WEB OF DEBT BLOG

MONETIZE THIS! A Better Way to Fund the Stimulus Package

116 Responses

1. 

   Michael, on February 28, 2009 at 10:10 pm said:

   Brock
   Playing with words and renaming them to something that suits your double talk is not making you more trustworthy.

   That you pretend not knowing anything about the function of bank reserves (in which cash is a part) according to Basel2 and how it is used to leverage the credits (or balance sheets for that matter either 🙂 ) is not is not making you more trustworthy.

   If only a fraction of the depositors withdraw their cash the credit would have no base since the cash is the publics line to the bank reserves – it’s called bank run – you have perhaps heard of the expression? Hence the cash is the base for the credit expansions and the existance of the bank .The bank credit wouldn’t exist if only a small fraction of the depositors withdraw their cash since the banks reserves would be depleted and the bank fall. Hence the cash is more permanent no matter how it’s issued. The deposits are claims on cash – period! Or have they invented a law prohibiting people from withdrawing their cash?.

   Your game is trying to be superior and arrogant in order get an interpretation precedence not using any form of logic or arguments and messing things up as much as possible. But your double talks is evident and transparent so that trick won’t work any longer – it’s embarrassing. You don’t use facts – you use double talk.

   Jere L Hough
   I agree monetazing the leverage is one way to go. Another is the way economi professor Michael Hudson advocates – write of debt sinse we he hit the “debt wall” his word and take the privilige of issuing money from the private parasites. Interresting article:
   http://www.counterpunch.org/hudson02172009.html

   Reply
2. 

   Brock Moore, on February 28, 2009 at 10:17 pm said:

   This private, money creation Ponzi Scheme…
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   The term “Ponzi” here is utilized as an anti-banking opprobrium, and has no relationship to how the word is defined in ordinary dictionaries.
   –

   This tells us why the circuitous, fallacious and misleading anti-reform arguments above are unworthy of engagement.
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   I would like to know what specifically are the “anti-reform arguments” you are referring to? I have criticized only the goofy stuff, like calling something that has nothing to do with a Ponzi scheme, “Ponzi,” that simply discredits the “reformers” who make them as being ignoramuses who don’t know what they are talking about.
   –

   They are a textbook examples of deceptive rhetoric.
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   No, not textbook, because the “reformers” who make them have apparently never read actual textbooks.
   –

   Straw men, red herrings, non-sequiturs, and other techniques of sophistry are his tools, and the writer uses them well.
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   Just who is the “writer” you are referring to? Come on now, my good fellow, don’t be coy.

   Brock

   Reply
3. 

   Brock Moore, on February 28, 2009 at 10:52 pm said:

   You still don’t get the point, do you? Cash is no more permanent than bank credit because cash is also bank credit, it is credit from the central bank. We have a central banking system. You don’t have the foggiest idea how central banking systems work.
   –

   “Hence the cash is the base for the credit expansions and the existance of the bank.”
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   No, this doesn’t follow at all. It is at best the discredited “money multiplier” theory, which misconstrues the actual purpose and function of reserves. The basis for credit is the banks’ ability to credit their depositors’ accounts. Banks can function without central banks. The purpose of central banks is to coordinate transactions between the banks, thereby broadening the scope and utility of bank credit.
   –

   “The bank credit wouldn’t exist if only a small fraction of the depositors withdraw their cash since the banks reserves would be depleted and the bank fall.”
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   But bank credit continues to exist because actuarially only a small percentage of depositors net withdraw their deposits, so reserves do not become depleted. The fractional reserve banking system continues to function and has done so for centuries. Please explain why, according to your theory? I suspect your answer would be that because it is some all-pervasive conspiracy against the public.
   –

   “Hence the cash is more permanent no matter how it’s issued. The deposits are claims on cash – period!”
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   Central bank credit is no more “permanent” than commercial bank credit. The deposits are not claims on cash. With deposits the depositors have the right to claim cash in redemption, when and if they so assert their claim. You’re leaving the “if” out of the equation.

