The trillion dollar coin actually represents one of the most important principles of popular prosperity ever conceived: the creation of money by sovereign governments, debt-free.
Last week on “The Daily Show,” Jon Stewart characterized the proposal that the White House circumvent the debt ceiling by minting a trillion dollar coin as an attempt to “just make shit up.”
Economist and NY Times columnist Paul Krugman responded with a critical blog post accusing Stuart of a “lack of professionalism” for not taking the trillion dollar coin seriously. However, Krugman himself had called the idea “silly.” He thought it was just less silly — and less dangerous — than playing with the debt ceiling, which was itself an unconstitutional shackle on the Treasury’s ability to pay debts already incurred by Congress.
Stewart responded on January 15 that he stood by his “ignorant conclusion that a trillion dollar coin minted to allow the president to circumvent the debt ceiling, however arbitrary that may be, is a stupid f*cking idea.”
It’s all good fun – or is it? Most commentators have missed the real significance of the trillion dollar coin. It is not just about political gamesmanship. For centuries, a secret battle has raged over who should create the nation’s money supply – governments or banks. Today, all that is left of the US Treasury’s money-creating power is the ability to mint coins. If we the people want to reclaim that power so that we can pay our obligations when due, the Treasury will need to mint more than nickels and dimes. It will need to create some coins with very large numbers on them.
To bail out the banks, the Federal Reserve, as head of the private banking system, issued over $2 trillion as “quantitative easing,” simply by creating the money on a computer screen. Congress, the White House, and the Treasury all rolled over and acquiesced. When it was proposed that the government bail itself out of its budget woes by minting a $1 trillion coin, the Federal Reserve said it would not accept the Treasury’s legal tender. And the White House again acquiesced, evidently embarrassed to have entertained this “ludicrous” alternative.
Somehow we have come to accept that it is less silly for the central bank to create money out of thin air and lend it at near zero interest to private commercial banks, to be re-lent to the public and the government at market interest rates, than for the government to simply create the money itself, debt- and interest-free.
The banks obviously have the upper hand in this game; and they’ve had it for the last 2-1/2 centuries, making us forget that any other option exists. We have forgotten our historical roots. The American colonists did not think it was silly when they escaped a grinding debt to British bankers and a chronically short money supply by printing their own paper scrip, an innovative solution that allowed the colonies to thrive.
In fact, the trillion dollar coin represents one of the most important principles of popular prosperity ever conceived: national debt-free money creation. Some of our greatest leaders, including Benjamin Franklin, Thomas Jefferson, and Abraham Lincoln, promoted the essential strategy behind it: that debt-free money offers a way to break the shackles of debt and free the nation to realize its full potential.
We have lost not only the power to create our own money but the memory that we once had that power. With the help of such campaigns as Occupy Wall Street, Strike Debt, and the Free University, however, we are starting to re-learn the great secret of money: that how it gets created determines who has the power in society — we the people, or they the bankers.
It is no secret who has that power today. In the great bailout of 2008, banks were rewarded for making irresponsible and fraudulent gambles in the subprime mortgage scandal, with no one serving time in jail. Then there was the robosigning scandal, in which banks committed criminal fraud and came away with a slap on the wrist. Now we are seeing the LIBOR scandal unfold. While a commoner might get 10-20 years for robbing a bank, bank executives get huge bonuses for robbing us.
We may rail against the banks and demand change, but nothing will change until we grasp their fundamental secret, the foundation of their power: that those who create the nation’s money control the nation. By mechanisms explained elsewhere, nearly the entire money supply today is created by banks.
Remembering Our Roots: A Refresher Course
Benjamin Franklin was called called “the Father of Paper Money.” He argued before the British Parliament that government-issued money had allowed the colonies to escape the yoke of debt, to thrive and grow. The king, urged by the Bank of England, responded by forbidding all new issues of paper scrip. The colonial economy then sank into a depression, and the colonists rebelled. They won the revolution, but the power to create money was lost to a private banking oligarchy modeled on the one dominated by the Bank of England.
Fourscore and six years later, President Abraham Lincoln boldly took back the money power during the Civil War. To avoid exorbitant interest rates of 24% to 36%, he decided to print money directly from the US Treasury as US Notes or “greenbacks.” The issuance of $450 million in greenbacks was key to funding not only the North’s victory in the war but an array of pivotal infrastructure projects, including a transcontinental railway system.
Lincoln was assassinated, however and,the greenback program was quickly discontinued. Repeated popular attempts to revive it failed. In 1872, according to Lynn Wheeler in Triumphant Plutocracy: The Story of American Public Life from 1870 to 1920, New York bankers sent a letter to every bank in the United States, urging them to fund newspapers that opposed government-issued money. The letter read in part:
Dear Sir: It is advisable to do all in your power to sustain such prominent daily and weekly newspapers . . . as will oppose the issuing of greenback paper money, and that you also withhold patronage or favors from all applicants who are not willing to oppose the Government issue of money. Let the Government issue the coin and the banks issue the paper money of the country. . . . [T]o restore to circulation the Government issue of money, will be to provide the people with money, and will therefore seriously affect your individual profit as bankers and lenders.
Bank-created money (which now includes electronic money) could be rented at a profit to the people. The “people’s money” was limited to coin, which today composes less than one ten-thousandth of M3, the broadest measure of the money supply.
Lincoln’s assassination and the abandonment of debt-free greenbacks effectively marked the exchange of one type of slavery (race-based) for another (wage- and debt-based). As a result, the American government and American people are so heavily mired in debt today that only a radical overhaul of the monetary system can free us.
Gimmick or Game-Changer?
That is the real context and backstory of the trillion dollar coin. The stakes are much higher today than just fending off the debt ceiling. We the people need to take back the power to issue our own money, and coins are the only means left to us to do it.
The idea of minting large denomination coins to solve economic problems was evidently first suggested by a chairman of the Coinage Subcommittee of the U.S. House of Representatives in the early 1980s. He pointed out that the government could pay off its entire debt with some billion-dollar coins. The Constitution gives Congress the power to coin money and regulate its value, and no limit is put on the value of the coins it creates. In Web of Debt (2007), I suggested that to solve the government’s debt problems today these would need to be trillion dollar coins.
In legislation initiated in 1982, however, Congress chose to impose limits on the amounts and denominations of most coins. The one exception was the platinum coin, which a special provision allowed to be minted in any amount for commemorative purposes.
An attorney named Carlos Mucha, blogging under the pseudonym Beowulf, proposed issuing a platinum coin to capitalize on this loophole, after hearing me mention the trillion dollar coin in a Thom Hartmann interview. At first it was just an amusing exercise. But with the endless gridlock in Congress over the debt ceiling, it got picked up by serious economists as a way to checkmate the deficit hawks.
Philip Diehl, former head of the US Mint and co-author of the platinum coin law, confirmed that the coin would be legal tender:
In minting the $1 trillion platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years . . . under power expressly granted to Congress in the Constitution (Article 1, Section 8).
Warren Mosler, one of the founders of Modern Monetary Theory, reviewed the idea and concluded it would work operationally. The funds would simply be new reserve balances at the Fed rather than new Treasury securities.
