Foundation for National Renewal     The "Model Constitution" Activity

Federal Election October 2004: Which Candidates Trust the People?

Introduction

This is the last and probably the most important of our formal tasks to solicit your views on the shape of our new Constitution. The Monetary System is also probably the most difficult aspect of our society to comprehend.

Defining the Problem

Firstly, we need to understand how the Monetary system works at the present time.

The Monetary system is an international system. Each nation (or group of nations as in Europe) creates their own currency and is free to value that currency. However, the value of most currencies is allowed to “float”. That is, it is valued against a parcel of other currencies and fluctuates according to an assessment by "The Market”. By virtue of the size and wealth of their economies, some currencies are recognised as ‘reserve currencies’. That is, they are currencies readily usable in international transactions.

Currently the most favoured ‘reserve currency’ is the US Dollar. That means every nation is scrabbling to acquire $US dollars to pay for the goods they import. To this end, every nation is trying to export more than they import. And to achieve that, nations are trying to make their exports cheaper than every other nation. This creates an unsustainable race to the bottom.

The official system for the creation of money in most nations involves the legitimate government of each nation. However, over the last 100 years or so, in most countries the authority to create the money supply has been allowed to slip into the hands of banks. These banks are privately owned and are created and operated to make profit for their shareholders. They create money as debt and make profits from collecting interest on that debt.

That we should have allowed ourselves to be duped into such a system is one of the most remarkable events of our time. The disgrace is only somewhat alleviated by the fact most other nations are in the same boat.

Although the amount of money created in this way could be controlled in each nation, in most countries it is currently out of control and the interest on this money puts continuous pressure on the economy to grow. It is this continuous pressure to grow that is fuelling globalisation, consumerism and the population explosion; and this in turn is placing enormous strain on the environment around the world.

In Appendix 1, there are a number of unconnected articles that will give you a better understanding of how the monetary system works and how detrimental the current arrangements are to our society. You will also read of several ideas of how to overcome the problems, circumvent them and/or ameliorate them. Many of those articles are based on what is currently happening in other countries. However, the thrust of those articles is equally applicable in Australia.

It is generally recognised that the system as it has evolved is fundamentally flawed. However, it has been engineered to benefit rich and powerful interests that get more rich and powerful every day as a result. These rich and powerful interests currently do everything in their power to make sure this topic rarely gets debated, much less resolved.

The Current Situation

In Australia, our Constitution grants the National Parliament exclusive power over money. 
Section 51. The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to:-

(xii) Currency, coinage, and legal tender: and

Section 115. A State shall not coin money, nor make anything but gold and silver coin a legal tender in payment of debts.

These two Sections place responsibility for money exclusively in the hands of the National Parliament. And that power is still exercised with respect to the minting of coins and the printing of paper money. However, coins and paper money now comprise less than 3% of the money supply. Incredible though it may seem, the power to create the other 97% of the money supply has been allowed to pass to privately owned banks.

The question then arises, where do the banks get that 97% of the money supply? And the answer is, they simply create it out of thin air. Worse still, the banks create that 97% of the money supply in the form of interest bearing debt. When you go to a bank and obtain a loan of say $100,000, the bank ‘credits’ your account with that amount of money and makes a corresponding entry in the ‘assets’ side of the bank’s ledger. (The bank has just created $100,000.) You then use those funds to pay for your house and over the next thirty years you must pay back to the bank that $100,000 plus another $100,000 in interest. (Now you see why the bank records your debt as their asset.)

The banks of course make enormous profit from this authority to create and lend money. That is, they profit from our need to have a system of tokens to facilitate transactions between us. If we must have a system that generates profit, then that profit should accrue to the People of Australia.

But it gets worse. Not only is most of the money used by individuals and companies created as debt in this way, much of the money used by our governments is also created as debt to private banks. And much of the money collected by governments in the form of taxes goes towards paying interest on that debt. One does not have to be an Einstein to realise how totally unsustainable this system is.

There is one other aspect of the current system that also requires examination. The Australian dollar is not one of the ‘reserve’ currencies. That means that, when we import goods from overseas, generally we must pay for those goods in US dollars. Current exchange rates mean that for every US$100 worth of goods we must pay AU$143. As another example of the total iniquity of the current system we can look at an Australian travelling to Britain. Although the average wage in Britain is approximately the same number of Pounds as the number of dollars in the average wage in Australia; we must hand over approximately three Australian dollars to buy one Pound Sterling.

Although our current government has managed to reduce the massive deficit run up in the 1980s, Australia is still in debt and owing more every month. Remarkably, most of the countries in the world are in the same crazy situation. The USA is so far in debt that many commentators are skeptical of their ability to ever recoup the situation.

What should be done?

16. In this particular problem, the Constitutions of other countries are not much help. The Swiss Constitution and the Constitution of Sweden are two of the few that mention Monetary Policy. (See below.) However, I suspect that the practice in those two countries is similar to that in Australia.

The Arguments Against

“If we try to correct our ‘Balance of Payments’, we will fall foul of the World Trade Organisation and other treaties to which we are signatories”

The imposition of an impost on money going overseas (as has just been done in NZ) will assist with this process. The WTO allows for a measure to overcome an imbalance in trade provided the measure does not target specific sections of trade. Furthermore, a blanket reduction of 10% imposed on all imports would also very quickly restore our ‘Balance of Payments’.

The banks will not go quietly.

Any proposal that will diminish the power of rich and powerful interests will generate enormous opposition. The opposition will be cleverly orchestrated with the mass media playing a vital role in mis-informing the public and/or obstructing public debate.

Under Proposal A (see below), existing banks could continue to accept deposits and operate savings and cheque (transaction) accounts. They could also be able to issue ‘debit cards’. That is, cards that can be used to access funds that individuals and companies have deposited for that purpose.

Existing banks could also be able to make loans but only to the extent of a proportion of the funds deposited with them; say 50%. National legislation (or The Constitution) should specify that ratio of deposits to loans and the maximum interest rates that may be paid on deposits and charged on loans.

Furthermore, a proportion of the money supply created by the Peoples’ Bank could also be channeled to existing banks (perhaps at interest) for the banks to on-lend to companies and individuals.

In this way, banks could operate much as they do now with only the right to ‘create money out of thin air’ removed.

Under Proposal B (see below), the banks would be restricted to charging ‘a fee for service’. The banks would be prohibited from charging or paying interest.

“If Government is given control of the money supply, they will not be able to stop themselves creating too much money and rampant inflation will ensue. “

History is littered with examples of disasters caused when national governments have taken control of the money supply. In a bid to further their ideological beliefs, governments have created so much money that the money supply exceeded the supply of labour, goods and services resulting in massive problems of inflation. Therefore, any new system must guard against governments gaining control of the creation of money.

“The People will reject any scheme that threatens the great Australian dream of owning their little patch of dirt.”

Admittedly this will be a hard sell. However, the idea of only leasing (not owning) the land on which your home sits worked well in the Australian Capitol Territory and it is mainly a problem of getting used to a new way of doing things. Home owners are already used to paying rates. Paying for a lease will be just an extension of that. Many farmers and graziers already lease the land they farm.

It will also be appreciated that with such a system of leasing all the land, the need for taxation would be greatly reduced and this will help sell the idea. The extent of the possible reduction in taxation would probably best be determined by experience and any initial surplus revenue could be used to completely wipe out government debt to private banks.

Proposals

The following statement establishes the point from which I think we should tackle this problem. “The wealth of this nation stems from our natural resources and our human resources. The natural resources include the land, the sea, the minerals in the ground, the air we breathe, the water we drink, the sunlight and so on. The human resources include our capacity for physical work and our intellectual ability. All these resources form part of the “commonwealth”. All Australians are part owners of this common wealth.”

The fact that all Australians are part owners of all this wealth does not mean that we are so rich we don’t have to work. Minerals in the ground, fruit on the trees and fish in the sea are of no use to us unless they are harvested. However, it does mean that, but for the system we have imposed upon ourselves, we as a nation don’t have to “buy” the land we need or the raw materials we need. We don’t need ‘international money’ except for a very few items we can not produce for ourselves. However, within Australia we do need ‘money’. That is, a ‘means of exchange’; a system of tokens to facilitate our interactions with each other. We have had such a system for years and there is no reason why that should not continue.

However, what we do need to do, is devise a way of insulating Australia from the international monetary system - the system that is currently sucking us into an unsustainable spiral of debt.

Three proposals are offered in the following paragraphs. All three have in common the detail in paragraphs 39-54. That is, down to and including those under the heading ‘Other Natural Resources’. Under the heading ‘Existing Banks’, different criteria are offered for Proposals A, B, and C.

Trade

An essential element of any new system would be the control of overseas trade. Over the last 100 years Australia has proved that we in Australia can do almost anything that can be done overseas. We can certainly grow all the food we need. And we have the wit and most of the natural resources to manufacture anything else we need. Of course, it will be argued that many items can be manufactured more economically in countries with a larger population. This is certainly true. However, if that means a proportion of our workforce cannot find employment, it makes no sense. Furthermore, reliance on other nations for the things we need locks us into the international monetary system, globalisation and the unsustainable demand for continual growth.

The ultimate aim of what is proposed is to import only those items Australia is not able to produce ourselves and to export only sufficient to accumulate enough of the ‘reserve currencies’ to pay for those imports. That is, our imports should not exceed the value of our exports.

Initially, all that is proposed is to balance our imports and exports so that Australia does not go down the path of unsustainable debt that has destroyed so many other countries and their people. So, it is proposed to impose a 5% impost on the transfer of all funds overseas and to impose an ‘across the board’ 5% reduction on imports.

There is a potential problem with restricting our exports in that many countries rely on imports of our raw materials to survive. To avoid the potential problems in this regard, Australia should continue to fulfil their needs. Any excess ‘reserve currency’ so generated after our ‘Trade Deficit’ has been removed could be used to create a fund to foster specific third world countries.

The Money Supply

Under our current system, the Reserve Bank of Australia has the authority (quite independent of government) to dictate base interest rates. The Reserve uses economic management tools to monitor the economy and then to lower interest rates to stimulate the economy or raise rates to curb inflation. At best this is a blunt instrument and some commentators maintain that a hike in interest rates exacerbates inflation, at least in the short term. A much more direct and effective tool would be to increase or decrease the money supply. A proposal to use control of the money supply as a primary element of our economy is contained in the following paragraphs.

A New Institution - The Australia Bank

In the past, the Reserve Bank has had the power to control the proportion of funds that private banks could lend. Once-upon-a-time the Reserve also held a quantity of gold and the amount of money in circulation was tied to that; but this latter constraint on the money supply was (quite rightly) abandoned years ago. (It makes no more sense to tie money supply to a store of gold than it does to relate it to any other commodity such as coal or iron.)

The two examples above are an indication that an institution such as the Reserve, quite independent of government, could be tasked with regulating the amount of money in circulation - the money supply.

It is proposed that our new Constitution create a new institution - ‘The Australia Bank’. This new institution would operate completely independent of government just as the Reserve Bank of Australia does now. Using economic management tools, the Australia Bank would determine the capacity of the economy and authorise the issue of ‘new money’ accordingly.