   Brock

   Reply
4. 

   Michael, on February 28, 2009 at 11:02 pm said:

   You have no point. This is silly and you use no arguments . I see no point in discussing an “expert” that pretends not knowing what a bank run (or balance sheet 🙂 ) is.

   Jere L Hough is absolutely right. when he write you “are unworthy of engagement”

   Reply
5. 

   Brock Moore, on March 1, 2009 at 4:45 pm said:

   “You have no point. This is silly and you use no arguments . I see no point in discussing an “expert” that pretends not knowing what a bank run (or balance sheet 🙂 ) is.”
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   Michael, I am professionally a certified public accountant. Of course I know what a bank run is and what a balance sheet is. Apparently you missed my reply. I question your ability to read. Let me repeat it. This was your quite fallacious argument:

   “If only a fraction of the depositors withdraw their cash the credit would have no base since the cash is the publics line to the bank reserves – it’s called bank run – you have perhaps heard of the expression? Hence the cash is the base for the credit expansions and the existence of the bank.”

   This was my reply: But the fact that there may be bank runs does not mean that “cash” is the “basis” for credit expansions. The simple reason is because banks don’t make loans from their reserves. They make loans from their ability to credit deposit accounts. The theorem is that loans create deposits. The purpose of reserves is to cover the contingency that depositors might demand to redeem their deposits in “cash.” The keyword here is “contingency.” You should look up the word in a dictionary. The language of this blog is English, not some gibberish language of your own creation, that only you speak. Banks are required in their depositor contracts to redeem deposits in “cash,” when and if demanded. These demands mostly occur when deposits are transferred between banks. Only a very small percentage of these demands are from depositors redeeming their deposits in currency or coinage. When a deposit is transferred from bank A to bank B, bank B effectively demands that bank A redeem it in “cash,” which is accomplished by a debit to bank A’s account at the central bank, and a corresponding credit to bank B’s account. These transfers are accomplished through offsetting balances at the end of each banking day, so only net differences between banks at the end of the banking day are settled by debits and credits at the central bank. If banks are perfectly coordinated in this regard, each bank would be receiving exactly a dollar in deposits from other banks for each dollar in deposits it is losing to other banks. In that case, there would be no need for reserves whatsoever, because there would be no net settlements at the end of each banking day. Reserves are needed because bank coordination is not perfect. The imperfection in bank coordination is certainly not the basis for credit expansion; it is rather a limitation on the ability to expand credit. That is exactly the opposite of your assumption. So, not only have you been disproved, you have been disproved quite dramatically.

   I think it’s really time for you to shut up.

   Brock

   Reply
6. 

   Jere Hough, on March 1, 2009 at 7:53 pm said:

   Brock, It may be time for someone to “shut up” but that someone just might be you. You appear to have no point to make here except to obfuscate and obstruct.

   You are picking out gnats and swallowing camels. We are not interested in discussing the details and fine points of the workings of the current fraudulent banking scheme. We are trying to find real solutions for very real and threatening economic and banking problems that threaten not only our way of life, but our very existence.

   Everything you have written here is irrelevant, with one or two minor exceptions, and on those points you have been totally wrong.

   Now I am very close to exercising the moderation authority EHB has given me, so that we can get this important topic of how to fund the 2009 stimulus plan without further bankrupting our nation. That is what this column is supposed to be about, and not one comment of yours has been on topic.

   Please take this warning seriously. Endless off-topic diversions from “saboteurs” are not welcome.

   Serious and respectful comments that are on topic are always welcome.

   Now, please, let us return to respectful conversations about the article above, either here, or in the new forum that is about to open.

   Jere

   Reply
7. 

   Michael, on March 1, 2009 at 10:38 pm said:

   Brock
   Cash is part of the bank reserves and the bank reserves are the base for the credit expansion according to Basel2. The expansion is based on the bank reserves and not the deposits. I showed you the equation previously. I wont dwell into that again, out of respect for the others in this debate (sorry).

