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…………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

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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.

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

[2] Ibid.

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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 exchange, checks, and other short-term obligations of prime liquidity;

6, buying and selling foreign exchange for its own account or for the account of central banks;

7, buying and selling negotiable securities other than shares for its own account or for the account of central banks;

8, discounting for central banks bills taken from their portfolio and rediscounting with central banks bills taken from its own portfolio;

9, opening and maintaining current or deposit accounts with central banks;

10, accepting deposits from central banks on current or deposit account;

11, accepting deposits in connection with trustee agreements that may be made between the BIS and governments in connection with international settlements.;

12, accepting such other deposits that, as in the opinion of the Board of the BIS, come within the scope of the BIS’ functions.[1]

The BIS also may

1, act as agent or correspondent for any central bank

2, arrange with any central bank for the latter to act as its agent or correspondent;

3, enter into agreements to act as trustee or agent in connection with international settlements, provided that such agreements will not encroach on the obligations of the BIS toward any third parties.[2]

Why is "agency" an important issue? Because any member of the network can obscure transactions from onlookers. For instance, if Brown Brothers, Harriman wanted to transfer money to a company in Nazi Germany during WWII (which was not "politically correct" at that time), they would first transfer the funds to the BIS thus putting the transaction under the cloak of secrecy and immunity that is enjoyed by the BIS but not by Brown Brothers, Harriman. (Such laundering of Wall Street money was painstakingly noted in Wall Street and the Rise of Hitler, by Antony C. Sutton.)

There are a few things that the BIS cannot do. For instance, it does not accept deposits from, or provide financial services to, private individuals or corporate entities. It is also not permitted to make advances to governments or open current accounts in their name.[3] These restrictions are easily understood when one considers that each central bank has an exclusive franchise to loan money to their respective government. For instance, the U.S. Federal Reserve does not loan money to the government of Canada. In like manner, central banks do not loan money directly to the private or corporate clients of their member banks.

The board of directors consist of the heads of certain member central banks. Currently, these are:

• Nout H E M Wellink, Amsterdam (Chairman of the Board of Directors)
• Hans Tietmeyer, Frankfurt am Main (Vice-Chairman)
• Axel Weber, Frankfurt am Main
• Vincenzo Desario, Rome
• Antonio Fazio, Rome
• David Dodge, Ottawa Toshihiko Fukui,
• Tokyo Timothy F Geithner, New York
• Alan Greenspan, Washington
• Lord George, London
• Hervé Hannoun, Paris
• Christian Noyer, Paris
• Lars Heikensten, Stockholm
• Mervyn King, London
• Guy Quaden, Brussels
• Jean-Pierre Roth, Zürich
• Alfons Vicomte Verplaetse, Brussels[4]

Of these, five members ( Canada, Japan, the Netherlands, Sweden and Switzerland) are currently elected by the shareholders. The majority of directors are "ex officio," meaning they are permanent and are automatically a part of any sub-committee.

The combined board meets at least six times per year, in secret, and is briefed by BIS management on financial operations of the bank. Global monetary policy is discussed and set at these meetings.

The interoperation between the three entities is understandably confusing to most people, so a little clarification will help.

The International Monetary Fund (IMF) interacts with governments whereas the BIS interacts only with other central banks. The IMF loans money to national governments, and often these countries are in some kind of fiscal or monetary crisis. Furthermore, the IMF raises money by receiving "quota" contributions from its 184 member countries. Even though the member countries may borrow money to make their quota contributions, it is, in reality, all tax-payer money.[6]

The World Bank also lends money and has 184 member countries. Within the World Bank are two separate entities, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD focuses on middle income and credit-worthy poor countries, while the IDA focuses on the poorest of nations. In funding itself, the World Bank borrows money by direct lending from banks and by floating bond issues, and then loans this money through IBRD and IDA to troubled countries.[7]

The BIS, as central bank to the other central banks, facilitates the movement of money. They are well-known for issuing "bridge loans" to central banks in countries where IMF or World Bank money is pledged but has not yet been delivered. These bridge loans are then repaid by the respective governments when they receive the funds that had been promised by the IMF or World Bank.[8]

The IMF is the BIS' "ace in the hole" when monetary crisis hits. The 1998 Brazil currency crisis was caused by that country's inability to pay inordinate accumulated interest on loans made over a protracted period of time. These loans were extended by banks like Citigroup, J.P. Morgan Chase and Fleet Boston, and they stood to lose a huge amount of money.

The IMF, along with the World Bank and the U.S., bailed out Brazil with a $41.5 billion package that saved Brazil, its currency and, not incidentally, certain private banks.

Congressman Bernard Sanders (I-VT), ranking member of the International Monetary Policy and Trade Subcommittee, blew the whistle on this money laundry operation. Sander's entire congressional press release is worth reading:

BURLINGTON, VERMONT - August 15 - Congressman Bernard Sanders (I-VT), the Ranking Member of the International Monetary Policy and Trade Subcommittee, today called for an immediate Congressional investigation of the recent $30 billion International Monetary Fund (IMF) bailout of Brazil.

Sanders, who is strongly opposed to the bailout and considers it corporate welfare, wants Congress to find out why U.S. taxpayers are being asked to provide billions of dollars to Brazil and how much of this money will be funneled to U.S. banks such as Citigroup, FleetBoston and J.P. Morgan Chase. These banks have about $25.6 billion in outstanding loans to Brazilian borrowers. U.S. taxpayers currently fund the IMF through a $37 billion line of credit.

Sanders said, "At a time when we have a $6 trillion national debt, a growing federal deficit, and an increasing number of unmet social needs for our veterans, seniors, and children, it is unacceptable that billions of U.S. taxpayer dollars are being sent to the IMF to bailout Brazil."

"This money is not going to significantly help the poor people of that country. The real winners in this situation are the large, profitable U.S. banks such as Citigroup that have made billions of dollars in risky investments in Brazil and now want to make sure their investments are repaid. This bailout represents an egregious form of corporate welfare that must be put to an end. Interestingly, these banks have made substantial campaign contributions to both political parties," the Congressman added.

Sanders noted that the neo-liberal policies of the IMF developed in the 1980's pushing countries towards unfettered free trade, privatization, and slashing social safety nets has been a disaster for Latin America and has contributed to increased global poverty throughout the world. At the same time that Latin America countries such as Brazil and Argentina followed these neo-liberal dictates imposed by the IMF, from 1980-2000, per capita income in Latin America grew at only one-tenth the rate of the previous two decades.

Sanders continued, "The policies of the IMF over the past 20 years advocating unfettered free trade, privatizing industry, deregulation and slashing government investments in health, education, and pensions has been a complete failure for low income and middle class families in the developing world and in the United States . Clearly, these policies have only helped corporations in their constant search for the cheapest labor and weakest environmental regulations. Congress must work on a new global policy that protects workers, increases living standards and improves the environment."

One can surmise that a financial circle exists where the World Bank helps nations get into debt, then when these countries can't pay their massive loans, the IMF bails them out with taxpayer money -- and in the middle stands the BIS, collecting fees as the money travels back and forth like the ocean tide, while assuring everyone that all is well.

On March 10, 2003, the BIS abandoned the Swiss gold franc as the bank's unit of account since 1930, and replaced it with the SDR.

SDR stands for Special Drawing Rights and is a unit of currency originally created by the IMF. According to Baker,

"The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. SDR's are allocated to member countries in proportion to their IMF quotas. The SDR also serves as the unit of account of the IMF and some other international organizations. Its value is based on a basket of key international currencies."[9]

This "basket" currently consists of the euro, Japanese yen, pound sterling and the U.S. dollar.

The BIS abandonment of the 1930 gold Swiss franc removed all restraint from the creation of paper money in the world. In other words, gold backs no national currency, leaving the central banks a wide-open field to create money as they alone see fit. Remember, that almost all the central banks in the world are privately-held entities, with an exclusive franchise to arrange loans for their respective host countries.

There is no doubt that the BIS is moving the world toward regional currencies and ultimately, a global currency. The global currency could well be an evolution of the SDR, and may explain why the BIS recently adopted the SDR as its primary reserve currency.

The Brandt Equation, 21st Century Blueprint for the New Global Economy notes, for instance, that

Since the SDR is the world's only means of meeting international payments that has been authorized through international contract, "The SDR therefore represents a clear first step towards a stable and permanent international currency"[10]

As to regional currencies, the BIS has already been hugely successful in launching the euro in Europe. Armed with new technical and social know-how, the BIS' next logical step is to focus on America and Asia.

For instance, according to BIS Papers No. 17, Regional currency areas and the use of foreign currencies,

"Canada, Mexico and the United States are members of the trade group NAFTA. Given the high proportion of Canada and Mexico’s trade with the United States, a NAFTA dollar or “Amero” has been proposed by some Canadian academics such as Grubel (1999). See also Beine and Coulombe (2002) and Robson and Laidler (2002)."[11]

Assuming that NAFTA permanently identifies Canada, the U.S. and Mexico as one trading block, then North America will look like the European Union and the Amero will function like the Euro. All of the work put into the SDR would be perfectly preserved by simply substituting the Amero for the U.S. dollar when they choose to bring the Amero to ascendancy over the dollar.

For those American readers who do not grasp the significance of the adoption of the euro by European Union countries, consider how one American globalist describes it.

C. Fred Bergsten is a prominent and core Trilateral Commission member and head of the Institute for International Economics. On January 3, 1999, Bergsten wrote in the Washington Post

"The adoption of a common currency is by far the boldest chapter of European integration. Money traditionally has been an integral element of national sovereignty ...and the decision by Germany and France to give up their mark and franc ...represents the most dramatic voluntary surrender of sovereignty in recorded history. The European Central Bank that will manage the euro is a truly supranational institution".[12]

Bergsten will have to rephrase this when the U.S. gives up the dollar for the amero -- that will become the most dramatic voluntary surrender of sovereignty in recorded history!

Our credo is "Follow the money, follow the power." This report has endeavored to follow the money. We find that:

• The BIS is central bank to all major central banks in the world
• It is privately owned by central banks themselves, most of whom are also private
• It was founded under questionable circumstances by questionable people
• It is accountable to no one, especially government bodies
• It operates in complete secrecy and is inviolable
• Movement of money is obscured and hidden when routed through the BIS

Footnotes:

1, Baker, op cit, p. 26-27

2, ibid, p. 27

3, BIS, The BIS in profile, Bank for International Settlements flyer, June, 2005

4, BIS, Board of Directors, www.bis.org/about/board.htm

5, Epstein, Ruling the World of Money, Harper's Magazine, 1983

6, IMF web site, http://www.imf.org

7, World Bank web site.

8, Baker, op cit, p. 141-142

9, IMF web site

10, The Brandt Equation: 21 st Century Blueprint for the New Global Economy. The Brandt Proposals - A Report Card: Money and Finances.

11, BIS, Regional currency areas and the use of foreign currencies, BIS Papers No. 17, September, 2003

12, Washington Post, The Euro Could Be Good for Trans-Atlantic Relations, C. Fred Bergsten, January 3, 199

© 2005 Patrick Wood - All Rights Reserved

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An example of the sort of consequences we can expect if we continue with current policies can be gleaned from the following article about the USA economy.

Economic Armageddon? It may come sooner than you think

by Randolph T. Holhut, DUMMERSTON, Vt. - There will be many chickens coming home to roost in President Bush's second term. Perhaps the biggest one of all will be the true state of the American economy.

Despite the wholly unjustified optimism we hear from the Bush administration, we are starting to hear some disturbing news about the true state of the domestic economic picture.

Economists are starting to use words like "meltdown," "Armageddon" and "banana republic" to describe what may be ahead for the United States.

How bad are things? Stephen Roach, the chief economist for Morgan Stanley, recently gave a closed-door briefing to New England mutual fund managers in Boston. The Boston Herald received a copy of Roach's talk and what he had to say is bloodcurdling.

Roach said the United States has about a one in 10 chance of avoiding a complete financial collapse, a three in 10 chance that another recession will hit and a six in 10 chance that "we'll muddle through for a while and delay the eventual Armageddon."

America has a record trade deficit (according to the Commerce Department, it was $549 billion in 2003 - $124 billion with China alone). We're importing far more goods than we're exporting and once they're tallied, the 2004 numbers will be even worse. To fund this deficit, the United States borrows more than $550 billion a year from foreign sources.

The federal government is running up record deficits, closing in on $500 billion in the current federal budget. The dollar is going down, down, down against the world's other currencies, making the imported goods that this nation has come to rely on that much more expensive.

As the trade deficit keeps rising, Roach said the dollar's value will keep falling and foreign investors will be less interested in lending us money. As the federal deficit keeps rising, the government will have to borrow more money, which will fuel inflation. Federal Reserve Chairman Alan Greenspan will end up having to raise interest rates higher and quicker than he'd like. Once interest rates go up, over-mortgaged and over-indebted households will hit the financial wall. Foreclosures will increase. Consumer spending will decrease. Unemployment will rise, as will the federal deficit.

Roach said the total debt of U.S. households 20 years ago was equal to half the size of the total domestic economy. Today, it's 85 percent. With Americans spending a record share of their disposable income to service their debt, a wave of bankruptcies seems inevitable if interest rates rise.