Joe Firestone pointed out that the trillion dollar coin could solve the government’s debt problems once and for all, putting was in its grasp the power to replace austerity with the abundance enjoyed by our forefathers.
The trillion dollar coin can raise cries of “hyperinflation!” It evokes images of million-mark notes filling wheelbarrows. But as economist Michael Hudson observes:
Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending.
Prof. Randall Wray explains that the coin would not circulate but would be deposited in the government’s account at the Fed, so it could not inflate the circulating money supply. The budget would still need Congressional approval. To keep a lid on spending, Congress would just need to abide by some basic rules of economics. It could spend on goods and services up to full employment without creating price inflation (since supply an d demand would rise together). After that, it would need to tax — not to fund the budget, but to shrink the circulating money supply and avoid driving up prices with excess demand.
Time to Take Back the Money Power
The current economic crisis cannot be solved with the thinking that created it. There is simply not enough money in the system to fund the services we desperately need, pay down the debt, and keep taxes affordable. The money supply has shrunk by $4 trillion since 2008, according to the Fed’s own website. The only solution is to add more money to the real, producing economy; And that means some congressionally-mandated entity needs to create it, either the Fed or the Treasury.
The Fed has declined. In flatly rejecting the Treasury’s legal tender, the Fed as representative of the banks is asserting itself as outranking the elected representatives of the people. If the Fed won’t acknowledge the coins created by the government, perhaps the government needs to charter a publicly-owned bank that will.
We have a chance today to end the charade of big money gridlock politics, as well as the reign of the big banks. We have the power to choose prosperity over austerity. But to do it, we must first restore the power to create money to the people.
________________
Ellen Brown is an attorney and president of the Public Banking Institute. In Web of Debt, her latest of eleven books, she shows how a private banking oligarchy has usurped the power to create money from the people themselves, and how we the people can get it back. Her book The Buck Starts Here: Restoring Prosperity with Publicly-owned Banks will be released this spring. Her websites are http://WebofDebt.com, http://EllenBrown.com, and http://PublicBankingInstitute.org.
Filed under: Ellen Brown Articles/Commentary |
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If minting a one trillion dollar coin was NOT an idiotic idea then why stop at just ONE trillion? Why not mint 17 of them and totally pay off the national debt? Just use 1 oz of platinum for each and keep minting coins until we all have one. Of course it is a stupid idea to think the Government can just mint a coin to solve the national debt. Not only stupid but absolutely reckless.
Many foreign economies have been totally ruined when irresponsible governments have utilized the printing press to pay their debts. It is the same as having a lot of credit cards and constantly using one to pay off another until you are all maxed out. The US Government has been doing exactly this for many years and they are already maxed out but instead of doing the right thing they are always looking for another Band-Aid to delay the problem further.
Paper money which is not backed by gold is unconstitutional. It is clearly stated in article 1, sections 8/10 of the constitution, “No state shall pay its debts with anything except gold & silver coins unless it is backed by gold or silver”. The whole reason for this is to avoid inflation. When dollars which are not backed by gold are put into circulation they are worthless and therefore they reduce the value of all our dollars by diluting their value. This results in higher prices for you and me on everything we buy, aka inflation. This is just another way to tax the American public without calling it a tax.
The Government needs to “man up” and deal with the debt problem instead of trying to sweep the garbage under the carpet. See the video and read more about Printing Money To Pay Debts… http://goldirasavings.com/printing-money-to-pay-debts
All of your criticisms are already answered in Ellen Brown’s trillion dollar coin article, if you’ll bother to read it. Calling the idea stupid is not constructive dialogue, nor mature. I won’t call your assertions stupid, but believe they are uninformed and mistaken.
Nigel. Americans really need to stop using the term “Unconstitutional” when referring to important matters. The US Constitution has been trashed ever since that imbecile Pres Dubya was in power, and things have deteriorated further under the current President.
“False flag” operations, torture, killing innocent people by Drone strikes, imprisonmeant without trial, illegal military force, Massive theft of America’s wealth by criminal bankers, total failure by the Justice dept to enforce America’s laws, etc,etc.
Sad but true.
Nigel – I hundred percent agree with your position. The constitution was put together using thousands of years of historical experience of previous civilizations and empires. It says what it is says for a reason.
Regardless of economic policy, Ellen is absolutely correct in her final assessment:
” But to do it, we must first restore the power to create money to the people.”
In other words: that means we have to restore sovereignty to the people. It’s the same thing.
How did we lose it? I believe our constitution’s failure to define the legal of status of incorporated entities created a loophole enabling the unrestricted growth of a corporate culture with more power (money) than the federal government itself. It was almost inevitable that such creations would find enough capital (not only domestic, but foreign) to sponsor, elect, bribe, extort, intimidate, and control the federal and state governments completely; thus becoming, in fact, sovereign. Yes; I believe we are currently a functional corpocracy.
Although the fraud and corruption of these corporations has been egregious and blatant, the people have been forced to accept it because corporations are recognized in our Constitution, by default, as persons. To call them “fictious” doesn’t diminish their attornys’ ability to claim “rights” and enforce the limits of their liablity. The legal sanction of limited *liabilities* have been expanded to include limited *responsibilities*, and more recently, limited *culpabilities*. The corporate veil has become a stone wall. Corporations are now so out of control, their media deliberately lie in the promotion of unconstitutional political policy, even mis-using and misrepresenting the constitution itself. What dictator wouldn’t absolutely envy the propaganda machine they’ve created.
If we, the people, don’t plug that constitutional loophole and take control over the terms and chartering of powerful incorporated entities (of all kinds; banks, political parties, international corps, etc) by Article Five amendment, we’ll lose any remaining semblance of a constitutional republic; and our only alternative will be ugly.
We can organize a Constitutional Convention now; or we can just go on being boiled, like frogs. You’re going to have to decide whether you’re a constitutionist or a corporatist. Constitutionists will, of course, choose the amendment option. Corporatists will, by default, take the ugly option: and be boiled with the rest.
Does “together or separately” ring any bells?
William – Your missing the point. Completely and fundamentally. The people that wrote the constitution were well aware of all of the points that you highlight. In short, everything you have said was thought of by the founding fathers, in short, your bringing nothing to the table that people do not know about already.
For example “It was almost inevitable that such creations would find enough capital (not only domestic, but foreign) to sponsor, elect, bribe, extort, intimidate, and control the federal and state governments completely; thus becoming, in fact, sovereign. Yes; I believe we are currently a functional corpocracy.” this was understood in 1776. Changing the words on the constitution has little effect anymore.
In short the problem is not with the corporations, the problem is with government as you highlight yourself and as the founding fathers understood only too well hence their priority to limit the power of government to the greatest possible extent. The “deadlock we see between congress and the senate which the mainstream media portrays as a bad thing is as it is by design. The American political system is designed to create deadlock.
In short it is the government’s power which enables the corporations. The more power the federal government has the more concentrated the power, the more easy it is to manipulate against the interests of the corporations against the people.
How has the federal government become so powerful? Because it has a central bank to lend it money. This was only going to end badly hence the resistance from various presidents including Jackson whose autobiography and specifically the part concerning his abolishing on the federal reserve is as valid today as it was then. 2008 was a repeat.
The solution is simple.