   But withdrawing cash equals depleting the banks reserves and the bank(s) will fall. That what happened in Argentina. In Latvia a musician was put in jail when he made a joke to the audience about withdrawing their cash from the ATM machines. That’s how sensitive the system is since the credit is expanded (leveraged) to the extreme with a very small cash base.

   I will end this debate now and I still think you are a very dishonest person Brock.

   Reply
8. 

   Brock Moore, on March 1, 2009 at 11:10 pm said:

   “Cash is part of the bank reserves and the bank reserves are the base for the credit expansion according to Basel2.”
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   I doubt that Basel II says that, but since you claim it does, then it is incumbent on you to quote the relevant section. Put up or shut up.

   One thing that Basel II actually does, I believe, is substitute capital for reserve requirements. These are regulatory issues that have nothing to do with the theoretical structure of banking. You could, more consistently with Basel II, I believe, argue that capital is the base for credit expansion. But you would be wrong in that argument as well.

   You are fallaciously arguing, it seems to me, that because the regulatory authorities may require a certain quantity of “reserves” to back deposits, that the “reserves” are thereby the basis for deposits.

   But, in any case, only cash that is held by a bank is part of its reserves. It is not the “base” for the bank’s credit expansion since loans are not made from the bank’s reserves. They are made from the bank’s ability to credit deposit balances. The entire purpose of the bank’s reserves is to cover deposit withdrawals from the bank.
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   “The expansion is based on the bank reserves and not the deposits. I showed you the equation previously.”
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   Credit expansion is not based on the bank’s reserves nor is it based on the bank’s deposits. So any “equation” that shows that credit expansion is “based” on a bank’s reserves is irrelevant. I have never claimed that credit expansion is based on deposits. It is based on a bank’s ability to credit deposit balances.
   –

   I will end this debate now and I still think you are a very dishonest person Brock.
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   It is not a sane mind that regards the statement of fact, whether disputed or not, as being “dishonest.” I am greatly offended and outraged by the accusation. I am not accusing you of being dishonest. I am merely accusing you of being an ignoramus.

   Brock

   Reply
9. 

   AnnT, on March 2, 2009 at 1:04 am said:

   This may be a dumb question, but what exactly does it mean to be in debt to China?
   Thanks,
   AnnT

   Reply
10. 

    Jere Hough, on March 2, 2009 at 1:50 am said:

    Hi AnnT, Welcome to the discussion. It’s not a dumb question at all, but it can be a pretty complex one, and the answer can be given in terms as simple or as complex as it needs to be.

    In other words, how much do you already know about economics, money, banking, trade, and so forth, and what is your more specific question.

    In simple terms, it means the same thing to be in debt to China and it means to be in debt to your mortgage or credit card company. However, I suspect you are talking about what it means for the either various companies or corporations, or the USA itself to be in debt to some like entity in China. Or maybe you mean the total of the trade deficit or debt that arises from imbalances of trade? Or maybe you means the debt that arises from the sale of US Treasury Notes to the Chinese government, or to Chinese Banks, or Investment firms?

    You see what I mean? If you really want to learn about these things I’d suggest googling the question or a few keywords. This wikipedia article on “External Debt” might get you started: http://en.wikipedia.org/wiki/Foreign_debt

    Hope you found that helpful. 😉

    Jere

    Reply
11. 

    Jere Hough, on March 2, 2009 at 2:24 am said:

    Brock?

    Do you have a reason to be here other than to be a disruptive distraction?

    The easiest thing in the world to do is to sit back and criticize those who are trying to make our world a better place, not only for ourselves, but for our children and all future generations. You seem to be making a career of it.

    So….