Paul Krugman, the Princeton economist and columnist for The New York Times, said in a recent interview with the Reuters news service that the U.S. economy now resembles Argentina in the 1990s.

Krugman pointed out that tax cuts and privatization of social security - the two centerpieces of President Bush economic plan for his second term - drove Argentina's debt to unsustainable levels, forcing the country to default on an estimated $100 billion of foreign debt in 2001, the largest default in modern economic history.

The combination of the falling value of the dollar and the skyrocketing trade and budget deficits is setting our nation up for a financial disaster of epic proportions - a disaster that is more likely to happen with President Bush's economic policies.

Krugman calls the Bush administration "a group of people who don't believe that any of the rules really apply. They are utterly irresponsible." He also said that the U.S. economy resembles Argentina's "a whole lot more than anyone is quite willing to admit at this point. We've become a banana republic."

The only saving grace that Krugman said he sees coming out of the coming economic disaster is that "at some point there is going be a popular tidal wave against what has happened. In the meantime, you keep banging on the drum, you keep telling the truth."

The truth which needs to be told and which Americans need to understand is that the United States is on a totally unsustainable economic course.

Our prosperity is completely tied to cheap oil, but the average price is now about $50 a barrel and experts believe the double whammy of increased global demand and declining reserves could mean even higher oil prices in the next decade.

Maintaining access to cheap oil means spending hundreds of billions of dollars maintaining a military force whose primary job these days is to be security guards for Middle Eastern petroleum. The money to pay for guarding the oil is drying up because of President Bush's insistence on cutting taxes. The "war on terror" is America's first war where taxes have not been increased to pay for it.

When Bush first took office in 2001, the Congressional Budget Office forecast a $5.6 trillion federal budget surplus that would accumulate through 2010. That's now long gone. The CBO now predicts a budget deficit of at least $3 trillion by 2010.

President Bush managed to keep the worst of these economic problems at bay to ensure his winning a second term. He will not have such luck in the next four years. If foreign investors increasingly see the United States as an economically unstable banana republic whose debt is growing faster than its revenues, they are simply not going to keep lending us money. That's when the bill will come due, and what happens after that could be exceedingly ugly.

---

Randolph T. Holhut has been a journalist in New England for more than 20 years. He edited "The George Seldes Reader" (Barricade Books). He can be reached at randyholhut@yahoo.com.

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

More grist to the mill.

http://www.guardian.co.uk/business/story/0,3604,1367154,00.html

US privilege becomes even more exorbitant

James K Galbraith

Monday December 6, 2004

The Guardian

Today's dollar jitters are no surprise; the few Keynesian economists left have long thought them overdue. Here's why:

· We have over many years worn down our trade position in the world economy, depending for our living standard on the willingness of the world to accept dollar assets - stocks, bonds and cash - in return for real goods and services.

· For decades the western world tolerated this "exorbitant privilege" of a dollar-reserve economy because the United States was the indispensable power, providing reliable security without intolerable violence. Those rationales evaporated 15 years ago.

· In the late 1990s, the US position was held up by the glamour of the information technology boom, which brought capital flooding in from more precarious perches in Russia, Asia and other parts of the world. But that too has turned to dust and ashes.

· The concentration of our manufactures trade on China and Japan now means that those two countries now hold preposterous dollar reserves, and their actions substantially determine the dollar's value.

· Chinese and Japanese behaviour is constrained by creditor's risk. If they sell too many dollars, the rest of their portfolio plummets and they inflict large losses on themselves. This consideration prompts caution. But if one major player gets wind that others may dump, caution could end. This is exactly analogous to an old-fashioned run on the bank.

Reducing the budget deficit will not save the dollar, contrary to what many Democrats may think. A bank, hit by a panic, cannot save itself by cutting its advertising budget, raising its fees or firing its staff. And once a rush gets going, jacking up interest rates won't stop it either.

So now we hear rumours of Russia trading dollars for euros, of India diversifying its reserves, of China contemplating the same. The Morgan Stanley economist Steven Roach apparently told clients to gird for an "economic Armageddon". The dyke, once solid, starts to crack; none can say just where or when it will break. But the little Dutch boy, Alan Greenspan, went to Frankfurt a few days back and plainly stated that he did not have enough fingers.

The most stunning aspect of these events has been Bush's insouciance. It's almost as if he realises the awful truth: that the dollar's decline is mainly good for his friends - and bad mainly for those about whom he couldn't care less.

The dollar's decline immediately boosts the stock market. Multinationals have earnings in the US and in Europe. When the dollar falls, US earnings stay the same but the European earnings go up when measured in dollars. Oil prices in dollars will stay up - at least enough to prevent the price in euros from falling. This too helps US oil company profits, measured in dollars.

Meanwhile, China will keep its yuan pegged, and prices of Chinese imports won't rise much, so Wal-Mart isn't badly hurt. American consumers get hit, but mainly on the oil price. Few will recognise the political roots of their problem.

Since the US owes its debts in dollars, pain will fall first on China and Japan. Tough. Latin American debtor countries will get hit on their exports, but helped on their debt service. Those (such as Mexico) who export almost exclusively to the US will get squeezed; others (such as Argentina) who market to Europe but pay interest in dollars will be hurt less.

An unequivocal loser is Europe, which hoped for an export-led fix to its own, largely self-inflicted, mass unemployment. The Europeans can forget about that.

It's possible that Alan Green span could change his mind, raise interest rates and inflict on us all the monumental folly of a "dollar defence". Sharply rising interest rates could cure both inflation and the weak dollar - as they did in the early 1980s. But the resulting slump would be even more disastrous than it was then, because debt levels are higher now.

I don't expect it. I bet Greenspan will take a pass on all the past decades of Federal Reserve myth-making. He will sit on his hands as oil and other import prices rise. Given the alternatives, it's probably the right course of action. But let no one say later, with a straight face, that our central bank takes seriously all its bunkum about fighting inflation.

Thus the dollar could decline smoothly for a while and then, simply, stop falling. US exports might recover somewhat, helping manufacturing, though there's no chance exports and imports will balance. But even so, the dollar system could stay intact, so long as China and Japan go on adding new dollars to their depreciated hoard.

A final panic could come later, set off perhaps by some new reckless military action. But for the moment, the theatre has too few exits, too few spectators.

Perhaps God really does look after children, small dogs and the United States.

· James K Galbraith teaches at the University of Texas at Austin, and is senior scholar at the Levy Economics Institute

Guardian Unlimited © Guardian Newspapers Limited 2004

NOTICE: In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Feel free to distribute widely but PLEASE acknowledge the original source. ***

And even more grist to the mill

Web source: http://www.jacksonprogressive.com/issues/econandwelfare/dollarandsanity120404.html

Reprinted from: The Jackson Progressive (USA)

The dollar and sanity

by Tom Lowe

The Crisis

The plight of the dollar was on the front page the New York Times today. Americans have been buying Asian goods but the U.S. has not been selling American goods to Asians The balance of payments is now so out of kilter that together Japan and China hold 1.4 trillion dollars in American debt in the form of government securities and mortgages. They are deeply invested in these instruments for one simple reason: it maintains the value of the dollar, thus keeping Japanese and Chinese goods inexpensive--and therefore competitive--in the American market. If the dollar falls, it will take more dollars to buy a DVD player or a personal computer, and Asian industry will find that its sales to the U.S. will fall like a stone, throwing both Asia and probably the rest of the world, into an economic meltdown. Because this is an unthinkable outcome, the two Asian economic giants have dutifully financed our deficit for the past ten or so years.

We warned readers of this situation almost five years ago. Debt, even national debt, cannot accumulate forever. Eventually, creditors become nervous and start insisting on payment. When the debtor is the United States government, relatively immune from normal collection procedures, the response is to begin selling our debt instruments on the open market, an action that will invariably prompt other debt holders to do the same. A glut of U.S. Treasury paper on the world market can have only one outcome: a precipitous fall in the value of the dollar.

This year, as the Times points out, other countries purchased $620 billion of our debt, an amount that represents 5.7% of overall economic activity. They did it to avoid disaster, but like a Ponzi scheme, avoiding disaster simply makes the adjustment, when it comes, even worse.

Creditors are finally becoming really nervous, or otherwise the news would not appear on the front page of the most important newspaper in the world. China and Japan, on the other hand, are caught in the game just as tightly--perhaps more so--than the U.S., because as soon as they begin to sell U.S. Treasury paper, the market value of their holdings will decline faster than the proceeds of the sales

As the dollar begins to falter, the U.S. will be forced to finance its deficit by paying a higher interest rate. Treasury paper will descend to the level of junk bonds, as creditors demand a higher interest rate to cover the risk of default. Higher interest rates in the U.S. will put heavy brakes on the economy, deepening the recession we are now experiencing.

To this precarious fiscal situation, we now add the very likely shortfalls in both oil and gas production and the simultaneous surge in energy prices, as expanding economies vie with each other to buy adequate supplies from either a flat or diminishing supply of what is truly the lifeblood of our civilization. Today, almost all of the oil-producing nations price their output in dollars. That is why the dollar is now the preeminent currency in the world: nations must pay dollars for oil. Therefore, dollars are indispensable.

A decline in the dollar will put pressure on the producing nations to price their oil sales in a more stable currency, such as the euro, which now is rapidly appreciating against the dollar. If you realize that Saddam Hussein was making noises about pricing Iraq's oil in euros instead of dollars, you may begin to understand why the Bush administration found it necessary at all costs to invade Iraq and depose Saddam. You also might begin to understand why the U.S. continues to pop up the venal, totalitarian and corrupt royal family of Saudi Arabia, the world's largest oil producer.

First, we can blame our leaders from 1980 on for their short-sightedness. Not a single president from Reagan on has been even remotely honest with the American people about energy, the environment, or what was happening to the economy. By keeping interest rates high, and therefore keeping the dollar high, the Reagan administration literally gutted our industrial plant, creating a Rust Belt from formerly wealthy cities and states with well-paid workers and a high level of public services. A strong dollar, bolstered by high interest rates, kept energy prices low and consequently made us dependent upon imported oil, as we bought gas-guzzling SUVs and light trucks like drunken sailors. Successive administrations, beholden to big business, deliberately ignored the findings of the scientific community that humans were altering the environment in ways that threatened our survival.

Second, we can blame foreign leaders for putting up with our balance of payments deficits. If they had started selling dollars twenty years ago, we would not have many of the problems we have today. As the dollar declined, the price of imported energy would have gone up, and we would have started thinking hard about how we might live with less driving, smaller vehicles, heat-efficient housing and decent public transportation.

Third, we can specifically blame the Bush administration for the enormous tax cuts for the wealthy that did little to alleviate the recession and exacerbated the problems with our balance of payments. We can further blame the Bush administration for deliberately dismantling the modest protections for the environment and in pandering to the public's love affair with the motorcar. We can blame the Bush administration for changing what had previously been a slow march to financial disaster into a gallop.

Fourth, we can blame Congress for its short-sighted support of the presidential policies that have brought us to this point. They are a sorry lot.

Fifth, and perhaps most of all, we can blame ourselves. We are to blame for allowing our political system to fall into the hands of unprincipled men whose sole purpose is to stay in office and who will do or say anything that will keep them there. We are to blame for refusing to acknowledge what the scientific community has been telling us for years. We are to blame for trading some of our most important freedoms for the promise of cheap oil, bigger automobiles, and more security. As Benjamin Franklin observed, those who make that bargain deserve neither freedom nor security. We are now in a position in which we stand to lose both.

I am deeply pessimistic. Our government appears to be doing its best to keep things going as they are now as long as possible and then, when it all falls down around our ears, to impose what can only be described as a fascist regime, backed up by the military and a militarized police force, much like some of the nastier South American regimes our government has supported over the past hundred years. The American people have become so wilfully ignorant, so docile, and so taken by fear and anxiety that they have allowed the infrastructure of oppression to be established before their very eyes.

The author is no expert in all the things that would be necessary to avoid the coming abyss, but it doesn't take a genius to pick out some of them.

We simply must reduce our consumption of oil and gas. If we don't do it now, when we can cushion the ill effects, we will face either oil priced out of our reach or severe shortages. The dependence of agriculture upon petroleum must also be greatly reduced. Europeans enjoy roughly the same standard of living as ourselves with half the per capita energy consumption. We will probably have to endure considerable inconvenience in the transition, but the only alternative is something much worse in a few years.

We must institute a crash program in renewable energy. Presidents and congresses have resisted this for 24 years, under pressure from the energy industry. We no longer have the luxury of keeping our heads in the sand.

We must reduce our balance of payments deficit. That means that we will have to buy less from overseas or sell more to Japan and China. If that means that the dollar must fall, or that we have to institute a general tariff, it must be done. Every dollar that goes overseas is a dollar not earned by a worker in the U.S.