This ‘new money’ would be issued to the People of Australia; primarily through the government. In other words, the Australia Bank would tell Treasury how much ‘new money’ was available for government services and programs. It will be readily seen that, under such an arrangement, the depressions (caused by a shortage of money) that were experienced in the 1930s and rampant inflation (caused by an excess of money) as we experienced in the 1980s, need not happen.

For those who are having difficulty making the quantum leap from what happens now to what is being proposed here; the following might help. Currently, if you want to borrow money, the bank is interested in two things. Firstly they want to know what ‘collateral’ you have. That is, what you can offer as surety so that, should you default, the bank can get at least some of ‘their’ money back. Secondly, the bank is interested in your ability to repay the loan. In other words your earning capacity - your ability to create that extra $100,000. Under the system that is being proposed here, the collateral that is put up is all the natural and human resources of our Nation. As for the remainder, the funds provided to our government do not have to be repaid! To make understanding of this point easier one only has to realise that, if the funds granted to our governments were to be repaid, that money would go straight back to the People through the Australia Bank.

Land

Simplistically, our government sells us the land on which we build our house, farm or factory and we call that ‘freehold title’. The proposal is that ultimately, ownership of all land would remain with the People as a whole in perpetuity. That is, all the land of Australia would form part of the ‘commonwealth’. The new system envisages that land required by individuals, communities and corporations would be leased - not owned. A lot of grazing properties are currently leased and it is envisaged that the farming community will not have much difficulty adjusting to a universal leasing scheme. Similarly, businesses abhor using capital to buy land on which to build a factory for example. A lease is a predictable and stable cost to business that can be factored in to their budgets. The biggest problem will involve convincing the People they do not need to own the land on which their dream home sits.

Currently, speculators make enormous profits from buying up land and sitting on it until the value of that land increases. Usually, that increase in value is due to activities by the community such as building roads, schools, hospitals and other infrastructure. It stands to reason that, it is the community not some speculator that should reap the benefit of that increase in value.

The system would work like this. If you want to build a house, the People would lease you a block of land. If you want to sell that house, you only sell the house, not the land. The lease on the land would simply be transferred to the new owners of that house. This means that, as the community improves the value of that block of land by building roads and schools and other amenities; the increase in the value accrues to the community.

There are many other benefits from such a scheme. Firstly, should you wish to purchase a house, you only have to raise the money for the house. You don’t have to find the money to buy the land, you simply lease it. Secondly, it means that foreign interests cannot buy up Australia when our exchange rate is low and on-sell it when the exchange rate changes or the value increases because of community activities. Thirdly, when the commonwealth is receiving rent from all the land in Australia, the need for taxes will be greatly reduced. (Some commentators insist the need for taxes will be eliminated completely.) Last but not least, restoring all land to the ‘commonwealth’ and leasing it as required will largely resolve the Aboriginal land rights problem.

Of course, retrieving ownership of land to the ‘commonwealth’ will take a lot of money. However, it is envisaged that the transfer of authority to create new money from private banks to the ‘commonwealth’ will create the necessary funds over time.

Other Natural Resources

A further element of what is being proposed is ‘commonwealth ownership’ of all other natural resources. Currently, the government sells the right to mine minerals and to harvest fish from the sea, etc. And companies and individuals can and do, on-sell those rights at enormous profit. Under the system proposed, all licenses to ‘harvest’ natural resources would be ‘non-transferable leases’. The natural resources would remain owned by the ‘commonwealth’. What this means is that, as the value of natural resources increases, that extra value accrues to the People as a whole not to an individual. For example, a mining company might be granted a lease to mine a certain mineral. That lease would cover a specified amount of that mineral and that would determine the cost of the lease. If that company wants to sell that operation, they can’t on-sell the right to the minerals. The People would negotiate a new lease with the new company.

Existing Banks

Banks would be stripped of the power to ‘create money out of thin air’. That is, they would not be authorised to loan funds they did not hold.

However, experience tells us that ‘private enterprise’ rather than ‘bureaucracy’ is a more efficient means of conducting business activities. Therefore, we would not want the Australia Bank involved in lending money to every little business enterprise or to individuals. So the new system might also need to provide ‘new money’ to the banks for ‘private enterprise loans’ to make up any shortfall in the funds deposited with banks. The quantity made available would be managed by the Australia Bank to keep the economy thriving but avoiding inflation.

Under Proposal A, this ‘new money’ would be made available to banks at 3% interest. Banks would be able to make loans from this ‘new money’ using strictly controlled rates. For example, a lending rate of up to 5%.

Under Proposal A, banks would also be authorised to accept deposits for savings and transaction accounts and to pay interest of up to 3% on those funds and to on-lend a proportion (say 50%) of those funds at up to 5% interest. It is envisaged that allowing up to 3% interest on deposits and up to 5% interest on loans should be sufficient to enable banks to provide a reasonable service and pay wages, etc.

Under Proposal B, the same principles in paragraphs 57 and 58 above would apply, but banks would pay no interest to the Australia Bank on new money or deposits; and would charge no interest on loans. The banks would simply charge a regulated ‘fee for service’.

In other words, banks would accept deposits from the public and operate transaction accounts and savings accounts but would pay no interest on those deposits but would instead charge a fee for this service. Banks would also be authorised to on-lend new money (from the Australia Bank) at no interest and would be authorised to charge a fee for this service also.

The most important aspect of Proposal B is that money would revert to being simply ‘tokens of exchange’ and would have no intrinsic value. Money would not be able to ‘grow’ by virtue of interest as it does now.

The long-term effects of this proposal are that ‘capitalism’ would disappear. ‘Foreign investment’ would disappear. As an example of how the system would work, let us look at the establishment of an enterprise - let’s say a large scale, mining venture. All that would be necessary is for the business to;

• persuade the government to grant the mining lease,
• persuade the bank to lend the money to buy the necessary equipment,
• persuade the workers to assemble at the site, and
• start mining.

Proceeds from sale of the product would be used to

• pay salaries,
• pay the lease,
• run the business, and
• repay the loan (no interest).

Debt would only occur if the venture went broke before the loan was repaid. That debt would be apportioned equally between the bank and the business.

Under Proposal C, all the above in Proposal B would apply. In addition, the face value of banknotes and money in transaction accounts (but excluding money in savings accounts) would decrease over time. Thus, individuals and businesses would have two accounts - a savings account and a transaction account. Money in the transaction account (and cash) would devalue over time and the value of money in a savings account would remain intact.

Only money received by an individual as salary or pension could be deposited into an individual savings account. Money received by a business from overseas sales and converted through the Australia Bank could be deposited in a business savings account; as could money being put aside for capital purchases or obtained as a loan for that purpose. As soon as funds are withdrawn from a savings account, the money would start to devalue. The idea behind this proposal is to reinforce the value of saving as opposed to spending or keeping money under the bed. Normally, businesses would use proceeds from the sale of goods or services to run the business and pay salaries.

It is envisaged that this devaluation would be at a rate of approximately 1% per month. Devaluation of funds in a transaction account could be achieved fairly simply by computer program. Banknotes could be bar-coded to show issue date and therefore value. The intended outcomes of Proposal C are that;

• It would seriously hamper the ability of the rich (usually the lenders) to get rich and the poor (usually the borrowers) to get poorer.
• It would break the cycle of ever-increasing consumption keeping pace with an ever-increasing money supply.
• It would therefore reduce our impact on the environment.

The Questionnaire

Do you agree with the statement in paragraph 35 that the wealth of Australia resides in our natural and human resources?………………………………

Do you agree that we need a system of ‘tokens’ (money) to facilitate transactions between people?………………………………………………………..…

Do you agree that Australia could be largely self-sustaining?……………

…………………………………………………………………………………………………

Should Australia aim for self-sufficiency?…………………………………

Should we aim to balance our imports and exports?…………………………….

Do you agree we should take steps to overcome our ‘Trade Deficit’?……………

Do you agree with the introduction of a 5% impost on all money going overseas?……………………………………………………………………………….

Do you agree with a 5% overall reduction to our imports?………………………..

Having read all the above and Appx 1, do you agree that we should regain control of the money supply in Australia?……………………………………………

Do you agree that Australia should re-create an independent institution to control the money supply?……………Name it?…………………………………………

Do you agree that ordinary banks should be stripped of the power to create money through lending money as debt?…………………………………..

Do you agree that regulating the introduction of ‘new money’ is likely to be a more effective means of curbing inflation and/or stimulating the economy than is currently possible through regulating base interest rates?…………………………..

Do you agree with the suggestion that the bulk of ‘new money’ should be supplied to government for public services?………………………………………….

Do you agree that we should keep ‘ownership’ of all natural resources in the ‘commonwealth’?……………………………………………………………………….

Do you agree that we should attempt to regain ownership of all natural resources including land?…………………………………………………………………………….

……………………………………………………………………………………..

Do you agree with the principle that money should be just a system of tokens to facilitate transactions in a community?………………………………………………..

In Proposal B it is suggested that charging interest be abolished completely. Do you agree to the total abolition of interest?………………………….

If you disagree with the abolition of charging interest, is that because you have difficulty envisaging such a system?……………………………………………………

Or do you have some other reason?…………………………………………………..

……………………………………………………………………………………………..

……………………………………………………………………………………………..

……………………………………………………………………………………………..

The intended outcome of Proposals A, B and C is that:

It would seriously hamper the ability of the rich (usually the lenders) to get rich and the poor (usually the borrowers) to get poorer. Do you: Agree?…………………Disagree?…..…………….Don’t know?……………

It would break the cycle of ever-increasing consumption keeping pace with an ever-increasing money supply. Do you: Agree?………..…….. Disagree?……….……Don’t know?………….………

It would therefore reduce our impact on the environment. Do you:

Agree?………………Disagree?……………..Don’t Know?………………….

If banks are to be given authority to pay interest on deposits and charge interest on loans of part of those funds:

Should ‘market forces’ be allowed to determine interest rates?…………..

If interest rates are to be regulated, what maximum interest should banks be allowed to pay on deposits?……………………………………………….

If interest rates are to be regulated, what maximum interest rates should banks be allowed to charge on loans?………………………………………

What proportion of deposited funds should banks be allowed to ‘on lend’?

…………………………………………………………………………………….

Please add any other comments you might have on the proposals…………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

Appendix 1 To FNR Task 34

Monetary Policy

MOVING MONETARY REFORM TO THE “FRONT BURNER”(1)

Stephen Zarlenga

American Monetary Institute

Abstract

Entering the 3rd Millennium we face both great danger and opportunity. Unheard of wealth concentrates into very few, largely undeserving hands. Even in America, the richest country on Earth, people work harder and produce more than ever, yet increasingly fall into debt and bankruptcy, while predators plunder society by merely shuffling papers. Major corporations concentrate on profiting by misusing the money system, rather than with production. Such corruption is not sustainable or justifiable. The American Monetary Institute holds that the structure of the money system itself is at the root of the corruption and we promote reform to bring our monetary system into harmony with the nature of money.