    What are you here for? Do you have a position? If so, please state it plainly. What school of economics are you most closely aligned with? What is your philosophical position on wealth, money, and economics? Do you even have one? You post references to book-length treatises such as those by A Mitchell Innes, yet he would dispute most of your claims here. Are you someone who agrees with Innes or not? Who are authors on money and economics you in high regard?

    Reply
12. 

    Brock Moore, on March 2, 2009 at 2:59 am said:

    I have a graduate level education in economics. I am an admirer of C. H. Douglas and Social Credit.

    “You post references to book-length treatises such as those by A Mitchell Innes, yet he would dispute most of your claims here.”
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    Why do you think that? Have you read the two essays at http://www.geocities.com/new_economics/innes/ ?

    Brock

    Reply
13. 

    Jere L Hough, on March 2, 2009 at 3:09 am said:

    I’ve read them all, and just about everything else that is worth reading on money and economics.

    Reply
14. 

    Brock Moore, on March 2, 2009 at 3:24 am said:

    Perhaps you will read the Social Credit literature at the Social Credit discussion list’s compendium:

    http://www.geocities.com/socredus/compendium/

    Brock

    Reply
15. 

    Jere L Hough, on March 2, 2009 at 3:29 am said:

    Brock,

    You stated: I am an admirer of C. H. Douglas and Social Credit.

    That is a good start. At least it is an advancement over the neo-liberals and Austrians in many ways. What do you like about Douglas other than his A + B Theorem?

    Reply
16. 

    Joseph Danison, on March 2, 2009 at 3:47 am said:

    Jere Hough,: I can’t agree with your threats to cut Brock off.

    He is neither disruptive nor a distraction. Rarely does commentary strictly follow as response to an article, and more frequently spins off on some point raised by the article.

    Brock has criticized the historical validity of EHB’s reference to Franklin allegedly blaming the Crown’s edict of 1763 as the cause of the Revolution. The fact that this particular issue is not referenced in the Declaration is not compelling evidence that Franklin didn’t say it, however. As the founders were not uniformly enlightened as to the utility of paper money, as was Franklin himself, apparently, it just may be that his view didn’t represent the consensus that became the Declaration.

    It is y understanding that Franklin was interrogated by Parliament, and Franklin may have made these remarks at that time and there may be an historical record to that effect. EHB is a careful scholar and she may reference Franklin’s utterance. Franklin was more sophisticated than most in his day, even Jefferson.

    Brock remains poised and serious despite being attacked, patiently making his case. The interaction with Michael is informative and useful. Brock is in no way a saboteur or disinfo agent

    And I’d like to remind you, Jere, that the blogosphere is the greatest continuing education program in the world. I don’t come here believing I know it all. Like AnnT, I come to learn.

    Thanks to Michael and thanks to Brock. Don’t be a censor Jere. Ellen Brown can defend herself!

    Reply
17. 

    AnnT, on March 2, 2009 at 6:00 am said:

    If we, the government, are in debt to the Federal Reserve, why are we in debt to China? I don’t think I understand the issue of selling Treasuries?

    Thanks,
    Ann

    Reply
18. 

    MoneyAsWealth, on March 2, 2009 at 6:51 am said:

    Ellen,

    Wanted to say, I really liked the article.

    I still prefer monetizing production (of infrastructure) to debt (of any kind) – even when “it does not get paid back”.

    We agree on many things, like:
    “The bottom line is that we cannot borrow our way out of debt. Only new money will stimulate a debt-ridden economy – money that is interest-free and does not have to be paid back.”

    and

    “If the goods being produced are income-generating assets – railroads, bridges, alternative energy sources…”

    Directing the money into an infrastructure rebuild will produce wealth that benefits everyone, as we all use electricity, water, and products that came on rail or over the road.

    These projects being funded directly, with new, debt-free money, would mean that we could reduce the taxes (fuel, property) that go for infrastructure – we would not need them anymore.

    We could build huge value into the new infrastructure – state of the art, upgradable electric grid. Heated/cooled roads (geothermal). Filter the runoff to drinking water quality before returning it to the rivers. Solar powered, fiber-optic embedded lighting for drivability at night. Safe modern bridges.