Every administration and congress since 1980 has promoted and adopted legislative and policy changes that have transferred wealth and income from the middle and lower classes to the extremely wealthy. The U.S. has the highest level of inequality of all the industrial nations. The Bush administration, by its tax reductions for the very wealthy and its elimination of the estate tax, has exacerbated that trend. This must stop and even be reversed. Steeply progressive income and estate taxes are fair and sensible. Somehow, we must muster the political will to bring this about.

There is no excuse for not having a national health plan. Our nation spends twice the percentage of the GDP on health care as other industrial nations, but our health is no better. Too great a percentage of what we spend on health care goes into the pockets of CEOs of health insurance companies and shareholders. In order to keep the national health plan reasonably priced, we must put a very high priority on public health. Healthy people don't need the level of health care that sickly people do.

Our military-industrial complex must be brought to heel. Having no significant enemies in the world, our level of military expenditure is not only indefensible, it is evil and a threat to humanity.

Finally, and perhaps most importantly, we must disabuse ourselves of the belief that happiness consists of owning a lot of stuff, whatever that "stuff" may be. We might mouth the old saw that wealth doesn't bring happiness, but we don't believe it in our own hearts, because we have been conditioned ("brainwashed") into believing that happiness comes from having and consuming. Whatever value that belief had a hundred years ago, it is now leading us to disaster, as we plunder the world to sustain our acquisition of stuff.

Both conservatives and liberals have betrayed the American people. You did not hear these issues debated in the presidential debates of 2004. You have not heard them debated on television, nor in the newspapers. There is a tacit agreement among the powerful in this nation that these remain non-issues. Nevertheless, they are the elephant in the bathtub. We ignore them at our peril.

Source: COMER journal (Canada), December 2004 issue

Date: Tuesday, 7 December, 2004

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The Coming Depression in China

by David Gracey

Lately the business press has been salivating over the Chinese economic miracle: double digit growth for a decade, a huge trade surplus, booming real estate and manufacturing, etc. The Globe and Mail recently devoted an entire edition to China. Most of the coverage is of the cheer-leading sort. Here’s the next super tiger economy. Don’t miss this opportunity! There is the occasional nod to problems and divisions in Chinese society such as the lack of democracy and human rights, but the general tone is strongly positive.

For a different (and more realistic) assessment of China we have Russian economist Krassimiv Petrov (www.gloomdoomboom. com). He sees an economic bubble building in China, similar to the one in Japan in the 1980s. As always, the Chinese bubble is derived from a huge credit expansion. The Chinese money supply, according to the Chinese central bank, rose from 11.89 trillion yuan in January 2001 to 22.51 trillion yuan in January 2004 almost a 100% increase. This is greater than the credit expansions that preceded the Great Depression in the US, and the Japanese depression of the 90s. Lately the Chinese central bank has attempted to dampen the boom by raising interest rates and restricting credit to certain sectors, but these measures appear to be having little effect (The Globe and Mail, Oct. 30). Petrov predicts that the bubble will inevitably burst by 2008, and the great Chinese depression will ensue.

The effects will be felt here. The credit expansion has helped maintain a low exchange rate for the Chinese currency, which in turn has fueled a huge trade surplus. The US has a vast trade deficit with China, but that is covered in part by the Chinese purchases of US debt. A Chinese depression will, of course, end this symbiotic relationship and the US economy will plunge into depression as well as China is forced to repatriate its US assets.

Petrov postulates an exact parallel between the current US Chinese relationship and that which existed between the US and Britain/Europe in the 1920s. At that time Britain was an overstretched imperial power (as the US is today) trying to maintain a strong currency but heavily dependent on borrowing abroad. The US extended loans to Europe in order to maintain demand for US exports (like China today) but most of the loans were unsound, and could not be repaid. So the bubble inevitably burst and the Great Depression followed.

Of course the root of the problem then as now is a monetary system that facilitates such a credit expansion and its subsequent collapse. The Chinese banks, like their Japanese counterparts in the 80’s, have been pouring money into real estate and the other expanding sectors. These loans are predicated on continual high rates of growth. When the growth slows or stops, many of the loans become “non-performing.” The banks are forced to retrench and the money supply falls. It is a pattern that repeats endlessly with disastrous consequences yet, when the crash comes, you can be sure that the media will advance any number of explanations that have nothing to do with the root cause.

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As The World Burns, By Michael C. Ruppert

-- But when the run on the dollar begins, OPEC will inevitably at some point switch its pricing to the Euro, which the entire world is wrangling - much to Europe's chagrin - into not only a safe-haven currency, but a profitable one. The next house is being built before the old one is abandoned. When the run on the dollar begins, it will be as if the rest of the world declared war on the United States of America by launching a missile, dropping a bomb, or landing an army at Bethany Beach, Delaware. That this will lead ultimately to widespread global warfare seems certain. This is exactly the way the administration is setting it up to appear to the American people. Think of 9/11 times fifty.

The rest of the world is merely defending itself with non-violent means - for the moment. But it will be portrayed as an attack upon the US. "Why?" George Bush will ask, rhetorically. "They hate us because of our freedom."

And, barring a miracle, the end results will be exactly the same as from a physical attack: devastation so complete and unthinkable - magnified by the brutal impacts of Peak Oil - that only a few will even try to prepare for it. That is sad because preparation will make all the difference (barring luck or divine intervention) in who survives and to what extent they remain intact and functioning afterwards.

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News Weekly, 4 December 2004

While the Australian economy has stayed buoyant from a borrowing and spending spree for housing, Reserve Bank governor Ian Macfarlane has warned that the bubble must eventually burst.

The Howard Government kept the economy bubbling along on the back of a booming housing market, helping it to win the recent federal election.

Prosperity meant there was no reason to change government. The fear of higher interest rates under Labor made it doubly certain voters would not change government.

The extent of our spending spree was spelt out by The Age newspaper's Tim Colebatch: "In 1980, Australian companies, governments and households owed the world just a net $8 billion, or 6 per cent of GDP. In 2004 we owe the world $393 billion, or 48 per cent of GDP. In the past five years, the value of our annual output has risen by $224 billion, yet our net debt has risen by $163 billion.

"Suppose we had not borrowed and spent all that money. Would Australia's growth look so impressive for the past five years, or the past 25?"

Much of our recent borrowings have gone into the property market. Over the past year, net lending for housing soared to $200 billion, to about a quarter of our GDP. In 1986-87, it was only 15 per cent of GDP.

The huge investment in housing is reflected in the massive rise in household debt. In 1990 it was 50 per cent of household income, but now it is 150 per cent of household income.

Two weeks ago Reserve Bank of Australia governor, Ian Macfarlane, stepped up his warning of a housing market bubble.

He said, "There has been a step-by-step reduction in credit standards over recent years. A significant proportion of mortgages are now sold by brokers who are paid by commissions on volumes sold ...

"Intermediaries are now lending to individuals whose income is not substantiated. There has also been an upward drift in the maximum permissible debt-servicing ratio.

"When once a maximum of 30 per cent of gross income was the norm, now it is possible for borrowers on above-average income to go as high as 50 per cent of gross income ... The new lending models used by the banks ... seem to regard the bulk of income above subsistence as being available for debt-servicing."

Macfarlane was describing how mortgage-brokers have reduced their lending standards, in large part because they no longer carry the risk of home-buyers defaulting, as was once the case by the banks. They are able to bundle up a package of mortgages, say worth $100 million, sell these mortgages as bonds and then use the new revenue raised to finance another $100 million worth of property loans.

Mortgage-brokers have sold about $85 billion worth of mortgage bonds as securities since 2000, while regional banks, credit unions and building societies have sold about $47 billion in mortgage bonds securities.

Tony Boyd, of the Australian Financial Review, recently reported how officials of the Australian Prudential Regulation Authority (APRA), the regulator of Australia's financial institutions, have criticised the banks for:

* Failing to independently verify customer data - particularly debt-servicing ability.

* The use of informal means of valuing properties.

* Inadequate information systems on vital loan information.

* Unsatisfactory error rates in compliance with the terms and conditions of lenders' mortgage insurance.

Macfarlane warns that, while lenders have tightened up on lending to some sectors like inner-city housing, "these have been small steps compared to the much bigger drift to lower credit standards ..."

Under federal legislation, the Reserve Bank's primary task is to keep inflation low, not manage the property market.

But any interest rate moves will have consequences on the mainstay of the apparent economic prosperity over which the Howard government presides.

If rates rise, it will prick the property bubble, leaving many homebuyers in heavy debt, and precipitate a recession.

If interest rates stay low, the property market will continue to boom.

Where Australian interest rates go now will most likely depend not on Mr Macfarlane but on his US counterpart, Alan Greenspan, who has been warning of the problems posed by the rising US foreign debt and rising US government debt. Together they are driving down the U dollar.

Like Australia, the US has maintained its prosperity by borrowing from the rest of the world.

Japan, China and other Asian nations have lent to the US the huge trade surpluses they have gained from booming exports to the US. They have been prepared to lend to the US, partly because the US dollar became the world's reserve currency when the British pound forfeited that role after World War II.

But Greenspan warns of a double whammy. Not only is US foreign debt unsustainable, but the EU euro is slowly becoming the world's second reserve currency. A loss of confidence in the US dollar and a shift by investors into euros could force a severe decline in the value of the US dollar.

This would see a sharp rise in the value of the Australian dollar. That means we would earn even less from our exports and suck in more, cheaper imports. This would push up Australia's foreign debt even faster.

When our creditors eventually put the brakes on our debt binge, either we will have to start repaying our foreign debt or our interest rates will have to rise sharply - at a time when Australians are burdened with record household debt.

Then there is a real risk that Australia's debt binge will collapse like a house of cards.

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The SANE website in South Africa also promotes a LETS systems although they don't call it that. Here is an adjusted version of their spiel about the need for new money:

What's wrong with money?

The simple answer is that our conventional money system only works well for those who already have money and marginalizes the rest of us. It is also the fuel that powers the growth imperative of our economies, forcing us all to compete with each other and creating disastrous consequences for the health of our planet.

The main problem with conventional money is that most of it doesn't really exist. Entries in account ledgers and nowadays computer databases, signal to us to imagine that it exists. But it doesn't really - most of it is actually debt or negative quantities. We are encouraged by the commercial banks to believe that money `exists', so that they can 'lend' it to us at a price! To enable this to happen it

has to be created, distributed and the amount of it restricted and controlled. As money comes into existence when commercial banks grant loans (they create over 90% of our money supply like this - central governments don't), every unit in existence is based on a unit of debt. This determines the quantity of money, which has nothing to do with the amount of money people require to live decent lives.

Despite its modern electronic trappings, our conventional money system is a relic of history. It is the latter day equivalent of cattle or gold. The debt-based money system was developed for the industrial revolution to provide a rapidly expanding money supply that could not be provided by a money system based on the quantity of precious metals. This introduced intangible money (called `fiat' money) that did not exist in the same way as earlier 'hard' monies, but people are encouraged to continue treating it as a tradable commodity. Money that 'exists' in this way can thus be accumulated like any other commodity. It can also be stolen, traded, collected, destroyed and lost. Its distribution is not based on the delivery of value to others but on the ability of people to 'make money'.

Conventional money has no restraints and always flows away from where it is created and needed, towards the 'money centers'. New currencies (such as L.E.T.S.) break out of this system by taking this historical transformation of money from coin to abstract symbols as described, to its logical conclusion. It recognizes that the electronics revolution has eliminated the need for a physical exchange medium. Never before in the history of humankind has it been possible to record accurately who delivers value to whom. Now that this is possible through computers there is no longer a need for an 'existential' money. Money can at last truly measure the delivery of value and be based on nothing other than the expenditure of effort by people for other people. Money is really information, not a thing, or commodity.

If money does not need to exist as a thing it does not have to be created and distributed. People will earn 'money' solely on the basis of their delivery of value to others, not through charging interest, trading it in money markets and a multitude of other ways without delivering any real value.

Money that does not exist can never be in short supply. Everyone will be able to take as much from the social product as they give to it; no one will be able to take more than they give, as they do under our current money system. Wealth will remain where it is created and needed, and not leak away to the 'money centers'.

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ELECTRONZ - 448

20 December 2004

Weekly international Ezine focusing on the New Economics

[ 1 ] WHY MONETARY REFORM?

However, if you are like those of our readers who prefer short crisp explanations, no matter how brutal or provocative they are, the following should fill your bill. There may be justification for accepting the initiation of fractional reserve lending in the early days of banking while no one except bankers knew what was going on. However, there is now so much incontestable fact about so-called fractional deposit lending being nothing but a charade to conceal from the public that banks are actually using their "licenses" with government connivance, or ignorance, to create credit money literally out of nothing, that the fictional cloak should be dumped.

If the "money" they create was not at commercial interest, and was only the amount necessary to keep commerce functioning, an argument may be made in favour of it, but such is certainly not the case. The created "money", coming into existence as spendable credit figures in bank accounts, can be used to pay taxes and literally purchase anything, either here or elsewhere. Put more bluntly, it is a claim on the assets of the actual community; created by the community. It can be, and often is, used to "purchase " them, commonly as Government Bonds, company shares, and by the" writing off" of overdrafts, then even companies and real estate. Should a banking licence allow it to use its computers to generate figures to acquire other people's property? Monetary reformers contend that the benefit of creating the "money supply" should be limited to an organ of representative government; and not the privately owned finance industry.