There is a growing awareness of the urgent need for reform away from privately issued money toward more public control of money systems; away from a religious adherence to questionable economic theory, toward producing desirable human results. There’s a growing recognition of the need for better methodology - drawing conclusions in part from experience and historical cases rather than isolated theory. Our task: to make monetary reform a primary goal of 21st century justice movements. It may not be easy, but think how fortunate we are, in a sense, to face such a worthy challenge.

1 (This paper is drawn from speeches by Director Stephen Zarlenga to the U.S. Treasury in December, 2003, titled ‘The Lost Science of Money - A Solution to the States Fiscal Crises’; to monetary reformers at England’s House of Lords in May 2004, titled ‘The Lost Science of Money & Monetary Justice:Using Publicly Created Money to Fund Public Projects’; and to the Bromsgrove Monetary Conference in October, 2004, titled ‘The War of Private vs. Public Control of Society’s Money Power - The Order of Battle: Adam Smith vs. Aristotle’. These talks can be read in full at http://www.monetary.org All quotations are fully referenced in the book: Stephen Zarlenga, The Lost Science of Money: The Mythology of Money - the Story of Power.)

Returning the money to the people

by Ellen Brown

One of the most remarkable admissions by a banker concerning the mysteries of his profession was made by Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920's. Speaking at the University of Texas in 1927, he revealed:

"The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was every invented. Banking was conceived in inequity and born in sin .... Bankers own the earth. Take it away from them but leave them the power to create money, and with a flick of a pen, they will create enough money to buy it back again .... Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in .... But if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit."

I Want The Earth Plus 5%

Fabian was excited as he once more rehearsed his speech for the crowd certain to turn up tomorrow. He had always wanted prestige and power and now his dreams were going to come true. He was a craftsman working with silver and gold, making jewelry and ornaments, but he became dissatisfied with working for a living. He needed excitement, a challenge, and now his plan was ready to begin.

For generations the people used the barter system. A man supported his family by providing all their needs or else he specialised in a particular trade. Whatever surpluses he might have from his own production, he exchanged or swapped for the surplus of others.

Market day was always noise and dusty, yet people looked forward to the shouting and waving, and especially the companionship. It used to be a happy place, but now there were too many people, too much arguing. There was no time for chatting - a better system was needed.

Generally, the people had been happy, and enjoyed the fruits of their work.

In each community a simple Government had been formed to make sure that each person's freedoms and rights were protected and that no man was forced to do anything against his will by any other man, or any group of men.

This was the Government's one and only purpose and each Governor was voluntarily supported by the local community who elected him.

However, market day was the one problem they could not solve. Was a knife worth one or two baskets of corn? Was a cow worth more than a wagon … and so on. No one could think of a better system.

Fabian had advertised, "I have the solution to our bartering problems, and I invite everyone to a public meeting tomorrow."

The next day there was a great assembly in the town square and Fabian explained all about the new system, which he called "money". It sounded good. "How are we to start?" the people asked.

"The gold which I fashion into ornaments and jewelry is an excellent metal. It does not tarnish or rust, and will last a long time. I will make some gold into coins and we shall call each coin a dollar."

He explained how values would work, and that "money" would be really a medium for exchange - a much better system than bartering.

One of the Governors questioned, "Some people can dig gold and make coins for themselves", he said.

"This would be most unfair", Fabian was ready with the answer. "Only those coins approved by the Government can be used, and these will have special marking stamped on them." This seemed reasonable and it was proposed that each man be given an equal number. "But I deserve the most," said the candle-maker. "Everyone uses my candles." "No", said the farmer, "without food there is no life, surely we should get the most." And so the bickering continued.

Fabian let them argue for a while and finally he said, "Since none of you can agree, I suggest you obtain the number you require from me. There will be no limit, except for your ability to repay. The more you obtain, the more you must repay in one year's time. "And what will you receive?" the people asked.

"Since I am providing a service, that is, the money supply, I am entitled to payment for my work. Let us say that for every 100 pieces you obtain, you repay me 105 for every year that you owe the debt. The 5 will be my charge, and I shall call this charge interest."

There seemed to be no other way, and besides, 5% seemed little enough charge. "Come back next Friday and we will begin."

Fabian wasted no time. He made coins day and night, and at the end of the week he was ready. The people were queued up at his shop, and after the coins were inspected and approved by the Governors the system commenced. Some borrowed only a few and they went off to try the new system.

They found money to be marvelous, and they soon valued everything in gold coins or dollars. The value they placed on everything was called a "price", and the price mainly depended on the amount of work required to produce it. If it took a lot of work the price was high, but if it was produced with little effort it was quite inexpensive.

In one town lived Alan, who was the only watchmaker. His prices were high because the customers were willing to pay just to own one of his watches.

Then another man began making watches and offered them at a lower price in order to get sales. Alan was forced to lower his prices, and in no time at all prices came down, so that both men were striving to give the best quality at the lowest price. This was genuine free competition.

It was the same with builders, transport operators, accountants, farmers, in fact, in every endeavour. The customers always chose what they felt was the best deal - they had freedom of choice. There was no artificial protection such as licences or tariffs to prevent other people from going into business. The standard of living rose, and before long the people wondered how they had ever done without money.

At the end of the year, Fabian left his shop and visited all the people who owed him money. Some had more than they borrowed, but this meant that others had less, since there were only a certain number of coins issued in the first place. Those who had more than they borrowed paid back each 100 plus the extra 5, but still had to borrow again to carry on.

The others discovered for the first time that they had a debt. Before he would lend them more money, Fabian took a mortgage over some of their assets, and everyone went away once more to try and get those extra 5 coins which always seemed so hard to find.

No one realised that as a whole, the country could never get out of debt until all the coins were repaid, but even then, there were those extra 5 on each 100 which had never been lent out at all. No one but Fabian could see that it was impossible to pay the interest - the extra money had never been issued, therefore someone had to miss out.

It was true that Fabian spent some coins, but he couldn't possibly spend anything like 5% of the total economy on himself. There were thousands of people and Fabian was only one. Besides, he was still a goldsmith making a comfortable living.

At the back of his shop Fabian had a strong-room and people found it convenient to leave some of their coins with him for safekeeping. He charged a small fee depending on the amount of money, and the time it was left with him. He would give the owner receipts for the deposit.

When a person went shopping, he did not normally carry a lot of gold coins. He would give the shopkeeper one of the receipts to the value of the goods he wanted to buy.

Shopkeepers recognised the receipt as being genuine and accepted it with the idea of taking it to Fabian and collecting the appropriate amount in coins. The receipts passed from hand to hand instead of the gold itself being transferred. The people had great faith in the receipts - they accepted them as being as good as coins.

Before long, Fabian noticed that it was quite unusual for anyone to actually call for their gold coins.

He thought to himself, "Here I am in possession of all this gold and I am still a hard working craftsman. It doesn't make sense. Why there are dozens of people who would be glad to pay me interest for the use of this gold, which is lying here and rarely called for.

It is true, the gold is not mine - but it is in my possession, which is all that matters. I hardly need to make any coins at all, I can use some of the coins stored in the vault."

At first he was very cautious, only loaning a few at a time, and then only on tremendous security. But gradually he became bolder, and larger amounts were loaned.

One day, a large loan was requested. Fabian suggested, "Instead of carrying all these coins we can make a deposit in your name, and then I shall give you several receipts to the value of the coins." The borrower agreed, and off he went with a bunch of receipts. He had obtained a loan, yet the gold remained in the strong-room. After the client left, Fabian smiled. He could have his cake and eat it too. He could "lend" gold and still keep it in his possession.

Friends, strangers and even enemies needed funds to carry out their businesses - and so long as they could produce security, they could borrow as much as they needed. By simply writing out receipts Fabian was able to "lend" money to several times the value of gold in his strong-room, and he was not even the owner of it. Everything was safe so long as the real owners didn't call for their gold and the confidence of the people was maintained.

He kept a book showing the debits and credits for each person. The lending business was proving to be very lucrative indeed.

His social standing in the community was increasing almost as fast as his wealth. He was becoming a man of importance, he commanded respect. In matters of finance, his very word was like a sacred pronouncement.

Goldsmiths from other towns became curious about his activities and one day they called to see him. He told them what he was doing, but was very careful to emphasize the need for secrecy.

If their plan was exposed, the scheme would fail, so they agreed to form their own secret alliance.

Each returned to his own town and began to operate as Fabian had taught.

People now accepted the receipts as being as good as gold itself, and many receipts were deposited for safe keeping in the same way as coins. When a merchant wished to pay another for goods, he simply wrote a short note instructing Fabian to transfer money from his account to that of the second merchant. It took Fabian only a few minutes to adjust the figures.

This new system became very popular, and the instruction notes were called "cheques".

Late one night, the goldsmiths had another secret meeting and Fabian revealed a new plan. The next day they called a meeting with all the Governors, and Fabian began. "The receipts we issue have become very popular. No doubt, most of you Governors are using them and you find them very convenient." They nodded in agreement and wondered what the problem was. "Well", he continued, "some receipts are being copied by counterfeiters. This practice must be stopped."

The Governors became alarmed. "What can we do?" they asked. Fabian replied, "My suggestion is this - first of all, let it be the Government's job to print new notes on a special paper with very intricate designs, and then each note to be signed by the chief Governor ". The Governors reasoned, "Well, it is our job to protect the people against counterfeiters and the advice certainly seems like a good idea." So they agreed to print the notes.

"Secondly," Fabian said, "some people have gone prospecting and are making their own gold coins. I suggest that you pass a law so that any person who finds gold nuggets must hand them in. Of course, they will be reimbursed with notes and coins."

The idea sounded good and without too much thought about it, they printed a large number of crisp new notes. Each note had a value printed on it - $1, $2, $5, $10 etc.

The notes were much easier to carry and they soon became accepted by the people. Despite their popularity however, these new notes and coins were used for only 10% of transactions. The records showed that the cheque system accounted for 90% of all business.

The next part of his plan commenced. Until now, people were paying Fabian to guard their money. In order to attract more money into the vault Fabian offered to pay depositors 3% interest on their money.

Most people believed that he was re-lending their money out to borrowers at 5%, and his profit was the 2% difference. Besides, the people didn't question him as getting 3% was far better than paying to have the money guarded.

The volume of savings grew and with the additional money in the vaults, Fabian was able to lend $200, $300, $400 sometimes up to $900 for every $100 in notes and coins that he held in deposit. He had to be careful not to exceed this nine to one ratio, because one person in ten did require the notes and coins for use.

If there was not enough money available when required, people would become suspicious, especially as their deposit books showed how much they had deposited. Nevertheless, on the $900 in book figures that Fabian loaned out by writing cheques himself, he was able to demand up to $45 in interest, i.e. 5% on $900. When the loan plus interest was repaid, i.e. $945, the $900 was cancelled out in the debit column and Fabian kept the $45 interest. He was therefore quite happy to pay $3 interest on the original $100 deposited which had never left the vaults at all. This meant that for every $100 he held in deposits, it was possible to lend $900 and make 42% profit on the original $100. Most people believed he was only making 2%. The other goldsmiths were doing the same thing. They created money out of nothing at the stroke of a pen, and then charged interest on top of it.