    Bring the best technology our talented designers and engineers can devise, to our infrastructure needs and directly fund the projects. It will revitalize the country – for generations.

    Our bill in Minnesota has numbers: HF888 & SF705.

    If passed, Minnesota will lead the nation out of this economic mess.

    Money As Wealth

    Reply
19. 

    Joseph Danison, on March 2, 2009 at 2:54 pm said:

    AnnT
    The USG is in debt to all purchasers of its bonds. This includes US citizens, corporations, and states, and foreign citizens and corporations and states.The Federal Reserve is a corporation consisting of 12 interlocking corporations. It purchases USG debt and the USG then owes the principal + interest on this debt to all the shareholders of these corporations. USG = We the Taxpayers.

    China purchases US debt so long as it looks like a safe bet. But if China and other buyers of USG debt do not purchase enough to fund the USG operations, then the Fed steps in as lender of last resort, which is the whole point of EHB’s article. Since the Fed is charging almost 0% interest, loans from the Fed to the USG are almost no-interest loans, which means almost-free money. This is almost like the USG were acting as its own bank and issuing debt-free money to fund its own operations. This is almost the “greenback” solution.

    The discussion between Michael and Brock has to do with how this money comes into existence, the details, the basic theoretical and operational concepts.

    Your question goes to the whole point of greenback theory. If we can borrow it from the Fed, why borrow from China or anywhere else? Why do we need others, foreigners, to fund our operations? Why does the USG need to go into debt at all?

    Theoretically, the USG doesn’t have to go into debt. It can fund its own operations by simply issuing the money itself without borrowing at interest from others. It is a sovereign entity and has the power, according to he Constitution, to do this. But the Fed was created by private financiers thru an act of Congress to force the USG to borrow money from them, and thus indebt the USG ( us ) to them. Investors all over the world can get a piece of the US pie ( GNP) by purchasing its bonds ( Treasuries ) and indebt the USG to them, just as they would invest in any other corporation.

    The USG sells Treasuries to fund its operations. This is just another way of borrowing money, whether from the private central bank or any other lender. The USG could be its own bank and borrow from itself, but it doesn’t because most of the people in Congress are stupid and believe that money is owned by private capital and can come from no other source. They believe that money is gold or silver, or assets of whatever type and can only be owned by private parties, not the government. So the government borrows from private capital, and we the taxpayers, pay the debt.

    The fact is that money is created by law and can be whatever the Congress says it is. It is simply the standard measure of value, like feet & inches, and the means to exchange products. It can and should be created by government, but it isn’t because the private owners of money we use would lose their control if it were.

    EHB’s book, “The Web of Debt” is an excellent resource for understanding our financial system, but “The Lost Science of Money” by Stephen Zarlenga may be a better resource for understanding some of the most fundamental issues.

    Our financial system is extremely complex, by design and intention. It has all kinds of small print to prevent ordinary people from understanding it. Zarlenga is an excellent teacher and “The Lost Science of Money” is the best complement to EHB’s book you can find.

    Reply
20. 

    Jere L Hough, on March 2, 2009 at 5:50 pm said:

    AnnT, on March 2nd, 2009 at 6:00 am Said:

    “If we, the government, are in debt to the Federal Reserve, why are we in debt to China? I don’t think I understand the issue of selling Treasuries?”

    Ann, No honest and rational person can understand that issue, because it makes no sense, except to those who profit enormously from the Federal Reserve shell game, or Ponzi scheme, or whatever other fraud one might liken it to.

    Henry Ford said: “If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way. It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people. ” – Thomas Edison, The New York Times, December 6, 1921

    I totally agree with the explanation Joseph gave, and especially his assessment that the two best sources of comprehension that now exist are in Ellen’s book “Web of Debt”, and Stevephen Zarlenga’s, “The Lost Science of Money”. Ellen’s is much easier for the average layman to understand, and her unique ability to clarify complex ideas in plain language does not lessen its accuracy at all.