The Fed had to be abolished or at least its monopoly on the creation of money. This is a big step and a halfway house would be to have competing currencies.
Do this and all the problems you highlight go away, that is a certainty and that is what the goal must be.
Richard, I think your “the problem is with government as you highlight yourself and as the founding fathers understood only too well hence their priority to limit the power of government to the greatest possible extent.” is factually wrong. The founding fathers were not crazy-assed government-hating libertarians. They acknowledged the indispensable role of government in establishing liberty and promoting social wellbeing. The first lines of the constitution are “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”
Ernie – “government-hating libertarians”. I don’t think anyone is claiming they were, at least not me.
ErnieM, indeed anyone who has read Ellen’s book should understand the subject. In early America corporate charters were very limited in scope compared to what they are today.
As an aside–it always amazes me a bit when I hear folks advocating smaller government and more banking and corporate control given that we’re just now emerging from the greatest economic downturn since the Great Depression. Why don’t we lift restrictions for commercial banking? Why not allow commercial banks to participate in lucrative securities and derivatives trading? Relax lending standards so that everyone can buy a home regardless of their ability to repay the loan (since home values can only go up)? Limit government oversight so that the private industry is allowed to flourish? Oh wait–that’s right, we did that already, and it FAILED MISERABLY.
On a personal level, ten years ago I would have described myself as a right-wing Capitalist, but events since the collapse of the housing sector have forced me to reeducate myself, and completely reorient myself in the political scene. You can’t put the genie back in the bottle, and we can’t return to those days on nothing but hope that another near-collapse cannot occur. My grandparents were alive during the Great Depression, and I can see myself telling stories about the housing collapse 30 years from today as my grandparents had done to us.
Everyone is entitled to their own view, but I am personally flabbergasted that anyone would advocate preserving or even enhancing the banking and corporatist greed that characterized the last decade even while we are still in recovery.
Jeff. I completely agree. Corporate America functions without fear of America’s Justice Dept. I had a look at “Frontline” on PBS (broadcast on 22/01/2013) and was aghast at what the Banks had gotten away with in 2008. There was clearly criminal behaviour in falsefying loan applications, in many many cases, and the Justice dept declared they couldn’t prove beyond doubt that fraud had been committed.
Time to clean out the Justice Dept for a new start.
Then re-instate the Constitution
Then jail a lot of criminal Bankers
Then build a firewall between Wall st and Government
Then get rid of the FED.
Brian – The points you make
Time to clean out the Justice Dept for a new start – Why are they not prosecuting? Pressure from politicians not to.
Then re-instate the Constitution – Why do they treat the Consititution as a”living document”? Because they are lobbied. They are lobbied because they have the too much power.
Then jail a lot of criminal Bankers – Why are they not prosecuting fraud? See point 1.
Then build a firewall between Wall st and Government? Why is Wall St so interested in government? Because that is where the power is.
Then get rid of the FED – Why get rid of the Fed? Because that is what gives the government the power.
In short, get rid of the Fed and the others will look after themselves.
Richard: What you have completely bassackwards is this part: “Why get rid of the Fed? Because that is what gives the government the power.” The government (the people) has next to no power because the banker-owned Fed wields the power for the banks. The bankers rule. Open your eyes. The banks and the Fed got the government to deregulate finance so finance could steal with abandon; all the legislation was written by Goldman Sachs and rubberstamped by the bought and paid for Congress and signed by the bought and paid for president. China is kicking our asses right now economically partly because, as Ellen has written, there the government controls the banks, not the reverse. We the people need to retake control of money and finance, otherwise we will just continue as debt slaves to the banks. Government is the only tool to do that. The minimum-government-because-government-is-intrinsically-evil meme is insane and utterly wrong.
Excuse the intrusion Ernie. I couldn’t help noticing your comment. You said it so well, and I couldn’t agree with you more. I have come to the same conclusions, especially after reading Prof. Michael Hudson’s article: “By Their Fruits Ye Shall Know Them,” and rereading one of Ellen’s earlier articles on WebofDebt, “Monetary Reform” (2010), which so clearly explains how we have a government of, for and by the Vampire Squid (courtesy of Matt Taibbi) corporations. The big squeeze is on, and we are wrapped in their giant tentacles. In fact, perhaps calling corporations Vampire Squids, as Matt Taibbi recently said in a brief appearance on The Colbert show, is an insult to that species.They seem more like sharks, or cold-blooded reptiles, whose sole function is to eat the lesser fish and make more $$$$. Yes, the bankers rule, and We the People, the Government, and the Media are their indebted slaves. I also believe that we humans need government at this stage of our evolution. Like you, I believe that we need to take control of our monetary system and make the Federal Reserve (a banker-owned corporation, as you say) a federal central bank that could, as Ellen says …”issue funds directly to the Treasury as debt-free U.S. Notes, or as ‘national credit’.” I can’t quite imagine how to do this at the present time, since the TBTF banks have also become Too Big To Jail.
Perhaps when our society becomes more empowered through knowledge of what is really going on, we can start with the creation of public banks in states, cities, and local areas.
Thanks, Calliope. Indeed. They don’t want us to become more empowered though! I think Michael Hudson does one of the best jobs of putting these issues into historical perspective in The Bubble and Beyond.
Richard, I completely understand how it all works. The problem for the American people is, what can you do to fix it?
I know that during the Vietnam War, the American people took to the streets in their millions, protesting against the war. It took a long time before the govt got the message, but they did get it, in the end.
Jeff – “As an aside–it always amazes me a bit when I hear folks advocating smaller government and more banking and corporate control” Show me one person that wants these two diametrically opposed things and Ill show you someone who does not understand the fundamentals.
“Limit government oversight so that the private industry is allowed to flourish?” – What reduced oversight? Ask any banker what has happened to banking regulations post 9/11 and they will tell you it has gone through the roof, only the big companies can pay the compliance costs now. The only ones that get a free pass are the money centre banks.
“right-wing Capitalist,” – This is an oxy-moron. The right and the left are two sides of the same coin ie big government. The left is government directly controlling the economy, the right where the government takes taxpayer money and gives it to private companies.
Capitalism is based on co-operation between people on a voluntary basis. Government is an after thought.
The political spectrum is a triangle. The mainstream media 2 dimensional line from left to right does not cover the whole political spectrum.
The problem with derivatives and default swaps and collateralized debt obligations is that they are based on faultly assumptions. A basic assumption is that each such instrument is statistically independent of every other, so if there is failure, it does not effect other instruments. But this is almost on its face obviously false. Once failures to pay off bets,(because there is more bet than there is money in the world to pay off such bets) or the economy generally begins to fail, the failure effects all such instruments, and there is a cascading effect. I think one more time with having these things fail and produce a depression, we’ll get them out of our banking systems. But separating commercial banks from investment banks like we had under Glass-Steigal, would prevent the general banking failures we had in 2008.
The only way we’re ever going to get government of, by, and for the people is to put a constitutional firewall between “we the people” and “them with money” . Why is it so hard to think in terms of amending the Constitution? Nobody likes the way things are going. Let’s quit making excuses and demand an amendment to break up the banks, revoke personhood, make propaganda a felony (treason), spell out the conditions under which conflicts of interest can be punished. Our Founders weren’t constitutional scholars either. I would trust an honest patriot to write an amendment long before I ever trusted a constitutional scholar anyway. Pass the petitions. Stop talking like it’s an impossible dream. Our Founders didn’t think it was an impossible dream. It’ s a necessity. All it takes is lip service and a little “talk it up!”