True, they didn't coin money, the Government actually printed the notes and coins and gave it to the goldsmiths to distribute. Still, they were creating credit money out of nothing and charging interest on top of it. Most people believed that the money supply was a Government operation. They also believed that Fabian was lending them the money that someone else had deposited, but it was very strange that no one's deposits ever decreased when a loan was advanced. If everyone had tried to withdraw their deposits at once, the fraud would have been exposed.

When a loan was requested in notes or coins, it presented no problem. Fabian merely explained to the Government that the increase in population and production required more notes.

One day a thoughtful man went to see Fabian. "This interest charge is wrong", he said. "For every $100 you issue, you are asking $105 in return. The extra $5 can never be paid since it doesn't exist. Farmers produce food, industry manufacturers goods, and so on, but only you produce money. Suppose there are only two businessmen in the whole country and we employ everyone else. We borrow $100 each, we pay $90 out in wages and expenses and allow $10 profit (our wage). That means the total purchasing power is $90 + $10 twice, i.e. $200. Yet to pay you we must sell all our produce for $210. If one of us succeeds and sells all his produce for $110, the other man can only hope to get $90. Also, part of his goods cannot be sold, as there is no money left to buy them. He will still owe you $15 and can only repay this by borrowing more. The system is impossible."

The man continued, "Surely you should issue 105, i.e. 100 to me and 5 to you to spend. This way there would be 105 in circulation, and the debt can be repaid."

Fabian listened quietly and finally said, "Financial economics is a deep subject, my boy, it takes years of study. Let me worry about these matters, and you look after yours. You must become more efficient, increase your production, cut down on your expenses and become a better businessman. I am always willing to help in these matters."

The man went away still unconvinced. There was something wrong with Fabian's operations and he felt that his questions had been avoided.

Yet, most people respected Fabian's word - "He is the expert, the others must be wrong. Look how the country has developed, how our production has increased - we must be better off."

To cover the interest on the money they had borrowed, merchants were forced to raise their prices. Wage earners complained that wages were too low. Employers refused to pay higher wages, claiming that they would be ruined. Farmers could not get a fair price for their produce. Housewives complained that food was getting too dear.

And finally some people went on strike, a thing previously unheard of. Others had become poverty stricken and their friends and relatives could not afford to help them. Most had forgotten the real wealth all around - the fertile soils, the great forests, the minerals and cattle. They could think only of the money which always seemed so scarce. But they never questioned the system. They believed the Government was running it.

A few had pooled their excess money and formed "lending" or "finance" companies. They could get 6% or more this way, which was better than the 3% Fabian paid, but they could only lend out money they owned - they did not have this strange power of being able to create money out of nothing by merely writing figures in books.

These finance companies worried Fabian and his friends somewhat, so they quickly set up a few companies of their own. Mostly, they bought the others out before they got going. In no time, all the finance companies were owned by them, or under their control.

The economic situation got worse. The wage earners were convinced that the bosses were making too much profit. The bosses said that their workers were too lazy and weren't doing an honest day's work, and everyone was blaming everyone else. The Governors could not come up with an answer and besides, the immediate problem seemed to be to help the poverty stricken.

They started up welfare schemes and made laws forcing people to contribute to them. This made many people angry - they believed in the old-fashioned idea of helping one's neighbour by voluntary effort.

"These laws are nothing more than legalised robbery. To take something from a person against his will, regardless of the purpose for which it is to be used, is no different from stealing." But each man felt helpless and was afraid of the jail sentence that was threatened for failing to pay.

The welfare schemes gave some relief, but before long the problem was back and more money was needed to cope. The cost of these schemes rose higher and higher and the size of the Government grew.

Most of the Governors were sincere men trying to do their best. They didn't like asking for more money from their people and finally, they had no choice but to borrow money from Fabian and his friends. They had no idea how they were going to repay.

Parents could no longer afford to pay teachers for their children. They couldn't pay doctors. And transport operators were going out of business. One by one the government was forced to take these operations over. Teachers, doctors and many others became public servants.

Few obtained satisfaction in their work. They were given a reasonable wage, but they lost their identity. They became small cogs in a giant machine. There was no room for personal initiative, little recognition for effort, their income was fixed and advancement came only when a superior retired or died.

In desperation, the governors decided to seek Fabian's advice. They considered him very wise and he seemed to know how to solve money matters. He listened to them explain all their problems, and finally he answered, "Many people cannot solve their own problems - they need someone to do it for them. Surely you agree that most people have the right to be happy and to be provided with the essentials of life. One of our great sayings is "all men are equal" - is it not?"

Well, the only way to balance things up is to take the excess wealth from the rich and give it to the poor. Introduce a system of taxation. The more a man has, the more he must pay. Collect taxes from each person according to his ability, and give to each according to his need. Schools and hospitals should be free for those who cannot afford them …"

He gave them a long talk on high sounding ideals and finished up with, "Oh, by the way, don't forget you owe me money. You've been borrowing now for quite some time. The least I can do to help, is for you to just to pay me the interest. We'll leave the capital debt owing, just pay me the interest."

They went away, and without giving Fabian's philosophies any real thought, they introduced the graduated income tax - the more you earn, the higher your tax rate. No one liked this, but they either paid the taxes or went to jail.

Merchants were forced once again to raise their prices. Wage earners demanded higher wages forcing many employers out of business, or to replace men with machinery. This caused additional unemployment and forced the Government to introduce further welfare and handout schemes.

Tariffs and other protection devices were introduced to keep some industries going just to provide employment. A few people wondered if the purpose of the production was to produce goods or merely to provide employment.

As things got worse, they tried wage control, price control, and all sorts of controls. The Government tried to get more money through sales tax, payroll tax and all sorts of taxes. Someone noted that from the wheat farmer right through to the housewife, there were over 50 taxes on a loaf of bread.

"Experts" arose and some were elected to Government, but after each yearly meeting they came back with almost nothing achieved, except for the news that taxes were to be "restructured", but overall the total tax always increased.

Fabian began to demand his interest payments, and a larger and larger portion of the tax money was being needed to pay him.

Then came party politics - the people started arguing about which group of Governors could best solve the problems. They argued about personalities, idealism, party labels, everything except the real problem.

The councils were getting into trouble. In one town the interest on the debt exceeded the amount of rates which were collected in a year. Throughout the land the unpaid interest kept increasing - interest was charged on unpaid interest.

Gradually much of the real wealth of the country came to be owned or controlled by Fabian and his friends and with it came greater control over people. However, the control was not yet complete. They knew that the situation would not be secure until every person was controlled.

Most people opposing the systems could be silenced by financial pressure, or suffer public ridicule. To do this Fabian and his friends purchased most of the newspapers, T.V. and radio stations and he carefully selected people to operate them. Many of these people had a sincere desire to improve the world, but they never realised how they were being used. Their solutions always dealt with the effects of the problem, never the cause.

There were several different newspapers - one for the right wing, one for the left wing, one for the workers, one for the bosses, and so on. It didn't matter much which one you believed in, so long as you didn't think about the real problem.

Fabian's plan was almost at its completion - the whole country was in debt to him. Through education and the media, he had control of people's minds. They were able to think and believe only what he wanted them to.

After a man has far more money than he can possibly spend for pleasure, what is left to excite him? For those with a ruling class mentality, the answer is power - raw power over other human beings. The idealists were used in the media and in Government, but the real controllers that Fabian sought were those of the ruling class mentality.

Most of the goldsmiths had become this way. They knew the feeling of great wealth, but it no longer satisfied them. They needed challenge and excitement, and power over the masses was the ultimate game. They believed they were superior to all others. "It is our right and duty to rule. The masses don't know what is good for them. They need to be rallied and organised. To rule is our birthright."

Throughout the land Fabian and his friends owned many lending offices. True, they were privately and separately owned. In theory they were in competition with each other, but in reality they were working very closely together. After persuading some of the Governors, they set up an institution which they called the Money Reserve Centre. They didn't even use their own money to do this - they created credit against part of the money out of the people's deposits.

This Institution gave the outward appearance of regulating the money supply and being a Government operation, but strangely enough, no Governor or public servant was ever allowed to be on the Board of Directors.

The Government no longer borrowed directly from Fabian, but began to use a system of I.O.U.'s to the Money Reserve Centre. The security offered was the estimated revenue from next year's taxes. This was in line with Fabian's plan - removing suspicion from himself to an apparent Government operation. Yet, behind the scenes, he was still in control.

Indirectly, Fabian had such control over the Government that they were forced to do his bidding. He boasted, "Let me control the nation's money and I care not who makes its laws." It didn't matter much which group of Governors were elected. Fabian was in control of the money, the life blood of the nation.

The Government obtained the money, but interest was always charged on every loan. More and more was going out in welfare and handout schemes, and it was not long before the Government found it difficult to even repay the interest, let alone the capital.

And yet there were people who still asked the question, "Money is a man-made system. Surely it can be adjusted to serve, not to rule?" But these people became fewer and their voices were lost in the mad scrabble for the non-existent interest.

Governments changed, the party labels changed, but the major policies continued. Regardless of which Government was in "power", Fabian's ultimate goal was brought closer each year. The people's policies meant nothing. They were being taxed to the limit, they could pay no more. Now the time was ripe for Fabian's final move.

10% of the money supply was still in the form of notes and coins. This had to be abolished in such a way as not to arouse suspicion. While the people used cash, they were free to buy and sell as they chose - they still had some control over their own lives.

But it was not always safe to carry notes and coins, and therefore a more convenient system was looked forward to. Once again Fabian had the answer. His organisation issued everyone with a little plastic card showing the person's name and an identification number.

When this card was presented anywhere, the storekeeper phoned the central computer to check the credit rating. If it was clear, the person could buy what he wanted up to a certain amount.

At first people were allowed to spend a small amount on credit, and if this was repaid within a month, no interest was charged. This was fine for the wage earner, but what businessman could even begin? He had to set up machinery, manufacture the goods, pay wages etc. and sell all his goods before he could repay the money. If he failed, he was charged a 1.5% for every month the debt was owed. This amounted to over 18% per year.

Businessmen had no option but to add the 18% onto the selling price. Yet this extra money or credit (the 18%) had not been loaned out to anyone. Throughout the country, businessmen were given the impossible task of repaying $118 for every $100 they borrowed - but the extra $18 had never been created at all.

Yet Fabian and his friends increased their standing in society. They were regarded as pillars of respectability. Their pronouncements on finance and economics were accepted with almost religious conviction.

Under the burden of ever increasing taxes, many small businesses collapsed. Special licences were needed for various operations, so that the remaining ones found it very difficult to operate. Fabian owned and controlled all of the big companies which had hundreds of subsidiaries. These appeared to be in competition with each other, yet he controlled them all. Eventually all competitors were forced out of business. Plumbers, panel beaters, electricians and most other small industries suffered the same fate - they were swallowed up by Fabian's giant companies which all had Government protection.

Fabian wanted the plastic cards to eliminate notes and coins. His plan was that when all notes were withdrawn, only businesses using the computer card system would be able to operate.

_______________________________________________________

By the way, the correct terminology used in the financial world for this system is "fractional reserve banking".

The story you have read is of course, fiction.