    I’ll close with a few other quotes, among hundreds I have, that illustrate the depth of our current financial problems:

    “Whosoever controls the volume of money in any country is absolute master of all industry and commerce… And when you realise that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.” – James Garfield (assasinated within weeks of release of this statement during first year of his Presidency in 1881)

    “Money plays the largest part in determining the course of history” – Karl Marx (Communist Manifesto)

    “Let me issue and control a nation’s money and I care not who writes the laws.” – Mayer Amschel Rothschild, 1790

    Ann, I hope this helps.

    Jere

    Reply
21. 

    Michael, on March 3, 2009 at 7:01 am said:

    Sorry, Ellen, I got carried away defending you (and my self) from Brock that I forgot giving you credit for a very good article. Keep the good work up!

    Reply
22. 

    AnnT, on March 3, 2009 at 7:33 am said:

    Thank you, Joseph Danison and Jere L Hough. I’ve read “Web of Debt,” and plan on reading it again, so I understand that the USG can simply create money rather than going through private banks.

    I guess, Joseph, that you answered it when you wrote that the USG is in debt to all purchasers of its bonds. Wouldn’t the Chinese National Bank just create the money “out of thin air” to buy the US bonds? If so, why would we be enriching China, via interest payments, when we could just stick with borrowing from the Fed. What’s in it for the Fed for the US to be in debt to China?

    Thanks again.
    BTW. I feel so strongly that “Web of Debt” is an absolute must read that I’ve been recommending it to everyone I know. As a result, I was asked to write a book review. In the review, I wanted to include enough information that people can see the importance of the topic. The review is here and is entitled:
    “The government is in debt to banks who pretend to have money”
    http://onlinejournal.com/artman/publish/article_4427.shtml

    Ellen,
    Hope you like it!

    AnnT

    Reply
23. 

    Jere Hough, on March 3, 2009 at 8:54 pm said:

    AnnT, I read your review. Wow. I’m impressed. That may have been the most comprehensive review of “Web of Debt” I’ve ever seen, or at least in the top few. Would you mind posting that on Amazon? The reviews there really help Ellen’s sales. I bought books for all my family and friends, and plan on buying more in bulk soon. I can’t imagine a more important book for people to read and understand.

    You also seem to have grasped far more of the monetary situation in one reading than most. Have you studied other economics texts or money texts?

    You really did sort of “snooker” me. I had no idea you were as informed as you obviously are.

    Jere

    Reply
24. 

    Jere Hough, on March 3, 2009 at 9:29 pm said:

    AnnT wrote:

    “Wouldn’t the Chinese National Bank just create the money “out of thin air” to buy the US bonds? If so, why would we be enriching China, via interest payments, when we could just stick with borrowing from the Fed. What’s in it for the Fed for the US to be in debt to China?”

    You certainly have gotten to the heart of the matter, Ann. Great questions. These are the kinds of questions we need to be debating or discussing on our new forum. Ellen and I are hoping to open it up any time now.

    Actually these would be great topics for articles either Ellen or I could work on… as you could yourself, Ann.

    A one word answer to your questions… all of them… is “greed” or more specifically lust for money and power.

    The trick, or slight of hand, is that the Fed creates the money out of nothing to lend to the USG, and the USG issues T-Notes to the treasury which earn interest. Since the Fed has an agreement with the USG to rebate the interest minus an operational charge, the Fed would rather sell those T-notes to other investors, who have no such obligation to return the interest to the USGovt. Now you see it, now you don’t. 😉 Of course that is an oversimplification of many complexities, but it illustrates the very parasitic relationship between the Fed and the USG.

    It is not just the Chinese govt that is buying US Treasuries, it is other large corporations and institutions as well. I’m not sure if “China” fully realizes that they can create money out of nothing, but if not, they will be catching on soon… probably much sooner than our own USG, and that is the really scary thing … from our point of view.