Congress SHALL ……………………whatever the hell we tell Congress they shall. It’s really that simple.
Shake off the Stockholm syndrome before they put us all on drugs. Keep it simple . No red herrings. One amendment.
We can sort out the details when government actually represents the people again.
William – “Our Founders didn’t think it was an impossible dream. It’ s a necessity. All it takes is lip service” Two words. Second Amendment.
“………we are currently a functional corpocracy.” this was understood in 1776.
Really? By whom? Your sophistry defies logic
“In short it is the government’s power which enables the corporations.”
Wrong: it is the government’s acquiescence which enables corporations. It is the corporations’ power which enables special interests to project economic power with military backing. The Empire serves Wall Street; not Washington, nor the American public. Presently, as I see it, the government has no power. America is just another colony; to be exploited.
“…………..founding fathers understood only too well hence their priority to limit the power of government to the greatest possible extent.”
Their priority was to limit the power of *federal* government.
“The more power the federal government has the more concentrated the power, the more easy it is to manipulate against the interests of the corporations against the people.”
Once again your sophistry defies logic. Read that back to yourself.
“How has the federal government become so powerful? Because it has a central bank to lend it money.”
ROFLMAO ! Brilliant, Richard, really brilliant. I think it’s in the Bible somewhere: “In The Beginning ! There Was The Federal Reserve Bank!!!
And the Federal Reserve Bank begat a republic etc………………………………..rich, really rich !
“The Fed had to be abolished or at least its monopoly on the creation of money.”
Throw away the ideological bullshit and edit your whole post down to this simple truth and you’d be on your way toward usefulness.
Granted, there were many unresolved arguments at the writing of the Constitution, but in the end, it said what it says. Corporations weren’t mentioned but Article Five was inserted to kick that, and whatever other, cans down the road. Well, we’re almost to the end of the road now, and we see how “incorporation by registration” works. Welcome to the Global Banking Empire! How’s it working for you? I don’t like it. The rest of the world doesn’t like it. So; let’s fix it !
The amendment I’m proposing fundamentally shifts the balance of power from the wealthy special interests to the human public interests. Do you have a better idea for preventing the growth of social unrest from plunging humanity into a second Dark Age? You’re obviously a very articulate and clever fellow: what’s your plan?
You say the Constitution is not in effect anymore? Why bother with the pledges of allegiance then. But who IS in charge? Who makes the laws? You don’t say, but you don’t agree with me either. You often cite “the government”; exactly who or what are you referring to? In short, I’m asking if you have any objective beyond sounding clever on the internet. What’s your solution? What do you stand for? Do you have a name you’d like to share indicating you are a real person ?
How do you feel about Phillip The Fair?
William – “this was understood in 1776”.
Really? By whom? Your joking right?. Your taking the conversation backwards here with your lack of knowledge of history. Come back to me after you have read some of the autobiographies of the founding fathers. Jefferson is a good place to start.
“Wrong: it is the government’s acquiescence which enables corporations. ” – and you solution to this is what? Makes laws? Change the constitution? Stop people from being corrupted? These things have been tried for thousands of years, they don’t work. Again, study history, the Roman Empire for example. We are all corruptible, it is human nature.
“which enables special interests to project economic power with military backing” – again, your taking the conversation backwards. You think the corporations fund the military? Or is it you and me? ie the corporations are using our own money against us.
“Presently, as I see it, the government has no power.” – Okay, try and stop funding the government for things you do not agree with and tell me how much power they have over you.
“Their priority was to limit the power of *federal* government.” – Agreed
“the more easy it is to manipulate against the interests of the corporations against the people.”” – Bad grammar. The more power the federal government has, the more concentrated the power, the more easy it is to be manipulated by corporations.
“What’s your solution? ” – End The Fed
“What do you stand for?” – Equality & Freedom or to put it another way true Capitalism.
“Do you have a name you’d like to share indicating you are a real person ?” – Pick any politician and there is a very good chance that person is part of the problem. Take your pick.
Phillip the Fair? Never heard of him, you mean this guy https://en.wikipedia.org/wiki/Philip_IV_of_France – if I had to state a first impression he seems a racist socialist but I stand to be corrected.
You are a waste of everybody’s time.
William – Feel free to attack any specific points
What is a stupid idea is allowing a private interest to charge you interest for something that can be made available to everyone for free. Usury is the problem. Real Money is just a medium of exchange, not a commodity. You can charge someone for the use of the latter but not the former because it is just a conduit for created wealth, labor and services. This was understood as an instrinsic evil since biblical times and has been “forgotten” over the ages as the banks have taken control of the media and education. For a scholarly historical analysis of usury, i would recommend Michael Hoffmans book “Usury in Christendom” as well as his explaination of his book’s thesis http://revisionistreview.blogspot.com/2013/01/youtube-michael-hoffman-talks-about.html
Rex – “Real Money is just a medium of exchange, not a commodity.” – A medium of exchange. Okay, what are we exchanging? I put it to you we are exchanging commodities of one form or another whether they be services, labour, property etc etc In other words, money is simply a representation of something real but in a form that is easy to trade/exchange.
Since the trillion dollar coin solution was dismissed by both the Fed and the Administration, we have to look elsewhere for eliminating the national debt. My thoughts on this have led me to conclude that in our fiat money system there is no national debt in the first place. The Fed is not creating debt to it when it creates money.
But to see this you have to look at the details and follow the securities and what happens to them. There are a lot of things unsaid. But you have to know what the actors are and what they are doing.
When Congress wishes to deficit spend, the Treasury has to borrow money from banks for this. It does this by issuing securities which are IOU’s to pay back the holder the amount borrowed plus interest at a future date. These are sold at public auction and banks buy them. But the banks diminish their reserves considerably when they buy securities for deficit spending from Treasury. So, as soon as they can they take the securities back to the auction and put them up for sale. This time the Fed may buy them with money it creates out of thin air.
Now, note that this redeems the debt of the Treasury to the banks. But it is commonly believed that the Fed is now owed for the debt. Question: Is it owed because of the money it created and used to buy the securities? Or is it because it now possesses the securities which promise to pay the holder the full value of them at maturity?
If you take that line of reasoning, you may miss why there is now no debt of the United States to the Fed.
The Fed is an agent of the United States, an agency of our government. It’s job is to manage the money supply, maintain stable prices and promote full employment. So, suppose you are an employer and you employ an agent to buy something for you with your money, and they come back with the thing, your money has been spent, and the agent now wants you to pay him/her the value of the thing bought. You would reject that. You probably already have set a price on his/her services, so that’s all he/she is deserved.