But if you found it to be disturbingly close to the truth and would like to know who Fabian is in real life, a good starting point is a study on the activities of the English goldsmiths in the 16th & 17th centuries.

For example, The Bank of England began in 1694. King William of Orange was in financial difficulties as a result of a war with France. The Goldsmiths "lent him" 1.2 million pounds (a staggering amount in those days) with certain conditions:

The interest rate was to be 8%.

The King was to grant the goldsmiths a charter for the bank that gave them the right to issue credit.

Prior to this, their operations of issuing receipts for more money than they held in deposits was totally illegal. The charter made it legal.

In 1694 William Patterson obtained the Charter for the Bank of England.

© Larry Hannigan 1971, Australia

www.wheylite.com.au

Feel free to make as many copies of this article, and to reproduce this article, SO LONG AS YOU ADD A LINK TO www.relfe.com

Some quotations to further whet your appetite:

Encyclopaedia Britannica, 14th Edition - "Banks create credit. It is a mistake to suppose that bank credit is created to any extent by the payment of money into the banks. A loan made by a bank is a clear addition to the amount of money in the community."

Lord Acton, Lord Chief Justice of England, 1875 - "The issue which has swept down the centuries and which will have to be fought sooner or later is the People v. The Banks."

Mr Reginald McKenna, when Chairman of the Midland Bank in London - "I am afraid that ordinary citizens will not like to be told that the banks can, and do, create and destroy money. And they who control the credit of the nation direct the policy of governments, and hold in the hollow of their hands the destiny of the people.”

Mr Phillip A. Benson, President of the American Bankers' Association, June 8 1939 - "There is no more direct way to capture control of a nation than through its credit (money) system."

USA Banker's Magazine, August 25 1924 - "Capital must protect itself in every possible manner by combination and legislation. Debts must be collected, bonds and mortgages must be foreclosed as rapidly as possible. When, through a process of law, the common people lose their homes they will become more docile and more easily governed through the influence of the strong arm of government, applied by a central power of wealth under control of leading financiers.

Sir Denison Miller - During an interview in 1921, when he was asked if he, through the Commonwealth Bank, had financed Australia during the First World War for $700 million, he replied; "Such was the case, and I could have financed the country for a further like sum had the war continued." Asked if that amount was available for productive purposes in this time of peace, he answered "Yes".

THE COLLAPSE OF GLOBALISM and the Reinvention of the World

by John Ralston Saul

Penguin Australia / Viking

Hardback RRP: $32.95

Of the dozens of books on globalism, this is one of the more important for three reasons.

First, it puts together a mass of evidence to support the claim that application of globalist economic concepts has been declining since about 1995, although this is never admitted by the globalists at the political, bureaucratic or academic levels.

Second, it examines the success of several nations - China, Malaysia, India, Brazil and New Zealand - which have rejected parts of the globalist economic agenda.

Third, it provides encouragement to researchers and government policy-makers to recognise that globalist economics does not have the answers to many of our problems, and for this reason is a declining force in the world.

John Ralston Saul says "the central perception of globalization is that civilization should be seen through economics, and economics alone ... everything is looked at under an economic prism". Other perspectives are supposed to be ignored and rejected.

To the globalist mind, everything is expressed through "the market" and this provides government policy-makers with all of the information they need to consider.

This is the economic ideology that has dominated Australia for over 20 years. It is variously referred to as neo-liberal economics, economic rationalism, economic fundamentalism, free market economics or simply "economic reform".

Government actions that flow from it are very familiar:

• Deregulation and privatisation.
• Removal of industry protection.
• No industry policy whatsoever ("leave it all to the market").
• Labor market reform (i.e., winding back wages and conditions).
• Smaller government ("contracting out" public services).
• No government borrowing for infrastructure.
• Negotiate free trade agreements (FTAs).
• Business principles to dominate in running universities, TAFE, health care systems, etc.

Arguably, no country has adopted this ideology to the degree that Australia and New Zealand have (although New Zealand has now changed course).

Saul examines globalism's impact across the world. There are some surprises here, even for those who already have reservations about globalism. Here is a sample of his findings:

Some nations have already thumbed their noses at globalism. In 1998, during the Asian financial crisis, Malaysia made its currency unconvertible to other currencies and pegged it low enough to favour exports. It raised tariffs to protect some industries and blocked the export of foreign capital. The country was "written off as a basket case and Mahathir as mentally unstable".

However, investment grew, exports strengthened and foreign reserves improved. The Malaysian economy has done well to the astonishment of the international financial community, especially the International Monetary Fund. Mahathir has had the last laugh, being received as a hero at the 2003 Davos Conference, which until then had been totally dominated by globalists.

Saul claims that the economic successes of China and India are not achievements of globalism. He says that, during the 1997 Asian meltdown, both countries prospered with the aid of "capital controls and other limitations on movements and investments". Their modernisation has "not followed the economic principles of globalization". Importantly, whatever they have done, has been done in "the context of nation-state interests".

The following statement of Indian Prime Minister Singh illustrates that India is definitely not following a globalist agenda:

"Economic growth is not an end in itself. It is a way to create employment, to banish poverty, hunger and homelessness, to improve the lives of most of our people. The direction is equality and social justice."

Actually, the party in power, prior to Singh becoming Prime Minister, was defeated at the polls in 2004; the cause of defeat being, according to Saul, an attempt "to embrace much of the globalist economic ideology".

"The growing success of India and China," Saul asserts, "makes nonsense of large swathes of globalist received wisdom."

Saul says that virtually none of the globalists' promises have been fulfilled, promises such as:

• The power of the nation state will wane, to be replaced by that of global markets.
• In the future, economics, not politics or arms, will determine the course of human events.
• Once freed from regulation, markets will quickly establish natural international balances, impervious to the old boom-and-bust cycles.
• The growth in international trade, as a result of lowering barriers, will unleash an economic-social tide that will raise all ships, i.e., all economies will prosper.
• This prosperity will turn dictatorships into democracies.
• The very size of the new markets will require ever larger corporations whose sheer size will raise them above any risk of bankruptcy. This will be a source of international stability.
• Transnational corporations will provide a new kind of international leadership, free of local political prejudices.
• As nation states remove industry protection, new industries will spring up to absorb any displaced workers.

Saul says that the only promise that the globalists have delivered on is that of a massive increase in international trade. He adds, however, that a big percentage of the "trade" is actually movement of goods within transnational corporations.

Once the many failures of globalism documented in this 310-page study are reflected upon, the irresistible conclusion is that globalist ideology is intellectually bankrupt.

Its promised outcomes have failed to materialise. Its basic assumption - that if everything is viewed through an "economic prism" and left to "unfettered markets", then disappearing nation states will arrive at "a life of prosperity and general happiness" - has been revealed to be a romantic utopian dream.

One may well ask, how is it possible that apparently intelligent people have taken us down this path? Malaysia, China, India, Brazil and New Zealand (the latter since 1999) have pursued a different course. Not so, however, Australia; the ideology still has us mesmerised. Hopefully, however, our infrastructure mess, our shrunken manufacturing sector and the lack of secure, full-time jobs for our people, will shake us from the grip of economic doctrines that have already created financial and social havoc in parts of the country.

Of course, not all of Saul's themes and conclusions should be blindly accepted. Indeed, views to the contrary - including those penned by free-market fundamentalists - should be also be given a fair hearing.

Nevertheless, The Collapse of Globalism is essential reading, not just for those interested in economic issues, but for all who are concerned about Australia's future.

*************************************

SANE /Views/

Vol.5, No.16, 11 August 2005*

The Scourge of Interest Rates

by Jeremy Wakeford

This week the South African Reserve Bank’s monetary policy committee (MPC) meets to determine short term interest rates. Their decision carries significant consequences for just about every aspect of the macro-economy (investment, consumption, savings, the rand exchange rate, inflation, economic growth and employment). Many people - not just financial speculators - await the MPC’s decision with bated breath. But the role of interest rates in our individual and collective lives is far more fundamental and insidious than merely influencing monthly budget allocations. It goes to the core of whether humanity will achieve sustainability.

Most of us take for granted the current monetary system and the existence of interest. Commercial banks create money each time they advance a loan (say for an individual wanting to purchase a new home or car, or a business wanting to expand its operations). Contrary to popular perception, government creates only a tiny fraction (around 3%) of the ‘money supply’ - the physical notes and coins in circulation. The remaining 97% of bank-created money is virtual: it exists merely as numbers on computers. And while notes and coins are non-interest bearing, bank loans and deposits both come with interest attached - albeit at differential rates which suit the banks.

The present money system, and the widespread levying of interest on loans, actually has a short history relative to human civilisation. From Aristotle’s time (circa 300 B.C.) until the eighteenth century, charging interest on money loans was considered morally unacceptable ‘usury’. Indeed, some cultures and religions - notably Islam - still outlaw usury today. As money guru Bernard Lietaer points out, it was only when the Catholic Church’s assets shifted from land to financial capital that it declared charging interest to be no longer sinful.[1]

Setting aside the moral issue for now, we can ask whether interest is really ‘necessary’ for the functioning of economies? Mainstream economists have several justifications for interest (rates).

First and foremost, they say the only effective way to combat inflation is by manipulating interest rates so as to dampen money supply growth.

But only in recent decades have interest rates been the primary tool of monetary policy in most countries (when ‘Monetarist’ ideology came to prominence). Before then, governments used various ‘liquidity controls’ to affect directly the amount of money commercial banks created, and up till 1972 all currencies were backed by a real commodity - gold. An in-depth discussion of inflation is beyond the present scope, but suffice it to say that there are other money systems which have historically not relied on interest rates for price control.

Second, economists point out that at least one section of society - the elderly - relies on interest payments on savings for their daily consumption. True, but only because we live in a highly individualistic society where we all have to compete for money which is in perpetually scarce supply. Strong communities take care of their elderly in other ways, rather than ‘pensioning them off’.

A third justification for interest rates is that human beings are innately short-sighted and impatient; they prefer to consume today rather than in a year’s time. This is undoubtedly true to some extent, but let’s consider the effect of the system on the people. If I live within a system over which I have no control, then I had better do the best I can within that system, i.e. respond to the incentives. So if the interest rate is high, I should cut down and sell all my trees and deposit the money with a bank so as to earn interest. This simple example illustrates a general principle: positive interest rates on money incentivise the unsustainable draw-down of natural resources.

Furthermore, interest encourages production and consumption of short-lived goods. For example, buying a new R50,000 short-lived car every four years makes more sense than buying one R250,000 car that lasts for 20 years, even if you have the larger amount of cash now - because the balance can be invested at interest.[2]

On a global scale this massively contributes to unnecessary resource exhaustion and pollution.

Aside from being an immediate threat to the environment, interest rates have several damaging consequences for society. One is the discounting of future generations. When economists evaluate an investment prospect, they implicitly downgrade the importance of long-term costs and benefits (e.g. environmental and social) because future streams of benefits and costs are ‘discounted’, i.e. divided by an annually compounding interest rate. An interest rate of 10% effectively means that any costs or benefits that accrue in more than 20 years’ time are considered irrelevant to the decision taken today. So much for consideration for our progeny, which is the hallmark of sustainable development.

