of project – like walking 20 miles for a cancer cure – that allows liberals to believe they are making positive change without threatening corporate interests in any way. The project is a far cry from Occupy Wall Street’s original goal of ending corporate rule. I honestly can’t see any way that paying off patients’ medical debt is going to help dismantle the corporate oligarchy that currently rules the industrialized world.

Banks and corporations seem to have the same reaction I do. They love Rolling Jubilee. Business Insider describes the project as brilliant. A Forbes column on the Rolling Jubilee featured the headline “Finally an Occupy Wall Street Idea We Can All Get Behind.”

According to Forbes, banks, credit card companies and student loan agencies can’t forgive debt because the IRS considers this kind of debt relief a “gift” and charges the debtor tax on it. This is utter nonsense, of course. It makes you wonder if the people who write for Forbes have ever met or talked to any unemployed or homeless people. There is no way the IRS is going to tax anyone without income or assets.

Making a Cottage Industry Out of Revolution

Twenty years ago this example of Occupy morphing into a less politically threatening pro-corporate entity would have been condemned as cooptation. However in an era in which CIA-funded left gatekeeping and democracy manipulating foundations head up the nonviolent movement, cooptation doesn’t seem like the correct term any more. Maybe we need to invent a new term – pre-optation, perhaps?

Is a College Degree Worth the Cost?

janitor

The Best Educated Janitors in the World

Given the $962 billion Americans owe in student loan debt, it seems reasonable to ask what a college degree buys them in employability and future income.

Not much according to a recent Online Degree feature revealing that 33,655 PhDs and 239,029 master’s degree recipients are on food stamps. American janitors are the most educated in the world, with 5,000 of them holding doctorates. According to the Bureau of Labor Statistics, approximately 1/3 of US college graduates work in jobs not requiring a bachelor’s degree.

Peter Schiff’s recent encounter with college grads in New Orleans is also extremely revealing:

photo credit: an untrained eye via photopin cc

Crossposted at Daily Censored and Veterans Today

 

American Ambivalence Towards Empire

soldiers

(The 3rd of 8 posts about my decision to emigrate to New Zealand)

I had to move overseas before it sank in that Americans owe their high standard of living to US military domination of third world resources. The concept of economic imperialism isn’t new to me. I have known for years that the US maintains a monopoly on cheap third world labor and resources via military support of puppet dictators, CIA destabilization campaigns, currency manipulation and Wall Street and IMF/World Bank debt slavery schemes.

Yet for some reason, I placed the entire blame on the bloated US military-industrial complex and the immense power defense contractors wield via their campaign contributions and ownership of US media outlets. I conveniently overlooked the financial advantages ordinary Americans enjoy as a result of world military domination – namely low priced consumer goods. It took the physical reality of living in a smaller, poorer, non military nation and paying higher prices for for gasoline, books, meat, fish and other products – on a much lower income.

Americans Love Cheap Gasoline, Coffee, Sugar and Chocolate

I think most Americans are profoundly ambivalent about the concept of empire. In public opinion polls, Americans consistently oppose foreign wars, except where “US interests” are at stake. And policy makers and the mainstream media are deliberately vague in defining “US interests.” Prior to 1980, a threat to American interests meant a clear threat to America’s democratic system of government or the lives of individual Americans. When Ronald Reagan invaded Grenada in 1984, the official pretext was to evacuate American students at the medical school at St George University (the real reason was to oust pro-Cuban prime minister Bernard Coard).

With the current wars in Afghanistan, Iraq, Pakistan, Syria, Libya, Yemen, Somalia and elsewhere, “US interests” have expanded to include the millions of barrels of cheap foreign oil required for the health of the US economy. Americans love their cheap gasoline, coffee, sugar and chocolate. Few are consciously aware that they owe these cheap luxuries to covert and overt military operations. If they did know, I believe the percentages supporting war would rise significantly.

What Americans Sacrifice for a Bloated Military

I like to think I would be willing to make the sacrifice. In essence I have, by moving to a much smaller, poorer country where tax dollars are used to fund universal health care, subsidized child care and housing and long term unemployment benefits. Because New Zealand feels no compulsion to invade and occupy other countries, they still provide a fairly generous safety net for unemployed, disabled and elderly Kiwis.

Social services were never quite so robust in the US. However prior to Reagan’ election in 1980 and the ballooning of US military expenditures, I could rely on federally funded jobs, vocational rehabilitation and subsidized housing to assist my clients into employment. By 1990 this was no longer possible. The great majority were desperate to get jobs, which would have been far more cost effective for taxpayers. However in the absence of any state or federal support, prospective employers refused to take a chance on hiring them. Thus most remained trapped on Social Security disability.