O.K. Think about what the Fed is and what it is doing. It is an agent of the United States buying with government money (because it is created out of thin air, a power only granted Congress and supposedly delegated to the Fed to serve as issuer of everyday money). Seen in that light, the Fed has no claim to be paid for the securities it has. In fact, the securities are not its, but the United States’. And the securities say on them to be paid by the United States to ….. Well, who now? Itself? No! the United States does not owe itself for the securities just because it owns them. Neither does the Treasury when as agent of the United States it possesses the securities to sell. But the United States in the banking laws and the Federal Reserve Act as amended give the Fed the right to buy and sell securities for the United States in the interests of general welfare of maintaining stable prices and full employment. And it can swap mature for new securities with the Treasury. And the only thing owed the Fed is a transaction fee of 6% of the interest on each security it purchases. The pile of securities at the Fed really are not debts of the United States until they get sold to someone else. There is no national debt at the Fed.
Note also that the Treasury’s money is now debt-free. And new money has been added into the economy by the Fed’s purchase.
Now how do we get the Fed to admit to this? How can we get the Administration to challenge the Fed by refusing to roll-over the securities at the Fed? Actually the only thing it loses is some of its money stream, but it keeps most everything as is, except there is no debt to it.
One thing I’ve wondered, how has the idea, that the the United States via the Treasury owes the Fed, arisen? My best guess for now is that it arose when the dollar was on gold backing. Then the money supply was limited by the gold supply to match it to. So, when the Fed bought the securities it transferred ownership of gold to the banks. It couldn’t go on doing this endlessly, so it had to get some of its gold-based money back, and that was already in circulation. So, the taxpayers had to pay back the Fed for the securities it bought with its gold-backed money.
But President Nixon took us off of gold in 1971 because the French were exchanging dollars for our gold, and he was trying to finance two large domestic programs and the Viet Nam war without raising taxes. The money supply had reached the limits of the gold supply and he needed more dollars. So he shifted us to a fiat money system. But in that system there is no potentially finite money supply, so the money the Fed spends is pure money, without gold behind it, and can be unlimited in amount. So that also means that now there can be no debt to the Fed for the securities.
And a dollar is only worth what you can sell it for. It’s getting harder to sell, though, and you know it’s in trouble when central bankers start doing media “interviews” . How they’ve managed to equate value with fiat is still a mystery to most. Granted, they have tradition working for them, but I think it also requires a measure of gullibility from the public, too.
According to the BLS, a dollar is worth about 2% less than last year. I don’t get too excited about that, and I don’t see inherent flaws with fiat currency.
But as soon as I post this someone will reply to tell me the CPI is all wrong and that hyperinflation is right around the corner. I have to be honest… the inflation hysteria is getting tiresome. My experience could be regional (mid-west) but it just doesn’t feel to me like prices are out of control. Food is a little high and gold is steady… so what? Energy is down a little, and housing is still depressed where I live. My cost of living has been essentially unchanged the past few years.
It seems to me that those who believe hyperinflation is imminent aren’t going to be convinced otherwise, and likewise for those who don’t. Time will tell. Some days I wish I could crawl into a cave and emerge in 5-10 years just to see who’s right.
I enjoyed Ellen’s book and like her articles. That’s why I’m here. Her writing helps me to understand the economy and pushes me to think for myself. Plus, her ideas seem practical and sound. However the level of fear-mongering in the comments has me thinking twice about subscribing.
As an aside, one of the blog sites I found (http://www.ritholtz.com/blog/) included the following:
“Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.”
At least that left me with a smile 🙂
Ditto for me. Call me in five years. I still think the tendency toward global banking hedgemony is worrisome and should be addressed before things get out of control.
If you believe that inflation is running at 2% pa you really are naive – try 6 to 8%.
Agreed. I can’t really know the actual number but it’s probably much higher than what’s already apparent. Statisticians sure can lie, can’t they.
William – I think I posted this before but anyway http://youtu.be/pwI3Nya5L9g
The Fed’s QEs were purchasing of those toxic home mortgage securities that banks invested in, had been using as reserves, then they went sour and were worth nothing but the Fed bought them, restored the bank’s reserves to maintain current money in circulation thereby NOT increasing the money supply nor causing any inflation.
Charles – I’m not sure if you grasp the fundamentals of the US economic crisis.
The problem was not that good loans were sold on/spliced into good derivatives/combined with good government debt/combined with good municipal debt etc etc
The problem was/is that loans were created out of thin air and made to people who probably would not be able to pay it back. Unsecured loans/mortgages/credit card debt and so on.
This created a bubble into which normal loans were made on distorted economic figures, bubble figures further exasperating the problem.
These bad loans have no value because they will more than likely go bad and yet have had a “AAA” value attached to them.
In short, yes The Fed is monetising securities that are already out there but these securities in themselves are worthless. To give them a value is inflationary because in normal circumstances they would go into default
And to wrap it up. This is why we see the Fed pumping trillions into US banks. As long as the security is alive (even if the underlying asset has ceased to exist) it pays interest to the investor. Either the banks pay the interest (which they cant) or they sell the security on to the Fed to get cash. (it is these interest payments and maturing of this defunct security which is going to cause the inflation in the future)
If interest rates go back up, like they did in 2008 causing the economic crisis, the same problems will emerge again but in a much bigger way.
In short, The Fed cannot raise interest rates. Follow that to its logical conclusion.
Richard, I understand the monetary system very well and also understand that 2 + 2 = 4. The best lesson to learn about a central bank system is why and how Andrew Jackson got the national debt paid down to zero in the 1830s. Learn what happened to Nickolas Biddle and the 2nd US Bank in the 1830s and then we can talk.
Peter Schiff is an Austrian who fails to grasp the difference between the money supply and price inflation (money in bank reserves cannot affect inflation unless it reaches circulation by virtue of increased lending). He may also be confused about the role of gold as a commodity–gold price alone is not the true measure of the value of a dollar, certainly not within a fiat currency.
Schiff has predicated inflation and believes an ounce of gold will rise to $5000 per ounce. At risk of repeating myself, I don’t really want to debate this any longer–let’s see how this plays out. Years from now Schiff may end up looking like a genius or just another bold commentator. Ditto for Krugman and the Keynesians. (And MMT too.)
I’ve played my cards. I’ve voted for my representatives, influenced legislation to the best of my ability, shed my debt and prepared for either a storm or a wave of prosperity. Now I’ll grab a bag of popcorn and watch. What else is left to do?
Jeff – Inflation is increasing the amount of money. Price increases are the result. CPI for example is a measure of the effect of this inflation. It is the Consumer Price Index, not Consumer Price Inflation. See the governments own definition of inflation for further info.
When we get inflation/massive inflation Austrians will not be calling Schiff a genius. Huge inflation is inevitable it does not take a genius to realise this. It is the only possible outcome.
Even if inflation is running at 6% that is still not hyperinflation, and it can be controlled by raising taxes, encouraging imports, raising interest, by the Fed selling securities to banks, encouraging savings. Mild inflations are never as serious as deflations which lead to unemployment, loss of homes, hungry people, desperate people.
William, I 100% agree. While Wall St banks have been ‘quarantined’ from insolvency,(by their friends at the FED), numerous regional banks in the USA are receiving no proceeds from QE3, and going ‘under’.
I don’t know how this is allowed to happen in a “Democracy” but it seems quite unconscionable to me.
Yep, its called a conspiracy – that’s how finance capitalism operates.
It was allowed to happen because our “democracy” was co-opted by their more powerful corpocracy. It wasn’t a conspiracy; it’s just the inevitable consequence of our Constitution’s failure to impose terms and conditions to the granting of corporate charters. We can fix that.