[ 2 ] SPOTTY PAST OF MODERN BANKING

Politicians and economists also know that if they stop being buddies to the banking fraternity, being now the source for 97% of the national (M1) Money Supply, the mere thought or hint of some screwing down of lending criteria or repayment schedules can undermine business confidence with widespread and very unhealthy repercussions. It is widely recognised that there is a positive correlation between the availability of three production factors: Money; Physical resources, and Human resources. The extent of utilisation of the latter two is controlled by the availability of the first. That is why, in a cash starved community, the introduction of an effective and well run Green Dollar, Time, or LETS organisation can transform depression conditions into a grassroots boom, for those at the bottom of the heap. But for a countrywide boom at all levels, there is no substitute for a government committed to monetary reform at the national level.

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'Humanising' World Bank chief to hand over reins

Julie Ziegler Washington

World Bank president James Wolfensohn said he expects to leave his job after his term expires in June. "I've had 10 years and I think that's probably enough," Mr Wolfensohn, 71, said, "but if the need is there, I'll do whatever the shareholders want.

"My understanding and my belief is that probably [in] the course of this year, I'll give over to someone else."

US President George Bush is likely to push ahead with plans this year to narrow the focus of the World Bank, analysts said, returning the international lending institution to its roots of primarily financing large infrastructure projects and doing away with the practice of handing out zero per cent loans.

The lender, the largest financier of projects in developing nations, widened its scope under Mr Wolfensohn, who sought a more "humanising" role for the bank. Since taking over in 1995, he cut financing for infrastructure projects by 40 per cent, and shifted that money to programs promoting climate change, faith-based initiatives and helping the disabled.

"The magnitude of the change was really very significant," a former World Bank chief economist and 2001 Nobel Prize winner, Joseph Stiglitz, said. "He saw development in human terms. It wasn't just a bank, it was the impact that the world Bank had on the lives of individuals."

Mr Bush is seeking to scale back some of Mr Wolfensohn's projects, overhaul the bank's $US20 billion ($25.6 billion) a year lending operation and taper a roster of more than 10,000 employees scattered I 109 nations, Carnegie Mellon University economist Allan Meltzer said.

"The Wolfensohn era is over," Mr Meltzer, who led a congressional commission evaluating the bank's performance in 2000, said. "I don't think that his way of going about economic development fits with the Bush administration."

By tradition, the US President appoints the head of the World Bank. The head of the bank's sister institution, the International Monetary Fund, is named by European officials. Critics like Mr Meltzer say that projects overseen by Wolfensohn have shown little return for the bank.

Bloomberg

Australian Financial Review 4 Jan 2005

There is in existence a Labor Party flier used in the 1934 Federal General Election, written by J H Scullin, promoting the benefits of the Commonwealth Bank, A4 folded to 4 faces (A5) with the image of the original Commonwealth Building on the front. Remember the Commonwealth Bank tin money boxes, that building.

The text starts, "The Labor Party proposes to extend the scope of the Commonwealth Bank until complete control of banking and credit is in the hands of the nation."

Central Banks Count the Cost of Weak Dollar

By Agence France-Presse

Monday, January 10, 2005

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

FRANKFURT (AFP) - The weak dollar appears to be tearing holes in the annual accounts of central banks both in Europe and elsewhere around the world, with many banks considering reducing their official holdings in the US greenback.

The German business daily Handelsblatt reported that the European Central Bank, which booked a 2003 loss of 477 million euros (625 million dollars), saw its net loss widen to at least one billion euros last year as a result of the weak dollar.

The newspaper did not reveal its sources and said that the guardian of the euro had refused to comment on the information.

But already last week, the Bundesbank had conceded that press reports were "more or less accurate" when they claimed that the German central bank's annual profit had been whittled down to next to nothing as a result of the sharp fall in the value of the dollar.

Already in 2003, the Bundesbank saw its profit fall to just 248 million euros in 2003, its lowest level in 17 years as a result of the weak dollar.

And because the Bundesbank holds vast reserves of dollars, it was compelled to make heavy writedowns against its holdings of the greenback again in 2004, the reports said.

The ECB faces the same problem. The Handelsblatt said in its Monday edition that the world's second most powerful central bank, after the US Federal Reserve (news - web sites), was compelled to make 1.6 billion euros in writedowns against its dollar holdings.

Last year, the euro rose by 16 percent against the dollar, representing an increase of more than 60 percent compared with the historic lows it posted in autumn of 2000.

In addition, the ECB's earnings have dwindled because of the low level of interest rates around the world.

Central banks earn income from interest rates as well as from its [sic] activities in gold, foreign currency and securities trading.

Handelsblatt said the low level of interest rates alone knocked around 700 million euros off the ECB's net interest income.

If the Handelsblatt figures are correct, it will be the third annual loss posted by the ECB in the first few years of its existence.

In addition to the loss in 2003, it also booked a shortfall of 247.3 million euros in 1999.

According to data compiled by the International Monetary Fund, the dollar accounted for nearly 64 percent of central banks' foreign currency reserves worldwide at the end of 2003.

But the euro's role is strengthening -- it saw its share of the world's foreign currency reserves rise from 16.3 percent at the end of 2000 to 19.7 percent at the end of 2003.

And that trend looks set to continue.

Russian central bank president Sergey Ignatiev said last month that the Bank of Russia was considering changing the composition of its gold and foreign currency reserves to reduce its dollar holdings in favour of the euro.

Chinese authorities have embarked on a similar restructuring of their foreign currency reserves, but have not provided any concrete figures.

"The euro is under-represented" in international currency reserves, considering the "economic weight of the eurozone and the growing role of the euro in international commerce," said Exane-BNP Paribas economist Emmanuel Ferry.

Nevertheless, the dollar was still a long way from losing its supremacy as the world's main international reserve currency.

Doom For The Dollar--And Everything Else

Dan Ackman, 01.10.05

http://www.forbes.com/economy/2005/01/10/cx_da_0110doomdollar.html

NEW YORK - The stock market is up and economic growth has been steady, if unspectacular. But, an increasing number of economists are seeing serious storms build on the horizon. They point to ever-growing federal budget deficits, a record current-account deficit, increased consumer debt, a real estate market that looks like a bubble ready to burst, a surge in personal bankruptcies and the prospect of inflation.

Meanwhile, interest rates are on the rise, and if they increase much more, many of these problems could get dramatically worse.

Doomsayers tend to be ignored--until it's too late. This week, we give voice to five prophets of doom, starting with Peter Schiff, CEO and chief global strategist of Euro Pacific Capital.

Could the falling dollar mean we're in for a major financial disaster? He thinks so.

He has been warning about the currency's fall for a while now. Even though it lost a third of its value in the last two years against the euro, he believes it will decline even further. But, the dollar's fall is more a symptom than a cause. The real problem is that the U.S. is producing too little--and spending too much--and the result is likely to be far worse than the happy-talkers on Wall Street will ever let on.

"We are going to go through one of the most trying financial times in U.S. history, including the Great Depression," Schiff says.

Why Should We Care About The Falling Dollar?

"The basic problem," Schiff states, "is that Americans don't produce enough, and don't save enough." Indeed, over the past 15 years, the savings rate has fallen from over 6% to less than 1% in recent quarters. As a result, the goods that we are consuming are being supplied to us by foreigners. Not only are they producing the goods, but they are lending us the money to buy them, and, in doing so, are driving the U.S. deeper and deeper into debt to the rest of the world, Schiff says.

As American industry has lost productive capacity, it has become increasingly difficult for the U.S. to produce enough--and sell enough-to reduce that debt. The massive U.S. trade and current-account deficits, now at around 6% of the gross domestic product, mean that non-Americans are exchanging consumer goods today for consumer goods they will obtain in the future.

The U.S. doesn't have the ability to supply those goods, Schiff says.

"We are using dollars that we print to exchange for goods that we don't produce. We have to borrow from abroad as there are no domestic sources of savings, so the value of those dollars will continue to fall."

"Very bad," Schiff says. The dollar will fall a lot lower than it already has--dropping by perhaps 50% against the Japanese and Chinese currencies.

How will the government respond? Could efforts to forestall the currency decline have a perverse--and ultimately negative--effect? No matter what the outcome, Americans will have to consume a lot less and save a lot more. Spending on cars, clothing and electronics will all drop dramatically--perhaps right out of the economy.

"We are a society that has lived beyond its means for a long time," Schiff says, adding that while the trend has been evident for two or three decades, "in the last five years, it has gone off the deep end."

Americans are relying on foreigners more and more to produce goods, rather than producing them themselves.

Americans will have to restrict future consumption or default on debt, whether directly or indirectly. "I think something in the near future--maybe early this year--will make us realize the error of our ways," Schiff says. "Our creditors are going to stop. They are going to bite the bullet," which means realizing we can't repay them in the way they want and expect.

They will take a huge loss, but it will be necessary to check an unsustainable process. At that point, the people of Japan and other Asian nations will be able to consume a lot more, because they will send less of what they produce to the U.S.

"They will not be producing for us; they will be producing for themselves."

Meanwhile, to attract savings from abroad, the US will have to increase interest rates into the double digits. This will cause a serious wave of defaults in the real estate market and elsewhere.

"The further into the future this starts, the worse it will be for Americans," Schiff says.

"I don't know. A lot will depend on the government," Schiff says. The debt to Japan, China and others has been building for a long time. The process will also take some time to reverse. But, the analysts on Wall Street don't want to say this.

"They pull their punches, because they don't want to be marginalized. But, the fact is we owe Japan a fortune; it's not the other way around." And that, Schiff says, means the dollar will be heading south for a while.

It is possible for communities to prosper using their own medium of exchange.

The historic monetary policy of the Island of Guernsey which was launched early in the 19th Century, has relevance, as we-the-people of this 21st Century, are learning that given the ease of modern technology, we can actually create and spend our own usury-free time currency within our own loyal database(network) which can serve us locally, nationally and internationally.

The article ‘The Guernsey Market House Scheme’ appeared in the ‘THE FIG TREE’

Quarterly edited by C. H. Douglas (No. 10, September, 1938, pp.190-3):

The Guernsey Market House Scheme

By D. M. SHERWOOD

THE financial experiment known as the Guernsey Market House Scheme was started over 100 years ago and, although of modest proportions, since it was confined to a small island of 25 square miles, it contained so many fundamental principles that everybody should know of it.

At the beginning of the nineteenth century, as a result of the Napoleonic wars, the trade of Guernsey was practically extinguished and the people were in despair.

Unemployment was rife, the sea defences were breaking down, there were practically no roads, public buildings were in disrepair and, above all, a new market house, where the islanders could exchange their produce, was urgently needed.

It was impossible for the Government to finance these necessary improvements out of revenue, as this only amounted to £3,000 yearly, all of which was required for ordinary expenses and the interest charges on the island's debt of £19,000. Nor could the necessary finance be obtained by borrowing; the Government sought indeed to raise a loan, but such was the poor state of the island's assets that the only would-be lenders demanded the prohibitive rate of 17 per cent. per annum.

"Necessity is the mother of invention"; and in this case the idea put forward that the State should issue its own money daily gained ground. It was argued that, as labour and materials were both available, it was absurd for improvements to be held up simply through lack of money, and as conditions became even worse, this plan served to provide the only solution. Finally, after various setbacks and considerable opposition, the adherents of State money carried the day and, in 1816, 4,000 notes of £1 each were printed by the Government and paid out for the most urgent repairs.

By the success of this issue the principle was established and during the next 20 years the Government authorised notes to the extent of £80,000, which were utilised in building the new Market House, schools in every parish, roads all over the island, St. Elizabeth's Cottage, etc. These Government notes were redeemed, as the economic circumstances of the island justified, from earnings derived from the collection of market rents, customs duties, etc., and in 1836, when the scheme ended, there was a balance outstanding of £55,000 Government notes.

It is sad to relate that in spite of its eminent success this experiment was deliberately brought to an end. Although, after the first issue of the notes, there had been little active opposition to it in Guernsey itself, there were two outside bodies violently opposed to it. First, the inhabitants of the neighbouring island of Jersey became so jealous of Guernsey's prosperity that, in 1819, they obtained from Westminster an Order in Privy Council to the effect that the Government of Guernsey should not in any year exceed the amount of its annual income without Royal Consent. The Guernsey Government, however, took no notice of this and continued issuing notes as and when required.*

[*It would be interesting to know by whose advice Jersey was induced to appeal to the Privy Council.]

A few years later, however, opposition came from another quarter, the banking community in England. Although there had been no bank in Guernsey since 1810, there is reason to believe that the English bankers were becoming more and more apprehensive as the success of the Guernsey State money became more widely known.

It was in 1827 that a bank was established in the island and started issuing notes, which circulated side by side with those of the State. Two years later the directors of this bank complained to Westminster that the Government, by issuing its own notes, had exceeded its powers as defined by the Privy Council some ten years earlier. The Privy Council wrote to the Guernsey Government for an explanation, and such a logical and determined reply was sent that no further action was taken at that time.