The systematic dismantling of the American safety net began under Reagan and Bush, as they cut taxes on the rich and redirected tax revenues  toward military priorities – a phenomenally expensive missile defense system (aka the Strategic Defense Initiative or Star Wars) and military interventions in El Salvador, Nicaragua, Guatemala, Grenada, Panama, the Philippines, Somalia and Iraq.

Instead of restoring the social safety net programs his Republican predecessors abolished, Clinton continued to shred the safety net by ending the welfare entitlement for single mothers Franklyn Roosevelt introduced in 1935. Meanwhile he cut taxes even further, continued the SDI and declared war against Serbia – presumably to assist US oil companies to access oil and gas in the Caspian Sea basin.

(To be continued)

photo credit: DVIDSHUB via photopin cc

Speculators

wall street

Guest blog by Steven Miller

(This is the second of 6 guest posts by Steven Miller describing the financialization of capitalism and the takeover of the global economy by bankster speculators)

Speculators – Part II

Today the financial industry makes far more profit than any other sector of capitalist production. In 1973, they made 16% of total US profits; by 2007, financial profits reached 41% of all profits. (2) Since credit and debt control the levers of the economy, the financial industry has become politically dominant. The planning function of government increasingly devolves to their control. Finance – producing money from money – produces no value; it simply moves money around, but it does centralize even more wealth in the hands of speculators.

Once Wall Street speculators realized, after the 2008 Crash, that their new “financial instruments” were actually weapons of economic mass destruction, they understood that these tools could be employed to attack national and public wealth. Speculators get richer by seizing your wealth.

They do this today with hedge funds, among other things, which are completely private, completely unregulated and completely hidden from the public. But you can make wild speculative bets with their expert staff. Because they are “private”, we are supposed to accept whatever negative effects they have on society. Though the results are highly destructive to society, this is not up for debate.

Today the financial industry in the US is sitting on the largest mountain of cash in human history, over $2 trillion. Why? This is perceived as strange behavior, since they received over $16 trillion in the 2008/9 Bailout. In addition, the US government for at least two years has been dutifully sending them $85 billion a month, over a trillion dollars a year, in free money. (3)

So why don’t they spend it?

Every modern industry, especially finance, is based on extending credit; the debt is then “leveraged” to takeover companies and engage in various forms of speculation. As financial companies began to collapse in 2008, every one that was “solvent” lied and minimized how much of their holdings were based on toxic assets. Since each one knew that the others were also lying, they began to curtail how much credit they would extend. Without credit, modern capitalist commerce was on the verge of collapse. This is why the form of the Bailout was for the government to buy up toxic assets. This situation still prevails today.

Michel Chussodovsky, professor of economics at the University of Ottawa, and organizer of the Center for Global Research describes how this was rigged:

In a bitter irony, while the Wall Street institutions were the recipients of the bailouts, they are also the creditors of the federal government, which has been precipitated into a structure of debt financing controlled by Wall Street. This deficit financing… is controlled by the creditors. It does not create employment. It is not expansionary.” (4)

This reality illuminates the dangerous instability of the times. In essence, the public is financing its own indebtedness and funding its own privatization. The banks collapsed the economy in 2008 because they had been counting their various toxic assets as part of their wealth. Money is now generated, loaned and invested by clicking a computer keyboard. The monthly $85 billion gift, of course, is not put into gold bars and moved into the bank vaults by elves. The financial industry uses public money to offer increasingly shady loans, essentially organized criminal activity against the public.

Every day the value of one-year’s GDP in the US – about $14 trillion  – passes through Wall Street and other financial institutions! This is the Casino Economy. Most of this vast wealth is put into play as speculative bets, driven by computer-driven programs, on anything from water to debt to fracking. Just like mortgages, anything that can be financialized – entire electrical grids, school districts, pensions, and medical credit – almost anything at all – can also be securitized and bundled as fodder for speculation.

It is important to recognize that none of these vast transactions are taxed at all. Real people pay a large sales tax on almost everything in the US; corporate people pay ZERO on their schemes to increase their great wealth. A simple tax of 2 cents on the dollar would generate $28 billion a day, enough revenue to solve every financial issue that America faces.

Numerous people have proposed this idea, since it would end Austerity and usher in an era where governments could provide incredible resources to real people for free. The fact that this “reform” will never be permitted is a telling sign of a system that is approaching its demise.