William – Conspiracy – “A civil conspiracy or collusion is an agreement between two or more parties to deprive a third party of legal rights or deceive a third party to obtain an illegal objective.[1] A conspiracy may also refer to a group of people who make an agreement to form a partnership in which each member becomes the agent or partner of every other member and engage in planning or agreeing to commit some act.”
When the Fed was formed banks surrendered their gold to the Fed for safe keeping and as backing for paper notes. The Govt did a great favor for Americans under the Fed Reserve Act by producing a uniform set of notes in place of the bank specific notes that were in circulation prior to the Fed. But these notes supplied to the Fed for use by the banks were just paper notes showing how much money/gold was owed to the bearer. That changed when Nixon did away with the gold standard completely. Then the BEP was still printing the notes that were now real money and giving them to the Fed for use by the banks for the cost of printing. That is when the system became corrupt with the government printing money and giving it to banks. The current price for a 100 dollar bill is 9.7 cents. Would you like to buy some?
But while prices have risen, so have wages correspondingly. So,
you are only hurting if you buried your dollars in a can in the back yard for 50 years. And computers today are much cheaper than they were
30 years ago, and you get a lot more for less dollars.
Hourly & salary wages have NOT kept up with inflation since 1980. This is why the US consumer had to borrow to maintain his unreal lifestyle. Yes, some items have gone down in price but these are the exception & do not form a significant fraction of the average person’s monthly expenditures.
Inflation favours the rich who can borrow against their existing wealth as collateral & then buy real assets that appreciate in value while their loans are paid back in less valuable (depreciated) dollars. The net result is the transfer of real wealth from the 99% to the 1%. This is why the Fed keeps inflation going with fake money issuance. This process is very difficult when paper money is backed by gold.
I’ve seen the graph that you may base your comment on. I’ll concede that wages have not kept up with inflation since 1980. However, I think that is due to the weakening of the union movement, the rich investing overseas to manufacture goods to sell here, putting more and more Americans out of high paying jobs, the undue influence of big money of the 1% on Congress and State legislatures. I don’t see it as principally caused by fiat money. But in many ways many goods now cost less in real dollars than they did 30 years ago: computers, cell phones.
Stanis – “However, I think that is due to the weakening of the union movement, the rich investing overseas to manufacture goods to sell here, ” – Yeah, big multinationals are shipping jobs overseas because foreign countries have stronger unions than the US.
How about all the bonds owned by foreign countries? And do not banks and others hold a lot of bonds? Perhaps an analysis in terms of stocks rather than flows would be more enlightening, with ballpark numbers. I wouldn’t reject the $T coin possibility so glibly myself. The basic mechanism is valid and should be used. So what the Fed says it is “unviable”? Who’s boss?
Our dollar floats on foreign exchanges. That makes it difficult to sell it short.
My main reason now for rejecting the $Trillion coin solution, which I originally championed and even recommended in letters to the President, is that buying all the securities at the Fed is not authorized by Congress, since the debt in these securities has already been redeemed when the Fed bought them from the banks. The Fed is a government agency in these transactions performing government sanctioned activities to control the money supply. It buys securities to inject new money into the banking system, which got them originally from Treasury for deficit spending. It sells securities to banks to drain money from an inflated economy by draining the banks’ reserves.
The Fed buys the securities with money created out of thin air, which is money creation, and only the government is authorized to do this by the Constitution via the Congress and delegated to the government by establishment of government agencies. So, the Fed (government agent) buys securities with government money for the government.
To claim that the Fed is owed for the securities per se [there is a transaction fee of 6% of the interest on the securities owed the Fed by law] has as much validity as a bank clerk’s claim to be paid the value of a security it bought from a bank customer for the bank with bank money. The servant who buys for its master has no claim on what he/she buys for the master. That means we have debt-free money, equivalent to the Treasury issuing the money.
Treasury borrows by issuing securities which are bought by banks at public auction. Banks give Treasury deficit-spending money. Banks take a serious hit in their reserves and want to be free of that, and so they put the securities up for sale at the auction. The Fed buys them to restore their reserves, and in the process by using newly created money the Fed increases the money supply equal to the money given the Treasury. By buying the securities with newly created government money, that redeems the debt. So the Treasury now has debt-free money for deficit spending. It is essentially the same as the Treasury just issuing its own money for deficit spending. But the Fed does not give this money directly to the Treasury. The Treasury gets its money from private banks. But money being fungible it is all the same as the Treasury issuing its own money to itself to spend. It is debt-free.
Now, all we need to do is get the Fed to admit to all this. By concealing some of its operations it obscures what is happening. We need to get Congress and/or the President to stop rolling-over the securities at the Fed (which can go on forever, in the process creating an endless source of transaction-fee funds for the Fed operations). That would bring this all to the head in the courts, if needed.
As for bonds owed by foreign countries, these bonds are like bank CD’s, time deposits at the Fed. They are not used to finance government operations. Why use them when the Fed injects new money equal to deficit spending into the economy? It is an unlimited supply of dollars. The Fed routinely redeems the principal plus interest (which it creates out of thin air) on these bonds when they mature. These bonds are a safe, sound investment because these foreigners know that their money will always be returned with the promised interest.
I never understood the T$ coin as something to pay for the accumulated debt. There has to be a good mechanism in place now for paying the debt as it becomes due and I would assume that is a rather simple computer program that makes the necessary adjustments in the bank accounts of holders of maturing treasury securities. The purpose of the T$ coin is to negate the necessity to sell additional treasuries under the bean counter rule. It can also be viewed as relief from tax collection which should only be applied to remove excess or hoarded money from the economy. Government control of the money supply is a natural responsibility of government in this era of recognized fiat money.
About 87% of the national debt in 2010 was owed to private and foreign investors who had bought US Treasury securities. When these investors’ monies were received by the Treasury or the Fed, they were deposited in time-deposit accounts at the Fed. They are not used to fund the government’s operations. That is covered by government spending based on taxes and deficit spending based on Treasury selling securities to banks at public auction. Banks have the deficit spending securities. Private investors are not banks and their securities are held by them and not as bank assets. The Fed cannot directly draw money from these investors as they can from the banks with QE.
Anyway, the point is that the money in time deposit accounts at the Fed corresponding to these investors’ securities is there to be returned to the
investors when the securities mature on
demand from the investors. There is no problem in finding this money to repay the principal on their securities. The interest can be made up out of thin air by the Fed, or borrowed from banks by the Treasury. So, there is really no major problem with the national debt.
Again I emphasize that 87% or so of the national debt is NOT due to deficit spending but to private and foreign investors seeking safe havens for the dollars they have earned in selling us their imports or bought by insurance and pension funds deriving money in savings and premiums from private individuals.
Bank control of the money supply will never produce a stable economy for a very simple reason. Banks do not have the power to spend and tax which are the natural tools for maintaining a stable money supply in an economy. The government has those powers and can manage a stable money supply and hence a stable economy. That is the central problem and the source of our endless cycles of booms and busts; the responsibility for managing the money supply is given to a central bank and its covey of commercial banks while the power to do it is held by the central government but that power is neutered by the bean counter rule; spending must equal sum of taxes taken from economy plus money removed by sale of treasuries.