Not only intergenerational equity, but also current equity is undermined by interest. Interest transfers wealth from the poor (generally debtors) to the rich (generally creditors) - and especially to the commercial financial institutions and their shareholders. This applies to nations as well as individuals.

Moreover, the widespread indebtedness of consumers in the modern economy locks them into wage dependency to pay off the interest on loans and credit. The majority of people have to work increasingly hard for less as they compete with others for scarce currency to repay loans and interest. On the other side of the equation, interest encourages creditors to hoard money in bank accounts, thereby depriving others of the crucial medium of exchange and allowing real resources (like labour) to remain needlessly idle.

Finally, and perhaps most importantly, interest-bearing, debt-based money requires continuous economic growth to avert financial collapse. This is because real economic activity must always expand to finance interest payments on loans - more has to be paid back than was originally borrowed.

In sum, a financial system based on debt and interest is completely at odds with the key principles of sustainable development: sustainable economic livelihoods, social equity and environmental sustainability.

Sadly, given the astronomical vested ‘interest’ in the current setup, probably the only way human society will progress to a sustainable economy is via a major collapse of the current global and national financial systems - which an increasing number of informed people regard as inevitable and rapidly approaching. This will bring pain and suffering to many in the short to medium term, but is vital for the sustainability of human society in the long term.

Are there alternatives? Yes, community-based, local currencies such as Local Economic Trading Systems (LETS), which usually charge zero interest, and sometimes even include a negative interest rate or ‘booster’ to encourage circulation and long-term real investment. There are currently over 7000 such LETS worldwide, albeit mainly in rich countries. Similarly, in previous economic downturns such as the Great Depression, local currencies have sprung up spontaneously as the limitations of national currencies became manifest. And in case you think such local schemes are irrelevant in today’s globalised world economy, think again: SANE’s Internet-based Community Exchange System now has several trading groups operating in various parts of the country as well as in Australia and New Zealand. Such systems provide hope for the future.

------------------------------------------------------------------------

[1] Bernard Lietaer, “Community Currencies” http://www.transaction.net/money/cc/cc01.html>; see also his book /The Future of Money/.

[2] Ibid.

------------------------------------------------------------------------

This issue, and all previous issues of SANE /Views,/ is available from the SANE web site at http://www.sane.org.za/docs/views/index.htm

BANKING EXPOSED BY PILGRIMS

Known as the PILGRIMS OF SAINT MICHAEL, (www.michaeljournal.org) it was founded in 1953 by Louis Even in Canada, and clearly states that it looks forward to ".a Social Credit economy in accordance with the teachings of the Church..." and regularly publishes its Journals, which circulate very widely. In addition, their representatives termed "Pilgrims", travel extensively (last year even to New Zealand), to publicise their work and extend the circulation of their publications and influence.

Excerpts from the latest issue leave no doubt about how they see the debt finance system, and whether or not it should be replaced by something more logical, honest and in line with Christ's philosophy. We quote from the article headed, THERE IS NO WAY THE PUBLIC DEBT CAN BE PAID OFF (BECAUSE) ALL MONEY IS CREATED BY THE BANKS AS A DEBT.... (owing to themselves)

"All the countries of the world are presently struggling with a debt problem. In 2005, Canada's Federal Debt is about $500 Billion. And the richest country in the world, having the largest production - the U.S.A. - is also the most indebted, with a Public Debt of over $8,000 Billion.

Why are all countries in debt? It is quite simple. In the present system there is no way any country can get out of debt because all money is created, or comes into being, as a debt. Simple arithmetic can prove the impossibility of paying off debts, with money, when only debt is being created".

(The explanation of why debt is expanding at an ever-increasing rate then follows)

"A fundamental flaw in the system is that when banks create new money (debt) in the form of loans, they require the borrower to pay back MORE than was created and lent. The banks create the principal only, but not the interest... Debts must pile up because the principal can only be repaid from further borrowings, and at the same time the interest debt is compounding".

(The full-page article then shows in graph form the exponential growth of public debt)

"The Public Debt is made up of (de facto) "money" that does not exist... but that governments have never the less committed themselves to paying back. An impossible contract but represented by the bankers as "sacrosanct", so to be abided by, even though human beings die because of it".

OUR COMMENT: The reference to deaths is the "Export or perish" mantra which pushes governments to participate in the accurately described "Trade Wars". These start by using competitive international trade as a legal system by which they try to rob their trading "partners" of their limited money supply, in order to reduce their own debts to the banking system. Starvation or wars sometimes follow.

The major message of this article follows:

"The most absurd thing in all of this is that governments persist stubbornly in borrowing at interest from the privately owned banks, the "money" that they could create for themselves, interest free, forcing the citizens to pay interest charges on an astronomical debt; when there should be no debt at all."

"The first duty of any sovereign government is to create and issue its own money for the needs of its citizens. For governments to have given up this sovereign function to private corporations (private banks) is the greatest betrayal in history".

*****************************************

NEXUS SLAMS BANKING SCAM

The April - May Issue (2004) of Nexus contains a major financial article by economic researcher Vladimir Z. Nuri of USA, in which the literature on fractional reserve banking is studied and compared.. His reporting of the modus operandus involved, checked against numerous independent descriptions of how the process is used, represents a damning indictment of not only the banking fraternity, but also the duplicity and/or ignorance of politicians who have allowed the practice to develop into what could almost be described as a world standard.

All this despite the direst of warnings from presidents, industrialists, and financiers made publicly and even read into the Congressional Records by a concerned House Representative, spanning over a century. An excerpt from Mr. Nuri's article, discusses how the process merges into legalized counterfeiting, and reads as follows:

Banking authorities often make a distinction between deposits and loans, in the same way they distinguish between money and credit. In the non-physical fractional reserve blip - based money system, this distinction is invalid.

CREATION OF CREDIT IS EQUIVALENT TO THE CREATION OF MONEY. Whoever has, or is given the authority to create credit, has the authority to extract wealth from the economy by the same mechanism. Moreover, there is no meaningful

distinction between fractional reserve banking and "money expansion".

The analogy of counterfeiting looms large, as the mathematics reveals. In many ways, the only difference between illegal counterfeiting and the legal, privately owned money expansion, is that gains by the recipient, in the latter case, are officially sanctioned, not indiscriminate, and limited on the expansion rate. Therefore, paradoxically, privately owned money expansion is basically equivalent to legalized counterfeiting. That is, a surreptitious, state sanctioned plundering of wealth by private bankers.

****************************************

From "Hand Over Our Loot, No. 2, by Len Clampett:

"There are four things that must be available for paid work to take place:

• The work to be done.
• The materials to do the work.
• The labor to do the work.
• The money to pay for the work to be done.

If any of those four things are missing, no paid work can take place. It is a naturally self-regulating system. If there is work to be done, and the material is available and the labour willing, all we have to do is create the money. Quite simple."

"Ask yourself why it was that depressions happened. All that went missing from the community was the money to buy goods and services. The labour was still available. The work to be done was still there. The materials had not disappeared, and the goods were readily available in the shops, or could be produced: but for the want of money.

***************************

From "Hand Over Our Loot, No. 2"

In the United States, the issuing of money is controlled by the Federal Reserve Board. This is not a government department but a board of private bankers. Most of us would believe that the Federal Reserve is a federal arm of the national government….This is not true…In 1913 President Woodrow Wilson signed the document that created the Federal Reserve, and committed the American people to debt slavery until such time as they awake from their slumber and overthrow this vicious tyranny."…

"The understanding of this issue of money into the community can be best illustrated by equating money in the economy with tickets in a railway system. The tickets are printed by a printer who is paid for his work. The printer never claims the ownership of the tickets … And we can never imagine a railway company refusing to give passengers seats on a train because it is out of tickets. By this same token, a government should never refuse people the access to normal commerce and trade by claiming it is out of money."

Credit created by a Government-owned bank is better than credit created by private banks, because there is no need to recover the money from people by way of taxes, and there is no interest attached to inflate the cost. The public work completed with the credit by the Government bank is the asset that replaces the money created when the work is finished.

****************************8

Money for Public Works

Australia gave its government-owned and controlled Commonwealth Bank credit-issuing power --producing at minimal interest rate (or interest at about market rates but payable thru its bank to the government itself) funds for building the east-west railway and for waging world wars, while British banks were offering our government funds at several times that interest rate, a practice which has British taxpayers still paying bank stockholders compound interest at market rates on many British wars.

THEIR IS NO SHORTAGE OF MONEY TO PAY ENOUGH PEOPLE TO PERFORM CONSTRUCTIVE PUBLIC WORKS THAT WOULD IMPROVE THE 'TRIPLE BOTTOM LINE' (social, environmental and economic) OF OUR ECONOMY, ENVIRONMENT AND SOCIETY - if governments re-assert that money-issuing authority.

-- Doug Everingham

--------------------------------------------------------------------------------

NEW RELEASE INFORMATION FROM ZED BOOKS

TITLE: Reclaiming Development: An Alternative Economic Policy Manual

AUTHORS: Ha-Joon Chang and Ilene Grabel

ISBN/PRICE:

1 84277 200 7 hbk GBP32.95/US$55.00
1 84277 201 5 pbk GBP9.99/US$17.50

PUBLICATION DATE: 31 May 2004 (2 months later in US)

KEY POINTS

Refutes idea that the current form of globalization is something that is primarily the product of technology and so inevitable. It has been made by governments, and could be re-made in the interests of people.

A trenchant critique of the mainstream economic ideology of our times -- neoliberal economics.

Introduces the reader to the panorama of alternative policies that history has shown can be pursued, and successfully.

Crucially relevant to students of economics, policy makers, and intelligent readers wanting to understand what alternatives exist to the tyranny of free market economics.

The driving assumption within the international development policy establishment is that 'there is no alternative' to neo-liberal economics and globalisation. In 'Reclaiming Development' Ha-Joon Chang and Ilene Grabel explain what this dominant school says about how economies develop and the economic policies it imposes worldwide. By analysing the actual historical experiences of the leading Western and East Asian economies during their development, the authors question the validity of the neo-liberal development model.

Turning to policy, the authors set out concrete, practical alternatives to neoliberalism across the key economic areas: trade and industrial policy; privatisation; intellectual property rights; external borrowing, portfolio and foreign direct investment; domestic financial regulation; and management of exchange rates, central banking and monetary policy, and government revenue and expenditure. In doing so, they advocate the most useful proposals that have merged around the world along with some innovative measures of their own.

This empowering and accessible book seeks to be of practical usefulness to students of development and to those, in government and beyond, looking for concrete policy ideas.

'This unusually well-written, direct and succinct book describes neo-liberal positions fairly; offers theoretically rigorous and empirically accurate critiques; and describes feasible, practical alternative policies that take realistic account of political, economic and financial constraints. Discussion of financial, monetary, fiscal, trade and industry

policy and intellectual property rights is especially strong and constructive and makes important innovative contributions. It is a fine, carefully analytical chievement which would contribute to hastening both efficient and socially just development wherever the insights are appropriately used.' - John Langmore, Representative of the ILO to the UN.