In 1835 a second bank was started and more bank notes were issued to an extent to produce inflation, and by 1836 there was something akin to panic in the island. The Guernsey Parliament met and hurriedly appointed a Committee to discuss, with the bankers, the steps necessary to control the position. The members of this Committee were not all fully sympathetic to the issue of Government notes and the bankers won the day, for an agreement was reached whereby the Government was to convert £15,000 of their notes into a bank loan at 3 per cent. interest, and to cease issuing further notes, whilst, on the other hand, no limit was placed on the issue of notes by the banks.

This was the end of what was commonly known as the Market House scheme, the balance of the original Government notes, amounting to £40,000, being still outstanding today. Although since 1914 the Guernsey Government has again issued its own notes, these are now always covered by the Government deposits with the banks, and as today Guernsey currency is linked with sterling, these notes are issued or withdrawn in conformity with orthodox principles.

In considering the Market House experiment the following points should be borne in mind.

Orthodox finance could do nothing to get the people out of the depression caused by the Napoleonic wars. The Government could not obtain the necessary funds, either by taxation or by borrowing, and provided that labour and materials were available, as they were, there was nothing to prevent the Government issuing its own money. This it did, with the result that the appearance of the island changed out of all recognition. From its backward and depressed state it became, within 20 years, renowned for its well-being.

Moreover, by issuing State money, this transformation was carried out without increasing the island's national debt and without incurring interest charges. In fact if interest had been payable on the capital sums for these improvements, they could not possibly have been carried.

It is interesting to note that up to 1914 the Government of Guernsey had collected in taxes over £35,000 to pay the interest on the £15,000 of State notes which were converted into a bank loan by the agreement of 1836.

The opponents of State issuance of money can usually be relied upon to raise the bogey of inflation. It must be remembered that inflation depends on the amount of money issued relative to the goods for sale, and does not depend on who issues the money. In the case of Guernsey, when the State first issued money, if it had been inflation there would have been either a shortage of commodities or else a rise in prices, and there is no record of either of these until 1836. Up to that year the Government had gradually and continuously increased the note issue, and it is reasonable to suppose that the net increase of money approximately corresponded with the island's increasing productivity. In that year, however, the banks deliberately brought about inflation, flooding the island with notes, with the inevitable result that, as there was no corresponding increase in goods for sale, prices began to rise and a panic ensued.

Let us compare the conditions of Guernsey and its need a century ago, with the condition and need of England today. When we hear arguments against slum clearance, against building new schools or hospitals or providing better roads, or even against providing everybody with a sufficient income to keep themselves decently, on the grounds that we have not the money, if we remember the Guernsey Market House experiment, we realise how specious such arguments are.

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Live 8 - Making Poverty History?

Or Entrenching Our Irresponsibility?

By John Bunzl, Trustee

International Simultaneous Policy Organisation

The very name "Live 8" used for the rock concerts being held around the world on 2nd July to coincide with the G-8 meeting of the world's richest nations indicates a focus on just eight politicians. It thus implies that just eight people could, if only they are sufficiently pressured, change the world by finally making poverty history. Bob Geldof KBE certainly seems to agree that these eight people have this within their power when, in referring to the original Live Aid concerts, he recently said, "We couldn't change politics 20 years ago. It was a different world. Now it's not a charity, it's about political justice." Live 8, he says, "has to be this great national moment. This country gets to change the world and tilt it in favour of the poor. . These eight guys should do this thing." [i]

These eight guys should do this thing!

Well, that would be nice. But can they? Does the G-8 really, genuinely, have the power to make poverty history? Does it really have that much power at all? Geldof and Bono by all accounts certainly think so. But are they not, perhaps, simply in thrall to the very attractive idea that some small group of people must have massive power and could change the world if only we put enough pressure on them? It's tempting to think that someone must be in control of the global economy because, after all, aren't our politicians supposed to be in charge of it? But how frightening would it be if we were to discover and to have to take on board the truth that no one is really in control; that the global economy actually runs on a kind of auto-pilot and governments and their appointed institutions such as the IMF, the WTO and the World Bank are merely puppets in a game over which they have no significant control?

How frightening would it be, in short, to find that politicians and corporate executives are merely sitting in first class because there is, in reality, no pilot in the cockpit?

And it's not just rock stars who seem to believe that a restricted group of politicians or business people have the power to change the world. The thousands of NGOs (Non-Governmental Organisations) that make up the 'global justice movement' and who consistently campaign against global poverty and other global problems all essentially adhere to the central tactic of blame, shame and protest to advance their cause. But blaming politicians or multi-national corporations inevitably carries with it the implication that they act wholly out of their own free will and thus have the power to change their behaviour. Blame implies power. After all, why else blame them?

It may be true that politicians and their appointed institutions have some power to reduce or cancel debt and to increase aid to poor countries and doing so would doubtless provide some short-term relief. But if we have a genuine intention to make poverty history, we should recognise that aid and debt are merely symptoms of a global economy that isn't working. It is not therefore politicians' performance on aid or debt that will determine whether poverty is made history or not.

Rather, we need to assess the extent to which politicians have any significant power over the deeper workings of the global economy itself.

If we look, firstly, at corporations, investors and business executives who are the global economy's main actors and whose behaviour is often blamed for many of our global ills, lets consider whether they act purely out of their own free will and whether they therefore have the power to substantially alter their damaging behaviour. It should be clear that in a competitive global market any corporation or investor taking on greater social or environmental responsibility - and thus an increase in its costs - would only lose out to less responsible competitors causing a loss of its profits, a consequent loss of jobs and, ultimately, the prospect of becoming the target of a hostile takeover. Corporate execs are thus largely obliged to do what they do for as David Korten has accurately pointed out, "With financial markets demanding maximum short-term gains and corporate raiders standing by to trash any company that isn't externalizing every possible cost, efforts to fix the problem by raising the social consciousness of managers misdefine the problem. There are plenty of socially conscious managers. The problem is a predatory system that makes it difficult for them to survive. This creates a terrible dilemma for managers with a true social vision of the corporation's role in society. They must either compromise their vision or run a great risk of being expelled by the system."[ii]

And what about politicians and governments? With no barriers to capital and employment moving instantly to any country where costs are lower and profits therefore higher, how should we expect governments to unilaterally impose increased regulations or taxes on business when that would only invite employment and investment to de-camp elsewhere?

This collective governmental fear has become so ingrained and accepted that it has long since attracted its own code-name. For whenever you see the phrase, "maintaining our international competitiveness", you will be witnessing an unspoken inter-governmental race-to-the-bottom; a vicious circle which forces every nation to down-level social and environmental protection so as to better out-bid competitor nations for capital and jobs. It is therefore the global free movement of capital which drives the ever-widening gap between rich and poor and which explains why the environment is continually sacrificed at the altar of competitive economic growth. Such a political environment thus inevitably precludes the implementation of just the kind of measures needed if global poverty and so many other pressing global problems are really to be consigned to history. Because any government or restricted group of nations that moved first would lose out to all the others. And that is why nothing changes except that our problems only get worse.

Because governments, too, - even the G-8 - are largely powerless to buck the vicious circle of global capital flows over which they have no significant control.

Which party we may vote into government or what their pre-election promises may have been consequently no longer much matters. Once in government even Green parties are forced to jettison their most cherished policies in the name of maintaining their nation's international competitiveness as the German Green party has shown. This is why party politics has become little more than an electoral charade in which all parties become 'business parties' and none can offer substantive solutions to global problems. While we may have the mechanics of democracy, the reality is a kind of pseudo-democracy in which whatever party we elect, the policies delivered inevitably conform to the profit-seeking demands of foot-loose global capital.

There is no democracy; there is merely the illusion of political choice. Conventional party politics cannot therefore save us.

Even the WTO, IMF and World Bank whom we might expect to have a greater measure of control are, in fact, merely reacting to forces well beyond their influence. This encourages and justifies their close-held delusion that competition is an exclusively beneficial phenomenon. For in having no control over the global free movement of capital or corporations, and thus in accepting that state as a "natural given", what else can they do but recommend that each nation improves it's attractiveness to global investors by implementing structural adjustment and privatisation programs? Taking their free movement as a natural given thus constrains these institutions to prescribe yet more competition as the cure to our global ills and not less. Sacrificing society and the environment thus becomes neatly and logically justified by the ever-present need for each nation to "improve its international competitiveness". In failing to realise that economic competition becomes destructive when it fails to occur within a framework of adequate global regulations which protect society and the environment, the WTO, WB and IMF serve only to exacerbate the problems they think they're solving. They are not in control. There is no pilot in the cockpit.

Because we so often refuse to see what is so plainly in front of our eyes, I will repeat myself: There IS NO PILOT IN THE COCKPIT. There IS no restricted group of politicians who can change the world. Such is the nature of the vicious circle of global capital flows that the system runs all by itself. No pilot needed. No pilot available.

For all the good Geldof, Bono and the global justice movement have undoubtedly done to bring global poverty and other global problems to wider public attention, they ultimately do us a disservice by perpetuating the common belief that politicians have substantial power. After all why, despite all the promises they manage to elicit from politicians regarding greater debt relief, increased aid and so on, do global poverty and other global problems only get worse? It was to broadly this question that Bob Geldof, during his interview on Friday Night with Jonathan Ross (BBC 1,10th June 2005), rather limply answered: "I don't know". For Bob Geldof and NGOs, the first crucial step to understanding why their campaigns have little, if any, lasting effect would be to finally take on board and accept that those they believed to have significant power simply do not have it.

Very many of us would likely agree with the proposition that humanity's aggregate mode of behaviour in the present age of scientific materialist globalisation, with its wars, grabs for natural resources, terrorism and unbridled consumption, is a sure sign that we find ourselves in the full flush of our species adolescence. Evolution biologist, Elisabet Sahtouris, notes ruefully that "Young species are found to have highly competitive characteristics: They take all the resources they can, they hog territory, they multiply wildly. Sound familiar?"[iii] Indeed, one of the traits of adolescence is the avoidance of reality; the propensity to ignore the unpalatable, to remain dependent upon others, to blame others for our problems and to expect others to sort out our own mess. In short, the hallmark of adolescence is the abdication of responsibility. By maintaining the illusion that politicians have the power to change the world on their own, by abdicating responsibility to them, and by encouraging us to think that all we need to do is to buy a little white wrist-band and go to a rock concert, Live 8 regrettably perpetuates our avoidance of responsibility. It encourages us to think that someone else - in this case eight politicians - can save the world for us.

Fortunately, the road out of adolescence and towards humanity's adulthood is being pioneered through the work of a number of as yet little-known organisations whose supporters have taken the crucial step of releasing themselves from these delusions and who, in taking proper responsibility, realise that they themselves, co-operating globally with other citizens, must take the necessary action. They know that no one else can or will do it for us. One such group is the International Simultaneous Policy Organisation (ISPO)[iv] which offers a way for citizens the world over to firstly take back control of our hollowed-out pseudo-democratic processes and, secondly, a way we can co-create the policies necessary to achieve environmental sustainability and global justice. Finally it offers the crucial means for us to bring our politicians to implement them simultaneously so that no nation, corporation or citizen loses out to any other, thus allowing us all to escape the vicious circle of destructive global competition in which governments, corporations and citizens are presently locked.

By using our right to vote in a completely new way which makes it in the vital electoral interests of politicians to support Simultaneous Policy, it thus has the potential to turn the destructive, competition-led politics of globalisation on its head by offering global citizens a practical way to take back the world with a new politics of citizen-led, international co-operation for our emergent - but yet-to-be-born - sustainable global society. As Elisabet Sahtouris comments: "Simultaneous Policy is an imperative if we are to evolve humanity from its juvenile competitive stage to its co-operative species maturity. A wonderful 'no risk' strategy for finding agreement on important issues in building global community!".

It's time we grew up.

John Bunzl - June 2005.

John Bunzl is the founder and a Trustee of the International

Simultaneous Policy Organisation (ISPO).

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

A quote from a long article by Henry C K Liu <http://www.atimes.com/atimes/Global_Economy/GE24Dj01.html>, the tenth of a series of long articles in Asia Times:

The Global Economy

The Nazis came to power in Germany in 1933, at a time when its economy was in total collapse, with ruinous war-reparation obligations and zero prospects for foreign investment or credit. Yet through an independent monetary policy of sovereign credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany, stripped of overseas colonies it could exploit, into the strongest economy in Europe within four years, even before armament spending began. In fact, German economic recovery preceded and later enabled German rearmament, in contrast to the US economy, where constitutional roadblocks placed by the US Supreme Court on the New Deal delayed economic recovery until US entry to World War II put the US market economy on a war footing. While this observation is not an endorsement for Nazi philosophy, the effectiveness of German economic policy in this period, some of which had been started during the last phase of the Weimar Republic, is undeniable.

- I've reviewed three very interesting new books:

• Fred Harrison: Boom Bust - House Prices, Banking and the Depression of 2010
• Richard A. Werner: New Paradigm in Macroeconomics
• James Gibb Stuart: Fantopian Update

- read together, the first two of these books complement each other beautifully. They suggest the need for a research project, which I outline, to look into the links and interactions between proposals for replacing taxes on productive activities with taxes on the value of land (and other common resources), and proposals for transferring the creation of money from commercial banks to the state.