[…] https://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/ […]
When the politicians, who love to spend money buying votes, get control of money creation they always make money so fast that it becomes worthless. I think it is a time in history when it is good to understand hyperinflation. I am working on a Hyperinflation FAQ and welcome any feedback:
http://howfiatdies.blogspot.com/2012/10/faq-for-hyperinflation-skeptics.html
The idea that Congress creates new money without constraint is not borne out by the facts. Since 1971 we have not ever had hyperinflation. Republicans will always put the brakes on, sometimes at the wrong times, but nevertheless by cutting deficit spending during inflations, we stop feeding the fire in the hot economy. But at the same time, during deflations, you need to stoke the fire with high deficit spending. There is a time and a place for doing what needs to be done.
stanilaus: by cutting deficit spending during inflations, we stop feeding the fire in the hot economy. “hot” economy? or bubble economy.
What do you mean by “hot” economy? Usually inflation occurs when more money
is being spent into circulation after the economy has reached full employment and full production at stable prices and wages. More money introduced in the economy will not increase more production. So wages will go up without increasing production, and then those with more money will bid up prices generally causing inflation. Inflation in the MMT view is due to more money in circulation than will clear the economy of goods and services at full production and employment at stable prices and wages.
[…] [Note:(1) The US has now come up with the hilarious idea for a trillion dollar coin, but it underlies something serious and forces us to re-assess the role of banks and the scam of money creation. For more please read: Link […]
[…] A comment on Web of Debt Blog […]
I suppose my comment will be edited or deleted, but I must try. What kind of people are Jon Stewart and economist Krugman, and Greenspan, Bernanke, and on and on? Also, who are the actual owners of the banks? Who are the actual owners of the private corporation of Federal Reserve banks?
The answer is the same for every question. They are jews. (Was that cut out? It’s a J and an E and a W.) Ellen Brown won’t touch that truth, though, which leaves everybody wrongfully thinking that the villains of money are Whites. That’s how they do it. The media, owned by that same race, do likewise, making Whites look like the abusers, the murderers, the rapists, etc. Wake up, my fellow Americans, please.
My name, real name, is James Laffrey, American.
The Fed branches are owned by the banks in their district. For example, the NY Fed is owned by about 500 NY banks. Bankers are of all races. George Bush’s grandfather was a big Wall Street banker. Franklin Roosevelt’s family were bankers. JP Morgan was Christian. Some of the big British banks were founded by Quakers — Barclays, etc. You won’t clean up the banking crisis by pointing fingers at particular ethnicities. It doesn’t even matter who is responsible. In my opinion it wouldn’t help to throw the culprits in jail. We need to change the system. If you leave food out on the counter, bugs will get in. Killing the bugs won’t help; they’ll just be back. You need to clean the counter.
“We need to change the system.”
And if you really want to change the system you set the market free and return sovereignty to the people. To do that you need to keep money out of politics and politics out of money. That means we need a firewall between banking and government. The only place to erect such a firewall that would take precedence over all existing law is in the Constitution, where it becomes the supreme law of the land. The wording must reflect that intent, be un-ambiguous, be clear, and force Congress to take remedial action immediately:
28th Amendment
“Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to: 1, prohibitions against any corporation becoming so large its failure would pose a threat to national security or harm the general economy; 2, prohibitions against any form of interference in the affairs of government, education, and news media; and 3, provisions for civil and criminal penalties to be paid by corporate executives for violation of the terms of a corporate charter.”
No more “Too Big To Jail” behind the corporate veil !
I, like Ellen Brown, don’t use a screen name. The People should absolutely demand equal transparency from their fiduciary institutions.
Having said all that, I logged in with the wrong account, the one that won’t let you use your name. Oh, well. Bill Falberg.
I had the malicious thought: suppose a company is destroyed by Bane Capital. Is that murder? If corporations and fetuses are persons, and aborting a fetus is murder, isn’t putting a company out of business murder?
I call them “the Lord of Finance”
We are familiar with who owes how much debt, but we are negligent who are the final creditors.
If you have basic knowledge of accounting, one of the principles of it is: balance of debt and credit.
Recently, we see that the balance sheets of major central banks are expanding so fast that many economists are saying that they will blast the whole economy sooner or later. However, they are also saying that economies of the same countries are shrinking.
Expanding or shrinking mentioned here are all in terms of numbers.
Something wrong here isn’t it?
We must redefine money, cash, or legal tender and need to know how much is the total money in each economy.
Creating legal tender out of thin air by the commercial banks must be considered same as counterfeiting money.
The sole authority to create money must be the people, or the congress. Money supply as capital, not as debt is the right solution for so called financial crisis.
Young Kim – “Recently, we see that the balance sheets of major central banks are expanding so fast that many economists are saying that they will blast the whole economy sooner or later. However, they are also saying that economies of the same countries are shrinking.
Expanding or shrinking mentioned here are all in terms of numbers.
Something wrong here isn’t it?” – Yes and no. This system in blocked because people are uncertain about the future. The measurements are basically sound. When people regain confidence in the economy or lose confidence in the dollar then inflation will accelerate massively.
“Creating legal tender out of thin air by the commercial banks must be considered same as counterfeiting money.” There is nothing wrong with private banks regardless of size printing their own cash. The problem comes when you have the taxpayer backstopping banks against their will and you have a central banks lending money to a government in order to profit through the taxes to pay for the interest.
In short, get rid of the central bank and all of the problems disappear.
Richard, your “There is nothing wrong with private banks regardless of size printing their own cash” shows you have zero understanding or appreciation of what Ellen Brown has written. Your confused,ideologically biased posts are not only antithetical to the theme of this site, but also an annoyance for people who want to discuss the issues seriously as well as a waste of space, as someone else on here noted recently.
Do you want to be an anarchist? Can I print my own money and pay off my debt to someone with that?
Legal tender must be under the control of law.
These days law itself lost its authority where declared ‘war against terrorism’. Everything goes insane.
Taxation, money printing, declaration of war, these are all same matters of life or death for the people.
It would do you good to study up on Promissory Notes and how mortgages really work. A Promissory Note, created by the purchaser, is the closest thing to money, other that the down payment and fees if any. in the entire exchange. The bank magically monetizes the PN, calls it an asset, and issues as much as nine times (maybe more) the credit/ loans based on the debt note PN. This is actually counterfeiting as is the entire federal Reserve system. Jesus threw them out knowing how evil, including the concept of interest/ usury it all is. It impoverishes and kills the many while enriching the few.
PN is not legal tender. You just follow the direction of your creditor promising when and how much to be repaid. One thing the government did stupid mitake is that it degraded government bond same as personal PN. Government securities are quasi-legal tenders, i.e. future money.
So, coupon rate of government bonds must be same as target rate of inflation.
PNs are as much legal tender as FRNs and are negotiable instruments. Don’t you understand there is no real money or legal tender of any kind in the US? FRNs issued by the Fed and even the coins issued by the US Mint are illegal. PNs are NOT illegal and have been in use for centuries.The only lawful money allowed by constitutional LAW is gold and silver, so all else is counterfeit with no intrinsic value or minimal in the case of coins. Fiat money , especially when combined with evil usury is a guaranteed recipe for economic disaster. Jefferson was right about the impact of centralized banking and much of our early US history was a fight against British banking interests determined to foist their elite-enhancing system on us. They were successful.