The immediate result of the Crash was that the banks, hedge funds, insurance companies, private equity firms, real estate interests, etc. simply reprogrammed their computers to speculate on food and petroleum. Hence the mega-jump in food prices in the Fall of 2008. But money that doesn’t circulate produces no profit, so the financial industry has begun to invest in solid, material assets, tangible properties that cannot be wiped out with a click of a keyboard. Meta-money is the cousin of the NSA’s meta-data. Its use by corporations is equally malign.

Thus today we are in the midst of a tsunami of privatization, as the banksters are seizing and privatizing everything they can get their hands on. They are seizing public assets and a rate never before seen. Everything is financialized – given a monetary rating; then it is securitized – turned into speculative assets, which are quickly privatized; then your access to it without money is eliminated and thus criminalized. (5)

This trend has been noted by a number of observers:

Michael Hudson, professor of economics, University of Missouri Kansas City,:

This financial engineering is not your typical bubble. The key to the post-2000 bubble was real estate. It is true that the past year and a half has seen some recovery in property prices for residential and commercial property. But something remarkable has occurred. This new debt-strapped low-interest environment has seen Hedge funds and buyout funds doing something that has not been seen in nearly a century: They are buying up property with cash, starting with the inventory of foreclosed properties that banks are selling off at distress prices.” (6)

Ellen Brown, Web of Debt Blog:

Giant bank holding companies now own airports, toll roads, and ports; control power plants; and store and hoard vast quantities of commodities of all sorts. They are systematically buying up or gaining control of the essential lifelines of the economy.”  (7)

Michel Chussodovsky again:

The privatization of public monuments, museums, national parks, the post office, etc., has been raised in recent media reports as a possible ‘solution’ to the debt crisis. But let us not be misled: the process of acquisition of federal public property including the infrastructure and State institutions is likely to go much further. The public sector is up for grabs. Wall Street will eventually go on a buying spree picking up State owned assets at rock bottom prices.” (8)

References and Resources

 2)  Dave McNally, Global Slump, 2011. P 86

 3)  Harding. “Bernanke takes plunge with QE3.” www.ft.com

4)      Chussodovsky. “The Shutdown of the US Government  and ‘Debt Default’. A dress Rehearsal for the Federal State System?”. Center for Global Research

5)       5)  “Debt As a Class Weapon”. Rally Comrades, October 2011

 6)  Michael Hudson. “The Bubble Economy as a 2 Part Play for Privatisation”. July 4, 2013

 7) Ellen Brown. “The Leveraged Buy-out of America.” Center for Global Research, August 26, 2011

 8)  Chussodovsky. Op sit

photo credit: nromagna via photopin cc

To be continued.

***

Steven Miller has taught science for 25 years in Oakland’s Flatland high schools. He has been actively engaged in public school reform since the early 1990s. When the state seized control of Oakland public schools in 2003, they immediately implemented policies of corporatization and privatization that are advocated by the Broad Institute. Since that time Steve has written extensively against the privatization of public education, water and other public resources. You can email him at nanodog2@hotmail.com

Originally posted at Daily Censored

UK Greens Call to End Debt-Based Money

monies

According to Positive Money, the Green Party of England and Wales has joined the US Green Party in proposing to strip private banks of the power to create money. The September 13 motion calls for the power to be placed with a democratically accountable National Monetary Authority at the Bank of England.

The US Green Party has recently adopted a similar plank in their Economic Justice Platform:

15. Nationalize the 12 Federal Reserve Banks, reconstituting them and the Federal Reserve Systems Washington Board of Governors under a new Monetary Authority Board within the U.S. Treasury. The private creation of money or credit which substitutes for money, will cease and with it the reckless and fraudulent practices that have led to the present financial and economic crisis.

16. The Monetary Authority, with assistance from the FDIC, the SEC, the U.S. Treasury, the Congressional Budget Office, and others will redefine bank lending rules and procedures to end the privilege banks now have to create money when they extend their credit, by ending what’s known as the fractional reserve system in an elegant, non disruptive manner. Banks will be encouraged to continue as profit making companies, extending loans of real money at interest; acting as intermediaries between those clients seeking a return on their savings and those clients ready and able to pay for borrowing the money; but banks will no longer be creators of what we are using for money.

The New Zealand Green Party is still debating whether to include a similar provision in their monetary reform policy.

Link to US Green Party: http://www.gp.org/

Link to British Green Party: http://www.greenparty.org.uk/