William Krehm’s reply to enquiry re “a reasonably detailed statement of COMER’s philosophical position”. The most up-dated version in print is my book "Towards a Non-Autistic Economy - a Place at the Table for Society", COMER Publications, 2002.

We guide ourselves by what we conceive to be the problems of the economy, and relate those to the needs of society and its prosperity and survival. We hold that the degenerate discipline of official economics has replaced the methodology of the founders of economic theory - Benjamin Franklin, Adam Smith and David Ricardo, with an illiterate caricature of differential calculus.

After the resounding failure in the 1930s of the first attempt of the financial community to take over, this was replaced with an alliance of government investment and a sector of industrial capitalists, with the trade unions as junior partners, while the banks were bailed out and relegated to the doghouse. With the US Fed-Treasury Accord negotiated behind the back of President Truman in 1951, power began to be retrieved surreptitiously by the financial community, which, deregulated and globalized, is in utter control today. In exercising that control it is running up a new record of disaster.

Georgist economics. Henry George put his finger dead on the capital appreciation of real estate values in thriving cities as the source of many great fortunes, past and present. We have elaborated this position drawing substantially on the work of historians like Fernand Braudel, who emphasize the civilising role of the cities as centres of science, the arts, education. Price levels have always been higher in large urban centres than in the countryside, reflecting the cost of such huge public investment. Modern society has become infinitely more complex than when George proposed his “single tax”. We need a great variety of taxes, but we should be careful what social groups they favour and which they may victimize. The spread between the wages of the most unskilled labourers and the large corporate CEOs is a good index for the extent of society’s ailments.

In Krehm’s work , Babel’s Tower - The Dynamics of Economic Breakdown (1977), he developed a neglected application of the Georgist idea that could reclaim for society part of the vast capital gains that go to fuel speculation instead of returning in part to the government which makes or guarantees such investment.

Social Credit. Major Douglas had a great neglected truth by the tail, when he emphasized that our inventions, and even our social practices would be unthinkable without the great “social heritage” of philosophers, martyrs, anonymous inventors and scientist slaves. He developed the idea of a social dividend, which would be a modest payment to all members of society. Not enough for them to live on completely, but that would help them survive the rat race.

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Monetary System of the USA

The Federal Reserve. You hear about it on television, you read about it in the Newspapers, you see the words written on every American dollar bill. Just WHAT IS the Federal Reserve anyway?

Most people think:

1) It's just another branch of the United States Government,

2) It has something to do with the United States Treasury Department, and or

3) It has something to do with the printing of money.

Well, if you thought it had something to do with the U.S. Department of the Treasury and that it has something to do with the printing of American money, you're right. But if you thought it was just another branch of the United States Government, you're DEAD WRONG! Let me explain...

The "Federal Reserve" is NOT a branch of the United States Government! In fact it has absolutely nothing to do with the U.S. Government with one exception (which will be explained later). If you don't believe this, look under the Government listings in the "Blue Pages" of your telephone directory. You will NOT find The Federal Reserve listed.

The Federal Reserve, also known simply as "The Fed", is a multi-trillion dollar PRIVATE CORPORATION! Few people know this. Even fewer know who the individuals are that actually own The Federal Reserve. The "individuals'' are actually very wealthy FAMILIES, some of whose names you've probably heard before.

There are eight (8) families that own The Federal Reserve. They are:

1) The "Rothschilds" of Europe

2) The "Lazards" Of Paris

3) The ''Isael Moses Seifs" of ltaly

4) The ''Warburgs'' of Germany

5) The ''Lehmans'' of New York

6) The ''Kuhn-Loebs'' of New York

7) The "Goldman-Sachs" of New York

8) The ''Rockefellers'' of New York

These eight families control your life...whether you are aware of it or not. Whether you choose to believe it or not, these families pretty much control the lives of the ENTIRE world because they control most of the MONEY within the world. To explain in detail gets quite complicated, so I will limit our discussion in this article to a "beefed-down", simplified, and (hopefully!) understandable explanation. We'll limit our discussion as to how we in the U.S. are affected. This information is new to the vast majority of our patriots, and we do not have room to tell everything there is to know about The Federal Reserve in this handout. However, there are several books on this subject to which you can refer if you are interested in learning more.

Rich international bankers have long known that whoever controlled the money also controlled the making of its laws. This fact dates back to our country's earliest beginnings in the late 1700's.

In Benjamin Franklin's autobiography, as reported in Money Creator’s, by Gertrude Coogan, he wrote, "The inability of the colonists to issue their own money permanently out of the hands of King George III and the international bankers was the PRIME reason for the Revolutionary War."

Countless attempts were made throughout the 1800's and into the early 1900's to control the United States monetary system. Presidents Andrew Jackson, Abraham Lincoln, James Garfield, and William McKinley all fiercely battled the rich international bankers. Despite the opposition, the bankers succeeded in controlling the United States' monetary system on several "limited term" attempts throughout this period of time. In 1913, the bankers finally were successful in achieving their aspirations. Thanks to the many dishonest politicians in office at the time, they were able to get the "Federal Reserve Act'' passed through Congress. The bankers could now run the country on an "unlimited term” basis by controlling the creation of money in the United States. This is in direct violation of our Constitution as written by our Founding Fathers. The Constitution clearly states that only Congress shall have the power to coin and regulate money. With the establishment of the Federal Reserve Act of 1913, power was illegally transferred to a rich group of bankers to coin and regulate money in the United States.

Between 1914 and 1929, Congress spent four paper "dollars" for each one dollar’s worth of gold and silver in the U.S. Treasury. The "Great Depression" of 1929 saw the Treasury with a "Public Debt" of about $17 Billion in gold and silver owed to the Federal Reserve. By June of 1933...the end of the original twenty-year charter of the Federal Reserve...the Treasury was empty. All the gold and silver had been "pledged' as payment for the U.S. debt to the Federal Reserve. At this point, the Federal Reserve foreclosed on the U.S Government's outstanding obligations, bringing about HJR (House Joint Resolution) 192. HJR 192 suspended the Gold Standard and abrogated the Gold Clause. The U.S. Treasury was Bankrupt on June 5, 1933, WITH the knowledge, consent, and assistance of the criminal officials in Washington, D.C. All of the gold and silver that most citizens think is in Fort Knox has been removed to banks in Switzerland and the vaults of the Federal Reserve in New York. No longer are they the possession of The United States Government.

Within the next four years after the 1933 Bankruptcy, president Franklin Delano Roosevelt had, by contract, unlawfully and criminally PLEDGED ALL LAND IN AMERICA to the Federal Reserve in exchange for their "continued debt-credit support". "ALL LAND" means your home, business, car, etc. everything you have that has ever had a mortgage or loan against it or was paid for with Federal Reserve Notes (money).

The paper we "exchange" for goods and services is what we call "money". American money is now issued by the Federal Reserve, NOT the Federal Government of the United States! Proof of this is easily seen by taking a look at the face of a so-called "dollar bill". At the very top you will see the words "Federal Reserve Note" which means that piece of paper belongs to The Federal Reserve (the "Big Eight" Families' private corporation). Hence, a "dollar bill" is also known as a "Federal Reserve Note", or "FRN" for short. Sure, there are other items printed on the paper to make it look "official" and to deter counterfeiting, but they mean NOTHING.

As mentioned earlier, money in this country used to be backed by gold and silver bullion, but the Federal Reserve has since taken away that backing. Our system of currency in the United States is now backed by NOTHING! It is a rare thing to find a silver certificate in circulation in this country now days, and if you should happen to come across one, it is more of a valuable "collectors item'' than anything else. If you DO happen to have silver certificates in your possession, you already know they are worth a lot more in value than the amount printed on them.

The Federal Reserve "loans" money to the United States Government at exorbitant interest rates, which accounts for the tremendous deficit we now have, The U.S. has to pay back MORE than it borrows from the Federal Reserve (the rich banking families). How does this system of borrowing work? Read on...

1. The Federal Reserve decides that more money should be placed in circulation.

2. The United States Government "goes along" with this decision and "authorises" the increase.

3. The Treasury Department is then instructed to print (in it's printing facilities) whatever amount was "authorised''.

4. The Treasury Department then SELLS these printed notes to the Federal Reserve corporation for the actual costs incurred in printing the money - NOT for the amount printed on the face of the notes. Current costs for printing run about 1-1/2 CENTS per note.

5. The Federal Reserve then places these newly-printed notes into circulation through their twelve Federal Reserve Banks from which ALL banking facilities in this country obtain their money. HOWEVER, the Federal Reserve charges the FACE VALUE of the notes to the United States Government as a LOAN with annual interest!

6. When the loan term ends, whether it has been paid by the U.S. Government or not, the Federal Reserve renews the loan at whatever their (the Federal Reserve's) current interest rate is.

7. Every FRN is a DEBT to the Federal Government of the U.S., and thus it's tax- payers (that's YOU!).

8. The Federal Reserve Act included language that put Limits on the U.S. Government’s right to print and spend these FRNs.

9. When the U.S. Government needs money, it borrows FRNs at the FACE VALUE from banks (under the control of the Federal Reserve).

10. Thus, the U.S. Government owes TWICE for every FRN placed into circulation - plus interest! As with most loans, the interest is a FIRST PRIORITY payment to the "Big Eight" families that own the Federal Reserve.

With this kind of screwed-up monetary lending and payback system, it is easy to see how the U.S. Government can NEVER pay off its debt. Regardless of what any politician tells you, this type of leading at such high interest rates can NEVER he paid off! President-Elect Bill Clinton will NOT be able to solve our country's debt DESPITE all of the hoopla he promised during his election campaign. Cutting military spending, foreign aid, welfare, and health-care costs simply WILL NOT reduce the federal deficit.

[Cutting spending is nice because it will slow running the deficit up even higher than it would be other wise. Since most Americans don’t understand the monetary lending and pay-back system we now have in the U.S., politicians can talk about reducing the deficit and score lots of "brownie points" with voters because this subject (reducing the deficit) really appeals to most people.]

The money supply of any nation, if based solely upon the net birth and death count of its Citizens, will normally produce zero inflation and deflation. If either of these two situations ever come about, a withdrawal of currency would curb inflation, and an increase would curb deflation.

The total interest paid to the Federal Reserve since 1913 is over EIGHTEEN TRILLION DOLLARS (that's an "18” with twelve zeros!). And as of this writing, we still owe 5.875 TRILLION dollars more!

According to the U.S. Constitution, Congress cannot LAWFULLY delegate to a non-government entity any National Duties for America that the Constitution has mandated for Congress. However, through the "exclusive legislation” powers in Article 1:8:17, it can delegate any power to anyone for LIMITED federal areas and owned properties of the federal government. Therefore, the Federal Government's $13 Trillion FRN debt (this figure includes real debt plus other commitments that must be paid) should not be America's debt. It is the debt of the Federal Government only. Interest payments due in 1990 alone totalled $1.69 Trillion FRNs. This money goes straight to the ''Big Eight''.

If you trade with the Federal Reserve's Notes (in other words, you buy anything with money), you may be considered as "adhesioned" (contracted) to the Fed's insidious jurisdiction whether you like it or not. The Federal Reserve is constantly working on getting legislation through Congress that gives them more and more power. This area of discussion is MASSIVE and

would take hundreds and hundreds of pages to detail. We'll have to just shorten it to this: Should the Federal Reserve ever decide to "foreclose" on the U.S. Government again because of its inability to pay its "debt" to the Federal Reserve (the rich "Big Eight'' families), and our politicians in office at the time they decide to go along with these foreclosure proceedings as their predecessors have done in the past, everything you own (and we mean EVERYTHING!) becomes the property of the Federal Reserve. You will own NOTHING!! Your house, cat, and all personal possessions will no longer be yours. We can all thank our "faithful public servants" in Congress for allowing us to be adhesioned to the Federal Reserve WITHOUT OUR KNOWLEDGE OR CONSENT! Don't think it can happen? Refer to our article on FEMA, The Federal Emergency Management Agency. The legislation for removing all of your rights to property and freedom has already been written in the books. Unless these laws are changed...and changed very soon before it goes much further...you and all other American citizens will be POWERLESS to do anything about it!

Here is some more info about the Federal Reserve's notes. It is common for us American citizens to refer to a Federal Reserve Note and a dollar bill as being one and the same. In reality, they are N0T: The following is a reprint of a letter from the U.S. Department of Treasury regarding an inquiry from a citizen asking for the definition of a dollar:

February 18, 1977

Dear Mr. Wissman

This is to respond to your letter of November 23, 1976 in which you request a definition for the dollar as distinguished from a Federal Reserve Note.

Federal Reserve Notes are not dollars. Those notes are denominated in dollars, which are the unit of account of United States money. The Coinage Act of 1792 established the dollar as the basic unit of United States currency, by providing that "The money of account of the United States shall be expressed in dollars or units, dimes or tenths, cents or hundredths...'' - 31 U.S.C. 371.