Legal tender means no negotiation, no refusal of acceptance should be allowed. You are missing the point.
Hello Young Kim – “Can I print my own money and pay off my debt to someone with that?” Sure, why not?
If you can find someone that will accept it what is the problem?
But you need to be able to get people to accept your bills as payment and that would not be so easy would it?
There are a number of things you could do.
Only deal with people that trust you.
You could have the notes you issue insured, that way if your notes lose their value the creditor can claim from the insurance company.
You could us some corporation to back up your notes, PayPal for example.
The possibilities are pretty much infinite with today’s technologies.
You cannot print your own money and pay off your debts in dollars with it. You go to jail if you do. That is counterfeiting. Only agencies of government authorized to print money by Congress can do that.
Stanis – “You cannot print your own money and pay off your debts in dollars with it. You go to jail if you do.” Let me make it as simple as I can. If I owe you hundred dollars, and I draw a picture on a piece of a paper and offer it to you as payment and you accept it, it is called barter and it is 100% legal.
Richard — you’re all screwed up. That ain’t barter.
ErnieM – Apologies if I touched a nerve. If you would like to explain to me how that is not barter according to Wikipedia’s/Merriam Webster definition it would be appreciated.
No, no nerve, just common sense: http://www.merriam-webster.com/dictionary/barter
Definition of BARTER
intransitive verb
: to trade by exchanging one commodity for another
and if you need to look up “commodity”, go ahead!
That’s right, stanislaus2, that Fed is functioning as a government agency.
However, Fed is a private entity owned by private entities as Ellen made it clear.
This self-contradicting phenomenon causes the whole problems.
We must draw a clear line between functions to be carries out by public and private entities.
My opinion on what kind of functions must not be carried out by private entities:
– taxation, legislation, judicature, administration of elections of public officers, national defense, money making, etc.
And another essential we need to establish as generally accepted social principle is land ownership.
Land must belong to the people who live on it. I believe this is the right direction we should promote.
So, future conveyance of land ownership should be:
No more land to the crown.
No more land to the WWF.
No more land to the corporations.
Only natural persons and local communities are entitled to be owners of a piece of land.
It’s not that we are helpless to deal with increasing inflation. A lot of people do not realize that it can be managed more than by cutting deficits. We can raise taxes and spend less. That drains some of the money out of the economy. We can reduce tariffs so that we buy more imported goods, sending our money out of the national economy to foreigners. We can encourage savings like 401k plans and Roth IRA’s. That’s how we were able to fight two wars with trillions in deficit spending and not have serious inflation. But we do not now have inflation, and during deflations like recessions and depressions, the required procedure is to increase deficit spending which creates new debt-free money (when Fed buys the associated securities with money created out of thin air) and injects it into bank reserves. That redeems the government’s “debt” to the banks. The Fed is not a private bank in these transactions. It is acting as a government agency (independent within the government) buying securities with government created money. Agents are not owed the value of the products they deal with. It doesn’t matter now that the banks are not lending; what counts is that the deficit spending money is now debt-free and equal to the value of the newly created money which is currently sitting idle in restored bank reserves. So, it’s as if the Treasury created the money for deficit spending. This time the Treasury had to work with an intermediary, the banks, to get the Fed to create the new money. It has to be done this way because the Fed cannot directly buy securities from the Treasury or even give the Treasury money directly (except in can swap mature securities (at face value) for new securities with new future redemption dates).
The ‘Lords of Finance’ have realized that by simply ‘printing money’ they can generate massive debt for the whole nation without having to get individual citizens to take on personal debt. This means that they no longer care if the economy tanks or the stock market goes up or whatever. This process allows them to transfer ownership of all the real assets in a country to themselves AND they still want the USA to give billions every year to their friends in Israel.
VoxPop, It’s a historical fact that Germany was plunged into massive debt as a result of WW1, and during the Weimar Republic, Germany’s currency was destroyed.(Wikipedia). This gave rise to a guy called Hitler, who recognised the problem and within two years had put 6 million unemployed back into jobs, and restored Germany’s previously robust economy. There are parallels today with what happened in the mid ’30’s (as regard to massive debt)
No, the difference then was the German government deliberately created the massive inflation so they could ‘pay back’ the Versailles’ debts imposed on the losers by the Allies in nominal ‘marks’.
The biggest difference between then & now is that national currencies were backed by gold – now they are not.
Vox, sorry if I was a bit vague. I was trying to send a ‘criptic’ message that Germany’s problems were the result of excessive debt in meeting the conditions of the Treaty of Versailles. America now finds itself in an ‘Excessive debt’ situation, caused by Bankers, and is frantically ‘printing dollars’, and giving it back to the Bankers, to keep them in business.
Maybe, America’s Bankers should have been allowed to go “Bust”, and America took it’s country back from them.
I think the national debt is the Emperor’s New Clothes. If you study closely what is done when the Fed buys securities representing bank loans to the Treasury, you can see with your own eyes that the Fed is a government agency redeeming the debt to the banks for the United States. The securities are not between the Treasury and the banks but between the United States and the banks. I think the idea of the national debt is a vestigial practice of rolling over the securities by the Treasury borrowing bank money with securities to buy the old securities that have matured and replace them with the new securities created for this that the Fed buys from the banks that lent the Treasury this money. This can go on, and on, and on… and each time a new security is issued and bought from a bank by the Fed, the Fed gets 6% of the interest on the security. The “debt” never gets paid off, nor has to (in theory). Consider how the pile of securities at the Fed grows with each bout of deficit spending. That is not a major problem, since it is a necessary feature of our fiat money if we wish to encourage economic growth, avoid recessions and depressions which cause unemployment. But, it becomes a nice source of continuing income for the Fed, which principally gets its operating funds from transaction fees on its purchases–to keep it independent of Congressional appropriations and political influence.
VoxPop – Again, you are 100% correct. The inflation was created deliberately to wipe out the debt. France knew what was happening, they did not like it, which is why they starting seizing German factories (in the Rhine valley I think) which led to the second world war.
I believe the shoe is on the other foot this time. The indebted economies are trying to do the same thing ie inflate away their debt except Germany is fighting this tooth and nail which is causing huge problems for currencies which are not the Euro.
Unfortunately Greece is caught in the middle.
VoxPop – You have got it. The central bank business model is built on getting the private citizens to take on debt they would not normally take on and forcing them to service this debt through ever increasing taxes.
We had no central bank from the 1830s when the Second US Bank’s charter was not renewed until 1913 when the Fed was organized. The country had many problems then with private banks and, after the Lincoln greenbacks and the assassination of Lincoln the National Bank Act was passed which did not relive the problems with the monetary system. Central banks are not the unique problem. The real problem is who issues money, how the money is issued and how well the quantity is controlled and how the quantity is controlled. Bottom line, money is a needed and very inexpensive commodity. The real issues are as stated above.
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[…] immediately, without going to Congress or changing the law, as discussed in my earlier article here. It need not be inflationary, since Congress could still spend only what it passed in its budget. […]
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