'Chang and Grabel demolish the "myths" (or fabrications) underlying neo-liberal views about economic development and provide succinct, constructive suggestions for policies regarding trade and industry, privatization and intellectual property rights, private capital movements, financial regulation, and macroeconomics. Reclaiming

Development is a manifesto that should be on the shelves of policy-makers, academics, and students worldwide.' - Lance Taylor, Arnhold Professor, New School University, and author of Reconstructing Macroeconomics

'A growing number of developing countries are taking back control over economic policy from the IMF and the World Bank. The wide range of policy suggestions contained in this book provides a rich mine of concrete and practicable alternatives from which to choose in taking advantage of whatever room globalization still allows developing countries and reshaping economic policy in their own interests.' - Martin Khor, Director, Third World Network

'This book is not only a superb antidote to the numbing myths of neoliberalism but also a cogent and stimulating presentation of the many possibilities for alternatives to neo-liberal economic policy that both theory and history provide policy-makers and students of development.' - Thandika Mkandawire, Director, United Nations Research Institute for Social Development (UNRISD)

'The dominant neo-liberal economic doctrine asserts that there is no alternative to its policy prescriptions which provide the foundations for success in an age of globalization. This book questions and refutes the belief system implicit in the assertion. It does so in a manner that is highly iconoclastic. Yet, it is solidly grounded in economic theory and empirical evidence, both historical and contemporary' - Deepak Nayyar, Vice Chancellor, University of Delhi

Introduction: Reclaiming Development

Part I. Myths and Realities about Development Introduction

Myth 1: Today's Wealthy Countries Achieved Success through a Steadfast Commitment to the Free Market

Myth 2: Neo-liberalism Works

Myth 3: Neoliberal Globalisation Cannot and Should Not be Stopped

Myth 4: The Neo-liberal American Model of Capitalism Represents the Ideal that All Developing Countries Should Seek to Replicate

Myth 5: The East Asian Model is Idiosyncratic; the Anglo-American Model is Universal

Myth 6: Developing Countries Need the Discipline Provided by International Institutions and Politically Independent Domestic Policymaking Institutions

Part II. Economic Policy Alternatives

Policy Alternatives 1: Trade and Industry

Policy Alternatives 2: Privatisation and Intellectual Property Rights

Policy Alternatives 3: International Private Capital Flows

Policy Alternatives 4: Domestic Financial Regulation

Policy Alternatives 5: Macroeconomic Policies and Institutions

Conclusion: Obstacles and Opportunities for Reclaiming Development.

====================================

Speech to the Enviromedia conference, Johannesburg, South Africa.

By George Monbiot, 5th October 2004.

Basic Fact Number Five:

The system which governs our economic lives, which we call capitalism, is itself a limited resource. Capitalism is a pyramid scheme. Let me try to explain this.

It is built on a system called fractional reserve banking. Almost the entire money supply - generally, depending on where you live, between 90 and 95% of it - is issued not by the state, but by the commercial banks. It is issued not in the form of notes and coins, but in the form of loans. Between 90 and 95% of the money supply, in other words, is debt.

To pay off the debt that is issued today, the banks must issue more debt tomorrow, and so on and so forth. In a world that was not based on material realities, a world which might exist, for example, in a computer model, it could expand for ever. But in the real world, the supply of money is linked to material realities called collateral: the

real wealth which gives the loans meaning, and without which the whole scheme would be exposed as a fraud. Eventually, the amount of lending must inevitably exceed the availability of meaningful collateral, for the simple reason that the material world is finite while the possible issue of credit is not. That is the point at which the whole structure comes tumbling down.

*************************************

2004-12-30 Kirchener v the IMF - Argentina Squares Off with International Financiers - Roger Burbach

President Nestor Kirchner of Argentina is locked in a standoff with the International Monetary Fund on the third anniversary of a popular uprising. Just before Christmas, 2001 protesters surged through the streets of Buenos Aires demanding that the entire political class and its international financial backers be tossed out. The IMF along with private banks like the Bank of Boston and Citibank were denounced for their role in the country's economic crisis. In less than two weeks the country had five presidents.

Argentina became a caldron of social ferment. In neighborhoods and municipalities, 'popular assemblies' emerged to debate issues and to protect local interests. Some assemblies have urged people not to pay their property taxes and instead to turn the revenue over to neighborhood hospitals.

The assemblies also discuss international issues. According to assembly organizer, Lidia Pertieria: 'One of the rallying cries coming from our communities is "no more foreign loans". New loans only mean more swindling and robbery by our government officials.'

The piquetereos, or picketers, are the most persistent and intransigent of the protesters. Comprised of the underclass that is suffering the brunt of the country's unemployment rate that has officially reached as high as 20 per cent, they pour into the streets, blocking traffic, demanding jobs, government help for their families, and land to grow their own food.

Kirchner became president in May, 2003. At his inauguration he strongly criticized the neo-liberal economic policies of his predecessors, blaming their slavish adherence to the IMF's rigid structural adjustment policies for the country's dire economic conditions. He also demanded that privatization contracts for public utilities imposed on the country be renegotiated, and declared it is the responsibility of the state to 'introduce equality where the market excludes and abandons'.

Kirchner and the IMF have fought fiercely over the terms of new loans and the repayment of the country's international debt. In an agreement with the IMF last year, he insisted that no more than three per cent of the budget would be used to pay down the debt. The poor and unemployed had to be a priority - as well as public investment. The IMF reluctantly agreed to these terms. Since then the Argentine economy has bounced back and is on track to post an 8 per cent growth rate in 2004. Now the Fund wants to increase the country's debt repayments, citing increased growth as a reason to siphon more money from the economy.

More critically, the IMF is trying to get a better deal for the private lenders. In 2002 Argentina defaulted on nearly half of its $180 billion international debt. And then after signing the 2003 IMF agreement, the finance minister slashed the nominal value of defaulted bonds by 75 per cent - claiming that most were held by speculative capital that flooded the country during the halcyon days of the 1990s. Bondholders in the US, Europe and Japan rejected the offer and are pushing the IMF to force Argentina to pay up.

Continued IMF threats have prompted policy analysts and some bureaucrats to support a complete break with the IMF - exploring the possibilities of life outside of the 'neo-liberal' world. 'There is more money, but not to pay off the debt,' Kirchner has stated.

This week the Inter-American Development Bank demonstrated more flexibility than the IMF by extending a $200 million loan to Argentina for investment in agricultural projects. Hoping to exploit differences among international lenders, the government appears set to end its negotiations with the IMF for new credits. It will make payments on its old IMF debt but will chart an independent course over future debt payments and new economic policies.

Kirchner declares: 'We are not going to repeat the history of the past... We don't want new agreements that will frustrate us and the world. For many years we were on our knees before financial organizations and the speculative funds... We've had enough!'

Roger Burbach is director of the Center for the study of the Americans (CENSA) based in Berkeley, California. He is co- author with Jim Tarbell of "Imperial Overstretch: George W. Bush and the Hubris of Empire," He released late last year "The Pinochet Affair: State Terrorism and Global Justice."

***********************************************************************************************

$103 billion debt test

24 February, 2005

What goes down does not always come up again - but it has in Argentina’s case.

President Nestor Kirchner and his economics chief, Roberto Lavagna, have, in effect, set out to defy global financial gravity - and are showing that it can be done.

The outcome of the current attempt to restructure the country’s $103 billion debt represents the most daring act yet of defiance to conventional wisdom.

******************************

Page one news in "Excelsior", Mexico City newspaper, on 27 November

2002:

All countries of the world, with the exception of the U.S., are very concerned about their exports. This is irrational and denotes a pathological condition in their economies.

There is no country in the world - with the exception we just noted (USA)- where the government is not striving to promote exports. Exports have become the sine qua non or essential pillar of prosperity. We might say that the "center of gravity" of each of the national economies of the world is not to be found within each country, in

production and consumption for its own use, but rather outside its borders, in exports. We are, each and every one, off-center and unbalanced, seeking the market for our production outside our borders. And we are all also unbalanced - even in a psychological sense - seeking "foreign investment" to promote our progress.

This aberrant situation, is the meaning of "globalization". Globalization means that no country is solidly built upon its own foundations, but rather that its center of gravity is outside its borders. Globalization is a sickness, not a sound condition or process.

The cause that promotes this sickness, is the world's monetary system. The U.S. manufactures dollars, which are the principal reserve currency of all countries in the world. Without dollar reserves, any currency collapses: all currencies are paper and nothing more. Dollar reserves are indispensable. In order to have reserves, it is necessary to export more than is imported. All countries in the world, the U.S. excepted, seek to export more than they import.

It doesn't take more than five minutes of thought, to understand that this is impossible. Someone has to buy more than they export. If that were not so, where are all the surplus exports going to wind up? In fact, the U.S. imports more than it exports, and pays...with dollars, which are only paper vouchers. But the U.S. does not actually pay, because imported goods must be paid with exported goods. Dollars are simply promises to pay.

There is also a worldwide thirst for "foreign investment", another pathological condition. If so many countries are hunting for foreign investment, where is it going to come from? Again, we look to the U.S.. However, we know that savings in the U.S. are meager. So, when we receive capital from the U.S., what are we really getting? We are getting dollars, which are nothing more than promises to pay, vouchers which the U.S. manufactures. With papers, American interests obtain property rights over tangible resources all over the world. That is "globalization".

The road we are traveling is based on falsity. It will not endure. The consequence of this madness of globalization, will be a world economic breakdown, inevitably.

We are certainly not saying that exports are unimportant. They are of course, beneficial for any country, when the exporting country is using some productive advantage that allows it to offer the world some good or service at a competitive price. But, what sense is there, for instance, in impoverishing the Mexican worker by consciously and deliberately devaluing his peso, to cheapen his product? Exports won this way, are not gained by exploiting some advantage, but by creating an advantage out of impoverishment. This is madness.

Foreign investment can also be beneficial, but only when it purchases goods with other goods, not with papers; or when the foreign investor brings tangible goods which he owns, to the country he is investing in, and puts them to work there. In fact, the "privatization" of government-owned enterprises all over the world, has really been nothing more than shifting ownership of these enterprises, from national governments, to foreign finance which only provides paper dollars in return for ownership of real assets. Is the foreigner to come to our countries to purchase our resources, with papers or glass beads? That is insane.

The health of Mexico, and of all countries, calls for a monetary system that is not parasitic on the dollar. Our money must be worth something on its own, as has been the case for centuries. This is the only way we can build a country whose foundations rest within itself. For the time being, we are an alienated or schizophrenic country - and this is reflected in the breakdown of our social structure - blindly following the mirage of exports, more than the solid and orderly development of the whole of our Mexican economy.

The explosion in asset prices is a direct result of exploding debt in the debt based financial system. The debt gives rise to an ever increasing supply of "unproductive rent" in the form of interest on the debt. The rent is recycled into assets inflating their price.

As a place to start we can do worse than read an October 19, 2005 article by Patrick Wood, Editor of NewsWithViews.com

GLOBAL BANKING: THE BANK FOR INTERNATIONAL SETTLEMENTS

PART 1 of 2

Preface

When David Rockefeller and Zbigniew Brzezinski founded the Trilateral Commission in 1973, the intent was to create a "New International Economic Order" (NIEO). To this end, they brought together 300 elite corporate, political and academic leaders from North America, Japan and Europe. They then set about doing what they said they would do - globalism.