The fact that the Federal Reserve notes may not be converted into gold or silver does not render them worthless. Mr. Bernard of the Federal Reserve Board is quite correct in stating that the value of a dollar is its purchasing power. Professor Samuelson, in his text "Economics", notes that the dollar, as our medium of exchange, is wanted not for it's own sake, but for the things it will buy.

I trust this information responds to your inquiry.

Sincerely yours,

Russell Munk

Russell L. Munk

Assistant General Counsel

If you were paying close attention when you read this letter, you will see that the FRN seems to be what we call a F.R.A.U.D. (Federal Reserve Accounting Unit Dollar). This letter from the Department of Treasury establishes, without dispute, that a Federal Reserve Note and a dollar are NOT the same! Federal Reserve Notes are NOT dollars! The Federal Reserve is merely using the unit of measurement used in the United States to place a fictitious value on the face of their Frons.

Since 1933 when the Treasury went Bankrupt the U.S. has been operating on paper and electronic "debt-credit'' transfer that are created from thin air. When you pay bills with "debt credit transfers" (checks or credit cards) those payments are also made with FRNs. Because the FRN is not backed by anything of value, it is simply legal tender, and your debt is considered "Discharged". All contracts of monetary obligation state the amount in DOLLARS - not Federal Reserve Notes. Read again the letter by Russell L. Munk about the different between the two. You still owe something of value for the value you received. If you pay with something of value for value received (gold, silver, etc.), your debt is "Paid In Full" (No longer collectible). This leaves a BIG difference between a debt that is "Discharged" and one that is "paid In Full''. The only possible way to escape this trap is by using the initials ''TDC'' which stands for ''Threat, Duress, and/or Coercion" after your signature on all commercial and government contracts. The Federal Government has left us no practical alternative for paying our debts. Thus, they are forcing us to use worth- less paper and we, as Citizens, cannot be held responsible for its worthlessness.

The Monetary Control Act, passed by Congress in 1980, allegedly placed all economic organisations under the control the Federal Reserve System. This brings all U.S. depository institutions under the direct authority of the "Big Eight", expands the definition of collateral for Federal Reserve credit and Federal Reserve Notes now in circulation. This means that any asset the Federal Reserve can purchase on the open market can he used as an asset against borrowing. Thus, the Federal Reserve has a lien against ALL property in the United States The banking and lending institutions, which are ALL now under the authority of the Federal Reserve, use their collateral (your home, business, car, etc.) as authority to create money out thin air, thereby pledging this collateral against loans from the Federal Reserve. What do you think would happen if the Federal Reserve Corporation decided to foreclose again on the Federal Debt today?

On March 7, 1983, Archibaid Roberts, Lt Col, AUS., Ret., spoke before the Idaho Senate State Affairs Committee. Colonel Roberts, founder of the Committee To Restore The Constitution, said about the Monetary Control Act of 1980:

"Its purpose was to bring together under the authority, alleged authority, of the Federal Reserve System, all lending agencies of the United States, as well as the banks which must operate in conformity with the Chase Manhattan Bank (Rockefeller's baby) guidelines. This act, in fact, was responsible for a very powerful, silent revolution in the economy, and in the banking world of the United States. It did prepare and accomplish the consolidation, or centralisation, of all economic factors in the United States under the control of the Federal Reserve itself. The Federal Reserve therefore, controls not only the twelve Federal Reserve Banks, but also all the lending institutions in the United States". As we mentioned earlier, the mortgages held by the lending agencies are part and parcel of the credit controls upon which the Federal Reserve now exercises it's alleged authority to create money out of thin air. It is a real lien against all private property in the United States, as well as Federal property, I might add."

He continues:

"For example, the Feds can now purchase such collateral as FHA and VA backed mortgages or corporate debt obligations. Also, the Fed can now bail out Chrysler, as it did, and any other corporation, by buying all of the commercial paper (debts) of that corporation. Therefore, the Fed controls the American Economy and American Industry through this technique. Also, the Fed can bail out the Chase Manhattan Bank, City Bank, or any other bank with the accepting of federally- backed mortgages from such banks. That is, irresponsible bank loans, foreign and domestic, as we have seen, through the activity of the Federal Reserve and the International Monetary Fund.

They are able to bail out bankrupt foreign governments, placing the burden of repayment for these bad loans upon the backs of the American taxpayer.

As you can readily see, we as American Citizens are NOT in for good times in the coming years if we don't put a stop to these insidious and unconstitutional actions. The Federal Reserve has been able to get away with everything they've done in the past - and are continuing to do today - simply because the American Citizens of this country were not...and still are not...aware of what has been (and still is) going on!

Even though the Federal Reserve is a ''corporation'', it has UNIQUE TAX EXEMPTIONS under Title 12, U.S. Code Section 531. "Federal Reserve Bonds, including the capital stock and surplus therein and the income therefrom, shall be exempt from federal, state, and local taxation, except taxes upon (its) real estate."

When we American citizens earn money on our money (interest), it is considered "income" and we are taxed on it. The Federal Reserve pays NO taxes on its income.

The "chairman" of the Federal Reserve is required to average ten trips per year to Basel, Switzerland to receive guidelines (orders) for the next sequence of steps he is to take concerning the control of money in the U.S.

As further proof that everything I have reported is true, take a look at the back of one of your cancelled checks made payable to the IRS. You will find the bank endorsement to read: "PAY ANY F.R.B. BRANCH OR GEN. DEPOSITORY FOR CREDIT......U.S. TREASURY.........THIS IS IN PAYMENT OF U.S. 0BLIGATION." This can only mean that the checks you write for income taxes are paid directly to the Federal Reserve Bank in payment of obligations of the United States. Your money that you are paying in, and think is being used to run our country, goes straight to the "Big Eight" as interest payments on the federal debt. Section 7809(a) of the IRS Code states that these payments are to go to the United States Treasury, not to a Private corporation for a phoney debt!

Section 31 of the Federal Reserve Act gives Congress the power to dismantle the Federal Reserve, but apparently the "Big Eight'' families have Congress scared stiff. And as long as the Citizens of the United States do not put pressure on their Congressmen and Senators to enact Section 31, nothing will change. And pressure has not been brought upon Congress because SO FEW Americans know what is REALLY going on.

REFERENCE MATERIAL (partial)

Information contained in this article was obtained from the following sources:

Madden Vs. Kentucky, 60 SCt 406 at 410

Lewis Vs. U.S., 680F 2d 1239 U.S.Constitution

Coinage Act of 1792

Federal Reserve Act of 1913

House Joint Resolution 192, 1933 Monetary Control Act of 1980

Public Law 95-147 Title 12, U.S. Code

Title 26, US. Code (Internal Revenue Code)

Idaho Senate State Affair's committee Records of l983

Department of Treasury Communications

Spotlight Newspaper

Black's Law Dictionary

Bouvier's Law Dictionary

"Let me control a peoples currency and I care not who makes their laws” Nathaniel Mayer Rothschild, speaking to a group of international bankers-1912

Compiled and presented through the facilities of Ameri - watch of East Texas

"WeThePeople" Watching A Federal Government That Requires Watching

1811 Shamburger Road - Pritchett, Texas 75645-2759

Phone 903-734-6970 Fax 903-734-6250

E-mail BOBWORN@AOL.COM

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

Per Almgren, MSc Rev 2, August 8, 2004

info@nordspar.se

The entire public sector and a basic income for every citizen could be financed without VAT (GST), payroll tax, income tax, corporate income tax or tax on real estate. Taxation is simply done by multiplying, once very early in the morning when few payments are likely to be processed, the totals in every transaction account by a number slightly less than one. Bills have a scheduled rate of exponentially decreased value printed on them and also a bar code that can be scanned automatically. The latter could also be included on coins.

Consequently, the amounts of liquid funds in a society will gradually decrease and provide room for public spending of newly created money in the economy without causing inflation. The amount of new money should, of course, be adjusted to the real economy of the society and comply with the actual volume of goods and services produced.

A part of spending is directed to the individuals’ basic accounts. As long as the money is left in the basic accounts, its value is not affected by the gradual extinction process and long-term saving is possible.

The combination of basic income and the value of money held in “taxed” transaction accounts have been proposed by Åsa Brandberg, Stockholm, named “Solidarsystemet” (http://www.solidar.info).

Today most money is held in accounts by the banks and, in Sweden, the Postal Giro. Only 5 to 10 % is circulated in bills and coins. This trend will probably continue in the new economy described as follows:

All citizens will possess one account for receiving and storing basic income and one account for making transactions. When a person dies, both accounts are closed and the remaining funds are destroyed. No one can inherit money. Once money enters into transaction accounts, it gradually decreases in value. In the case of bills and coins, there is a definite limited lifetime. This process makes it possible for the public sector to spend newly created money when paying for purchases, salaries, and wages to employees.

Except for the basic income, there is only one other way to transfer money into the basic accounts. This is when you exchange foreign money through official channels.

Businesses, organizations and tourists from abroad may have accounts that are not affected by the gradual decrease of value process, but these accounts can only be added to by the exchange of foreign money through official channels. When exchanging foreign money through official channels, you must pay from this type of an account or from a basic account.

If you prefer, you can receive bills and coins by debiting your basic income account or transaction account through the cash service offices. Each bill and each coin is imprinted with a bar code that shows an issuing date and at what rate the value of the bill or coin decreases. On bills there will also be a printed schedule listing the decrease of the value stored and the expiration date.

The bar code is for automatic display and calculation of the actual value. It is quite possible that the bills after some time will be equipped with a tiny microprocessor and paper display, showing the daily value.

As efficiency improves, most of the administration of taxes, unemployment insurance, pension insurance, sickness insurance, social security, and personnel expenses becomes unnecessary. A rough study shows that a daily reduction rate of 0.4 % of the liquid funds would be enough to provide room for the remaining public spending and the basic income payments.

In Sweden today the liquid funds amount to 102.5 billion SEK in bills and coins. M0 amounts were 93 billions in May of 2004. Total funds, M3, were 1,137 billions. This would allow for the creation of more than 136 billions SEK each month and, of that, about 70 billions could be directed to the basic accounts, 8,000 SEK monthly to each of them.

The table on the following page shows how the actual value of a bill decreases when the daily average reduction rate is 0.4 %.

If it for some reason becomes necessary to intervene in the economy, it could be done either by altering payments to the basic accounts or by changing the reduction rate on the transaction accounts. There should be no interest on money.

For money on transaction accounts the reduction occurs once a day (at night). Each step would be gradually smaller.

Everybody who needs or wants more income than the basic income has to do paid work. Since no income tax, nor payroll tax, nor VAT has to be accounted for, all black market jobs will automatically turn white. This means that all income will be net income and almost everybody could afford to privately employ someone who might have better skills to do a special job. Consequently, total efficiency in the society would increase. It would be possible to lower the average number of working hours, maybe even to 4 hours per day.

Some types of jobs, which are currently low-paying, would probably have to be better paid in the future. Workers would hesitate to accept low paying jobs since every one could rely on their basic income accounts for their basic needs.

Businesses and organizations will handle their affairs within a region or nation with the money they have in transaction accounts. It is only if they pay to, or receive payments from, outside their currency region (or nation) that they can have a partial counterpart to the basic accounts. This type of account could only be credited with money from foreign exchange through official channels or directly from individuals’ basic accounts. It would not be affected by the gradual reduction of value process. The use for this type of account would mainly be used to pay for imported goods and services.

There might be fees on items that are bad from an ecological point of view or for health reasons. These fees should be used for direct subsidies of products that have a substantially lower degree of negative impact on nature and man. The management of these fees would be handled by what is remaining of the taxation authorities.

The internal management would require less people since most administration of personnel no longer will be needed and more time and resources could be spent on the main goal of the business or organization.

There will probably be much more partial payments for goods and services since everybody would prefer to receive incomes at approximately the same rate as their own payments are due. Instead of remaining customers of late payments, you will be interested in not receiving your money too early. Contrary to what is now customary, it may even happen that customers that pay late and in smaller portions will receive a rebate. Since there would be no interest on money, the cost of financing projects will be substantially lower than today.

It will of course be possible to exchange currency among regions or nations by using money from transaction accounts and bills and coins. In that case, the rate of exchange will be decided by the two parts of the transaction. But it will probably not happen often since the seller of the foreign money would need to have a good reason to accept money that is daily taxed from his point of view.

The normal way of exchange would be to use money from the basic account, or the corresponding type of account (if it is a business or organization involved), to buy foreign currency. Tourists from abroad could change back their remaining money on their special tourist account when they leave the country or region. The rate of exchange will be decided by demand and supply.

The supply of foreign currencies will come from export income and from tourists. There is no reason to borrow money from other countries and the import and travels abroad have to be financed by the earlier mentioned inflow of currency. During some years there might be a need to use part of the money flowing in to repay foreign debts and interest cost.

The obvious way of saving would be to get income from work and let the basic income stay in the basic account. As long as the money remains there it won’t decrease in value.

Perhaps there will be a run during a short period after the introduction of the new money system. Most people would soon realize that there are costs for keeping, guarding and insuring property and that these costs increase as you acquire more things. There will also be a hesitation on the part of the sellers to receive a lot of money in a short time if they themselves are not prepared to buy a lot of goods and services within a short time.