The question is, "How did they do it?" Keep in mind, they had no public mandate from any country in the world. They didn't have the raw political muscle, especially in democratic countries where voting is allowed. They didn't have global dictatorial powers.

The answer is the Bank for International Settlements (BIS), self-described as the "central bank for central bankers", that controls the vast global banking system with the precision of a Swiss watch.

This report offers a concise summation of BIS history, structure and current activities.

Introduction

As we will see, the BIS was founded in 1930 during a very troubled time in history. Some knowledge of that history is critical to understanding why the BIS was created, and for whose benefit.

There are three figures that play prominently in the founding of the BIS: Charles G. Dawes, Owen D. Young and Hjalmar Schacht of Germany.

Charles G. Dawes was director of the U.S. Bureau of the Budget in 1921, and served on the Allied Reparations Commission starting in 1923. His latter work on "stabilizing Germany's economy" earned him the Nobel Peace Prize in 1925. After being elected Vice President under President Calvin Coolidge from 1925-1929, and appointed Ambassador to England in 1931, he resumed his personal banking career in 1932 as chairman of the board of the City National Bank and Trust in Chicago, where he remained until his death in 1951.

Owen D Young was an American industrialist. He founded RCA (Radio Corporation of America) in1919 and was its chairman until 1933. He also served as the chairman of General Electric from 1922 until 1939. In 1932, Young sought the democratic presidential nomination, but lost to Franklin Delano Roosevelt.

More on Hjalmar Schacht later.

In the aftermath of World War I and the impending collapse of the German economy and political structure, a plan was needed to rescue and restore Germany, which would also insulate other economies in Europe from being affected adversely.

The Versailles Treaty of 1919 (which officially ended WWI) had imposed a very heavy reparations burden on Germany, which required a repayment schedule of 132 billion gold marks per year. Most historians agree that the economic upheaval caused in Germany by the Versailles Treaty eventually led to Adolph Hitler's rise to power.

In 1924 the Allies appointed a committee of international bankers, led by Charles G. Dawes (and accompanied by J.P. Morgan agent, Owen Young), to develop a plan to get reparations payments back on track.

The "Young Plan" of 1928 put more teeth into the Dawes Plan, which many viewed as a strategy to subvert virtually all German assets to back a huge mortgage held by the United States bankers.

Neither Dawes nor Young represented anything more than banking interests.

The Young Plan was so odious to the Germans that many credit it as a precondition to Hitler's rise to power.

"The Power of financial capitalism had another far reaching plan, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalistic fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world's central banks, which were themselves private corporations. Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence co-operative politicians by subsequent rewards in the business world."[4] [Bold emphasis added]

So here we have a brief sketch of what led up to the founding of the BIS. Now we can examine the nuts and bolts of how the BIS was actually put together.

The formation of the BIS was agreed upon by its constituent central banks in the so-called Hague Agreement on January 20, 1930, and was in operation shortly thereafter. According to the Agreement,

The duly authorised representatives of the Governments of Germany, of Belgium, of France, of the United Kingdom of Great Britain and Northern Ireland, of Italy and of Japan of the one part; And the duly authorised representatives of the Government of the Swiss Confederation of the other part Assembled at the Hague Conference in the month of January, 1930, have agreed on the following:

Article 1. Switzerland undertakes to grant to the Bank for International Settlements, without delay, the following Constituent Charter having force of law: not to abrogate this Charter, not to amend or add to it, and not to sanction amendments to the Statutes of the Bank referred to in Paragraph 4 of the Charter otherwise than in agreement with the other signatory Governments.[5]

As we will see, German reparation payments (or lack thereof) had little to do with the founding of the BIS, although this is the weak explanation given since its founding. Of course, Germany would make a single payment to the BIS, which in turn would deposit the funds into the respective central bank accounts of the nations to whom payments were due. (It would be the subject of another paper to show the shallowness of this operation: Money and gold were shuffled around, but the net amount that Germany actually paid was very small.)

The original founding documents of the BIS have little to say about Germany, however, and we can look directly to the BIS itself to see its original purpose:

“The objects of the Bank are: to promote the co-operation of central banks and to provide additional facilities for international operations; and to act as trustees or agent in regard to international financial settlements entrusted to it under agreements with the parties concerned.” [6]

Virtually every in-print reference to the BIS, including their own documents, consistently refer to it as "the central banker's central bank."

So, the BIS was established by an international charter and was headquartered in Basle, Switzerland.

According to James C. Baker, pro-BIS author of The Bank for International Settlements: Evolution and Evaluation, "The BIS was formed with funding by the central banks of six nations, Belgium, France, Germany, Italy, Japan, and the United Kingdom. In addition, three private international banks from the United States also assisted in financing the establishment of the BIS."[7]

Each nation's central bank subscribed to 16,000 shares. The U.S. central bank, the Federal Reserve, did not join the BIS, but the three U.S. banks that participated got 16,000 shares each. Thus, U.S. representation at the BIS was three times that of any other nation. Who were these private banks? Not surprisingly, they were J.P. Morgan & Company, First National Bank of New York and First National Bank of Chicago.

On January 8, 2001, an Extraordinary General Meeting of the BIS approved a proposal that restricted ownership of BIS shares to central banks. Some 13.7% of all shares were in private hands at that time, and the repurchase was accomplished with a cash outlay of $724,956,050. The price of $10,000 per share was over twice the book value of $4,850.

It is not certain what the repurchase accomplished. The BIS claimed that it was to correct a conflict of interest between private shareholders and BIS goals, but it offered no specifics. It was not a voting issue, however, because private owners were not allowed to vote their shares.[8]

It is not surprising that the BIS, its offices, employees, directors and members share an incredible immunity from virtually all regulation, scrutiny and accountability.

In 1931, central bankers and their constituents were fed up with government meddling in world financial affairs. Politicians were viewed mostly with contempt, unless it was one of their own who was the politician. Thus, the BIS offered them a once-and-for-all opportunity to set up the "apex" the way they really wanted it -- private. They demanded these conditions and got what they demanded.

A quick summary of their immunity, explained further below, includes:

• diplomatic immunity for persons and what they carry with them (i.e., diplomatic pouches)
• no taxation on any transactions, including salaries paid to employees
• embassy-type immunity for all buildings and/or offices operated by the BIS
• no oversight or knowledge of operations by any government authority
• freedom from immigration restrictions
• freedom to encrypt any and all communications of any sort
• freedom from any legal jurisdiction[9]
• Further, members of the BIS board of directors (for instance, Alan Greenspan) are individually granted special benefits:
• “immunity from arrest or imprisonment and immunity from seizure of their personal baggage, save in flagrant cases of criminal offence;”
• “inviolability of all papers and documents;”
• “immunity from jurisdiction, even after their mission has been accomplished, for acts carried out in the discharge of their duties, including words spoken and writings;”
• “exemption for themselves, their spouses and children from any immigration restrictions, from any formalities concerning the registration of aliens and from any obligations relating to national service in Switzerland ;”
• “the right to use codes in official communications or to receive or send documents or correspondence by means of couriers or diplomatic bags.”[10]
• Lastly, all remaining officials and employees of the BIS have the following immunities:
• “immunity from jurisdiction for acts accomplished in the discharge of their duties, including words spoken and writings, even after such persons have ceased to be Officials of the Bank;”[bold emphasis added]
• “exemption from all Federal, cantonal and communal taxes on salaries, fees and allowances paid to them by the Bank…”
• exempt from Swiss national obligations, freedom for spouses and family members from immigration restrictions, transfer assets and properties - including internationally - with the same degree of benefit as Officials of other international organizations.[11]

Of course, a corporate charter can say anything it wants to say and still be subject to outside authorities. Nevertheless, these were the immunities practiced and enjoyed from 1930 onward. On February 10, 1987, a more formal acknowledgement called the "Headquarters Agreement" was executed between the BIS and the Swiss Federal Council and basically clarified and reiterated what we already knew:

Article 2

The buildings or parts of buildings and surrounding land which, whoever may be the owner thereof, are used for the purposes of the Bank shall be inviolable. No agent of the Swiss public authorities may enter therein without the express consent of the Bank. Only the President, the General Manager of the Bank, or their duly authorised representative shall be competent to waive such inviolability.

The archives of the Bank and, in general, all documents and any data media belonging to the Bank or in its possession, shall be inviolable at all times and in all places.

The Bank shall exercise supervision of and police power over its premises.

Article 4

The Bank shall enjoy immunity from criminal and administrative jurisdiction, save to the extent that such immunity is formally waived in individual cases by the President, the General Manager of the Bank, or their duly authorised representative.

The assets of the Bank may be subject to measures of compulsory execution for enforcing monetary claims. On the other hand, all deposits entrusted to the Bank, all claims against the Bank and the shares issued by the Bank shall, without the prior agreement of the Bank, be immune from seizure or other measures of compulsory execution and sequestration, particularly of attachment within the meaning of Swiss law. [12][bold emphasis added]

As you can see, the BIS, its directors and employees (past and present) can do virtually anything and everything they want, with complete secrecy, immunity and with no one looking over their shoulders. It was truly a banker's dream come true, and it paved the international freeway for the rampant financial globalism that we see manifest today.

Footnotes:

1, Quigley, Tragedy & Hope, (MacMillan, 1966), p.308

2, Edgar B Nixon, ec., Franklin D. Roosevelt and Foreign Affairs, Volume III (Cambridge: Balknap Press, 1969) p. 456

3, Sutton, Wall Street and the Rise of Hitler, (GSC & Associates, 2002) p. 26

4, Quigley, op cit, p. 324

5, BIS web site, Extracts from the Hague Convention, www.bis.org/about/conv-ex.htm

6, BIS, Statutes of the Bank for International Settlements Article 3 [as if January 1930, text as amended on March 10,2003], Basic Texts (Basle, August 2003), p. 7-8

7, Baker, The Bank for International Settlements: Evolution and Evaluation, (Quorum, 2002), p. 20

8, ibid., p. 16

9, BIS, Protocol Regarding the Immunities of the Bank for International Settlements, Basic Texts, (Basle, August 2003), p. 33

10, ibid, Article 12, p.43.

11, ibid, p. 44

12, BIS, Extracts from the Headquarters Agreement, www.bis.org/about/hq-ex.htm

© 2005 Patrick Wood - All Rights Reserved

Acting as a central bank, the BIS has sweeping powers to do anything for its own account or for the account of its member central banks. It is like a two-way power-of-attorney - any party can act as agent for any other party.

Article 21 of the original BIS statutes define day-to-day operations:

1, buying and selling of gold coin or bullion for its own account or for the account of central banks;

2, holding gold for its own account under reserve in central banks;

3, accepting the supervision of gold for the account of central banks;

4, making advances to or borrowing from central banks against gold, bills of exchange, and other short-term obligations of prime liquidity or other approved securities;

5, discounting, rediscounting, purchasing, or selling with or without its endorsement bills of