The old type of money would be exchanged for the new type of money. The new money, maybe to a certain point, would be transferred into the basic account. The limit might be adjusted to an amount you can show being properly taxed before. Businesses and organizations will have the ability to transfer funds to the type of accounts used for handling foreign payments.

The most important thing that will be achieved by the principle of taxing liquid funds is that there will be no shortage of money to curtail needed and important activities. The limiting factor would be people having the ability and desire to perform the work and to have the natural resources available without abusing the environment. We can create a society where the individual gets his or her basic economical needs met. The most efficient method to achieve this is the basic income, as most of us no more have the ability to directly use the natural resources due to private ownership. It might well be considered to municipalize the land and then lease it out on long-term contracts, like site lease hold in some towns.

The experiences from the years around 1930 show us that taxed money (stamp scrip) served the society very well as long as they were permitted to exist. In Austria the small municipal of Wörgl with 4,600 inhabitants managed to lower their rate of unemployment by 25 % during 13 months.

The difference between the money used in Wörgl, as designed by Silvio Gesell, and this new concept is that it (this system) also considers the financing of the public sector and offers a basic income for all citizens.

A somewhat similar idea has been proposed by the Canadian Verne A. Warwick in “Clear Money” (warpeau@hotmail.com).

© Per Almgren 2004

Trade Imbalance

The ongoing current account deficit clearly implies that our nation is living beyond its means. And that reality ultimately translates into further debt enslavement to the multi-nationals. Such a situation can only be rectified when imports and exports are brought into balance, and several schemes have been proposed for doing so. I'm inclined to support the "IMPEX" scheme, which has been elaborated in a series of excellent books by John Iggulden. In these works John discusses issues relating to economic reform, mainly within an Australian context. In a nutshell, the IMPEX scheme entails setting up a specially constructed intermediate currency, through which all foreign sales and purchases must be effected. The IMPEX exchange rate is adjusted on a daily basis, and according to a prescribed formula. This formula ensures that the long-term objective of obtaining approximate parity between imports and exports is achieved. -- John Herman

Current Account Deficit

My proposal to resolve the current account problem is a "foreign transaction surcharge" (FTS); a variable surcharge on all local money (eg A$) exchanged for foreign currency set at a level to bring the current account into balance and (very) gradually retire net foreign debt.

The surcharge is tax neutral as long as the money it raises is used to offset domestic taxation.

The FTS is, as I understand it, permitted under IMF/WTO rules.

There are close parallels in the FTS proposal and the IMPEX concept, but I think the FTS is far simpler.

Lowell Manning

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Monbiot on capitalism:

“If we require a contraction in the amount of energy that this economy uses and that every individual within this economy uses, then that will have an impact in terms of what people consider to be their quality of life - they won’t be so free to drive and fly wherever they want to go, they won’t be so free to buy every consumer appliance that they want. And a lot of people regard those as pretty irreducible factors in their quality of life and we can’t turn round them and say ‘yes, you can have all that and you can have the environmental vision’ - some hard choices do need to be made.”

[…]

“It’s true to say that at the moment it [capitalism] is the only game in town; there is no viable alternative around, but it is fundamentally incompatible with environmentalism. Capitalism depends on lending money at interest - if you lend out 100 quid you expect to get 105 quid back. That means that the money supply has to keep expanding. If that expanding money supply is not to become inflationary then the supply of goods and services must also keep expanding and that can’t be done infinitely on a finite planet. What we see when we take these things into account is that capitalism is in fact a gigantic Albanian pyramid scheme whose apparent health today depends on unsecured loans from the future and that is not compatible with environmentalism.”

[…]

“How can you have capitalism without lending money at interest? … How can you address capitalism without addressing the issue of lending money at interest.”

[…]

“You’re still creating credit… And what that means is that the economy has to keep expanding.”

[…]

“In the long run we do not help ourselves if we pretend that a system which patently is inherently unsustainable can deliver sustainability. We have to look beyond that system and we have to start trying to devise a system, at the same time as working within the current one, that can actually crack that problem.”

“It’s not a complete rethink and indeed I was comparing this with a book I wrote in 1984 called ‘Seeing Green’ and many of the ideas are flagged in that. It’s different because I’ve spent 10 years now working with business and with government and have understood the nature of the change process that’s being called for. If we don’t learn to utilise the power of markets and the power of certain aspects of capitalist economies, I can’t see these changes ever being brought about and that I suppose is pragmatic, if you like realistic, because we’ve only got about 20, 30 years to do this and I can tell you that capitalism is not going to be swept away in those 20 to 30 years.”

American Review of Political Economy, Vol. 3(1), Pages 1-38, March 2005

© 2005 American Review of Political Economy

Economic Law, Ethics, and Paradox: Is There a Way Out?

Silvano Borruso

Strathmore School

ABSTRACT

The author’s intention is to show that if economics is to become a social science, analysis has to start with the truth of things, continue with the virtue of justice, and end by assigning their rightful places to the approaches of the past 200-odd years: Liberal, Marxist, Austrian, ecclesial and Georgist-Gesellian. The argument hinges on the Land and Money questions, which modern economics persists in not addressing. Hence the rampant economic disorder. The modern State has been rendered impotent by the vested interests that have succeeded in keeping the two questions under wraps.

Conventional solutions of economic problems are grossly defective for the same reason. Two men, neither of them an economist, did tackle the problems and solve them: Henry George (1839-97) and Silvio Gesell (1862-1930). Their solutions: Free Land and Free Money would spell the end of landlordism and usury, thus ending multi-secular oppressions. Oppressors would no doubt put up a stiff resistance.

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Monetary Reform - Making it Happen

James Robertson & John M Bunzl

Simultaneous Policy Organisation, London, 2003

Some extracts -

Thomas Attwood was an early 19th-century monetary and political reformer. He played a vital part in one of the great events of his time.

As a family banker aged 29, in 1812 he had made his mark with

the manufacturers and artisans of Birmingham by leading a political campaign on their behalf against the monopoly enjoyed by the East India Company and other British Government restrictions on overseas trade.

Between 1810 and 1819 Attwood campaigned, eventually unsuccessfully, against the parliamentary "Bullion Report" which recommended that the number and value of banknotes in circulation should be reduced and their exchangeability for gold should be restored.

Attwood and his colleagues in the “Paper Money” school were, in effect, calling for money to be permanently redefined to include paper banknotes as well as gold coins and bullion. Today this redefinition has been long accepted. Banknotes are recognised, along with coins, to be "cash".

The challenge we face is similar to Attwood's. But our definition of money should now extend to include, not just banknotes as well as coin, but also the electronic bank-created money in our current bank accounts. Although some people with pretensions to knowledge of these things say that that is something distinct from money, called credit, it is now clearly recognised to be money, directly and immediately available for spending. Thatcommercial banks still create this official-currency money for private-sector profit has become a glaring anachronism.

He (Attwood) resigned from Parliament in 1839. Meanwhile, the new Bank of England representative in Birmingham described his ideas about currency reform as "ingenious" but "lamentably wrong". Economists called him a monomaniac, and the description stuck. Some years later banknotes (paper money) were recognised to be real money, and commercial banks were no longer allowed to create money by issuing them. But it was not until 1931 that Britain finally came off the gold standard, and not until 1973 that the USA did.

One thing that many of us share with Attwood, however, is an awareness that the money system needs to be brought up to date. For over two centuries political democracy has been spreading through the world, thanks to Attwood and others like him. But our capacity to control the power of money and harness it to the public good has lagged far behind. So much so that failure to bring the workings of money and finance into line with economic justice and the realities of the Information Age is

already damaging confidence in political democracy itself.

An international monetary system, which is based on one or two superpower currencies such as the US$ and (as some people hope) the euro, profits the countries that issue those currencies at the expense of the rest of the world.

About 97% of this country's (UK) money supply is created in that form by commercial banks, and only 3% as banknotes and coins issued by the Bank of England and the Royal Mint.

The commercial banks create the non-cash money out of thin air, calling it credit and writing it into their customers' current accounts as profit-making loans. That gives them over £20 billion a year in interest, while the taxpayer gets less than £3 billion a year from the issue of banknotes and coins. Stopping commercial banks creating non-cash money, and transferring to the central bank responsibility for creating it and issuing it debt-free to the government to spend into circulation, will result in extra public revenue of about £45 billion a year. This is the reform with which this book is specifically concerned.

It will mean that:-

1) Taxation and government debt can be reduced, or public spending can be increased, by up to £45 billion a year.

2) The value of a common resource - the national money supply - will become a source of public revenue rather than private profit. That will remove an economic injustice.

3) Withdrawing the present hidden subsidy to the banks will result in a freer market for money and finance, and a more competitive banking industry.

4) A debt-free money supply will help to reduce present levels of public and private debt, which are partly caused by the fact that nearly all the money we use has been created as debt.

5) The economy will become more stable. Banks inevitably want to lend and their customers want to borrow more at the peaks of the business cycle and less in the troughs. So, when the amount of money in circulation depends on how much the banks are lending, the peaks and troughs - the booms and busts - are automatically amplified.

6) The central bank will be better able to control inflation if it itself decides and directly creates the quantity of new money the economy needs. It now tries to control inflation indirectly, by raising interest rates (i.e. the price at which people borrow from banks). But raising costs in that way actually helps to cause inflation. That partly explains why

inflation has to be allowed to rise steadily every year - by 2.5% in the UK - in order to avoid deflating the economy.

7) Environmental stress will be reduced. When, as now, almost all the money we use is debt, people have to produce and sell more things in order to service and repay debt than they would if money were put into circulation debt-free.

In our proposals for this reform, Joseph Huber and I called it “seigniorage reform”. Seigniorage was the profit made by monarchs and local rulers from minting and issuing coins. In democratic societies in the Information Age, the proposed reform will restore the prerogative of the state - now on behalf of the people - to capture as public revenue the value of putting the money supply into circulation.

Many more people now understand that money is power, and that the institutions of money today negate democracy by using their power to exploit people and keep them dependent.

Meanwhile, to recapitulate from Chapter 1, the proposed national monetary reform is as follows:

1) As national monetary authorities, central banks should create non-cash money (i.e. bank-account money) as well as cash (i.e. banknotes and coins). They should create out of thin air at regular intervals the amounts they decide are needed to increase the money supply. They should give these amounts to their governments as debt-free public revenue. Governments should then put the money into circulation by spending it.

2) It should become illegal for anyone else to create bank-account money denominated in the national currency, just as it is already illegal to forge coins or counterfeit banknotes.

This will involve the following changes:

1) The central bank will no longer regulate increases in the money supply by manipulating the interest rates at which commercial banks lend into circulation money they create for that purpose. The central bank will be directly responsible for deciding how much is needed and for creating it and issuing it itself.

2) Commercial banks will be prohibited from creating money. They will have to borrow already existing money in order to lend it, as other financial intermediaries do.

This will parallel what happened with banknotes in 19th-century England (see Chapter 1). Electronic bank-deposit money has now become real money and it is time to stop pretending it is just credit. As the issue of banknotes became subject to seigniorage then, so the creation of bank-account money should become subject to it now. In other words, the profit from creating it should no longer accrue to commercial banks but be collected as public revenue.

This global reform would clearly need simultaneous support from many national governments. That does not necessarily mean that one country could not undertake national monetary reform on its own. But it would clearly be easier for single nations to do it, if the global version of the same reform was on the global agenda.

Another report finds that "ever since 1971, when US president Richard Nixon took the dollar off the gold standard, the dollar has been a global monetary instrument that the United States, and only the United States, can produce by fiat. ... World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves ".(15)

(15) Henry C K Liu , US Dollar Hegemony Has Got To Go, Asia Times Online Co Ltd, 2002.

The following are among the obstacles to national monetary reform and the objections put forward against it:

1) powerful opposition from banking and financial interests (and from associated constituencies of professionals, academics and politicians), and threats that even the prospect of monetary reform would destabilise the economy;

2) public ignorance and confusion about the present arrangements;

3) an elitist belief that ignorance about them is positively desirable;

4) ignorance and obfuscation about what the monetary reform proposals actually are;

5) the claim that they would involve a further centralisation of state power;

6) the assumption that the reform would be inflationary;

7) the assumption that it would 'crowd out' investment in the private sector;

8) the argument that depriving banks of the present seigniorage subsidy would increase the costs of borrowing, would raise the costs of payment services, and would force banks to cut costs, close branches and reduce jobs;

9) the argument that it would damage the international competitiveness of British banks and therefore of the British economy as a whole;

10) the argument that no other country has undertaken, or is seriously considering, this reform.

People have learned from history that allowing governments to create new money is a recipe for inflation. So a conventional knee-jerk response to the proposed monetary reform is that it will be inflationary.

It is true that money creation by feudal and monarchical governments in the past and by elected governments more recently has led to inflation. But that does not mean inflation will result from giving an operationally independent central bank responsibility for creating new money directly, instead of indirectly influencing by interest-rate changes how much the commercial banks create.

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Last updated: 3 May 2006