    “What’s in it for the Fed for the US to be in debt to China?”

    That is the really tricky question, and the one that when answered brings out all the tinfoil hat accusations. But the question itself at least recognizes the divergence in interests between the Fed and the USG (the people). They are not the same, nor have they ever been the same. In fact, they are in ultimate opposition. That was not always the case, as the parasite always needs the host, until it can find a new one.

    But the new host has always been in the Fed’s plans. They don’t just want control of the USA, or the UK, or Europe, they want it all – the whole enchilada. Going global with their new money system will be their solution for the economic chaos they are now orchestrating. And the USG will buy it. Unless we stop them somehow. I get the image of a swordsman charging a super-tsunami 🙂 but that is what it is coming down to. Somehow “we the people” have to take back our sovereignty, and reclaim our government and our money.

    That’s the task. Glad you asked. 🙂

    Reply
25. 

    Brian, on March 3, 2009 at 10:18 pm said:

    No comments on Ellen’s latest article on state chartered banks??

    Reply
26. 

    Jere Hough, on March 3, 2009 at 11:45 pm said:

    Hi Brian, Normally Ellen post her articles on her website and then they get discussed on this blogsite via a link. She hasn’t done that yet, apparently for lack of time. Here’s the link to another excellent article.

    http://www.opednews.com/articles/PLAYING-THE-BANKING-GAME–by-Ellen-Brown-090302-302.html

    I’ve already made comments on the original OpEd site.

    Jere

    Reply
27. 

    Brock Moore, on March 4, 2009 at 12:07 am said:

    Ann Tulintseff, I take note that you are an electrical engineer. For your information, C. H. Douglas, the founder of Social Credit, was both an electrical and mechanical engineer. Electrical engineers are trained to think very abstractly. An example of abstract thinking is in the theory of semiconductors, where “holes” are postulated that have no objective existence. The ability to think abstractly is a definite advantage in understanding how the financial system operates.

    I have a few criticisms, not so much of the quality of your review, which is excellent, but of the concepts expressed, which I’ll interject below:-

    “Brown explains that the current financial crisis is an end of a 300-year Ponzi scheme known as ‘Fractional Reserve Banking’ run by the private banks, including the Federal Reserve.”
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    I object to calling fractional reserve banking a “Ponzi scheme.” Whatever fractional reserve banking is, it is not a Ponzi scheme, as the term is defined in any dictionary. It is used here merely as an inappropriate opprobrium or alliterative phrase.
    –

    “Regarding the money supply, Brown states, ‘Except for coins, the government does not create money. Dollar bills (Federal Reserve Notes) are created by the private Federal Reserve, which lends them to the government.'”
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    Actually, Federal Reserve Notes are printed by the government, then sold to the Federal Reserve for the “cost of printing.” The purpose of the notes is to supply them when requested by member banks. The member banks’ accounts at the Federal Reserve are debited in the face value of the notes so supplied. The member banks supply them as a service to their depositors, when requested. The depositors’ accounts are debited in the face value of the notes so supplied.
    –

    “The problem of ‘interest.’ As explained by Brown: ‘The problem is that banks create only the principal and not the interest necessary to pay back their loans.'”
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    This is really a trivially stupid fallacy. It is really stupid. Maintaining it does much to discredit the movement for reform, because it is so easy to demonstrate its fallaciousness to educated people. The analytically correct alternative is the A + B theorem of C. H. Douglas. It is harder to understand and explain, but because it is analytically correct, it is the only proper way forward.
    –

    “The U.S. federal debt has not been paid off since the days of Andrew Jackson. Only the interest gets paid, while the principal portion continues to grow.”
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    The United States is almost unique among nations in never having defaulted on its sovereign debt. Every debt instrument ever issued by the government of the United States has been paid off fully, when due, principal and interest. Some of it was paid off retroactively, such as the famous Greenbacks, which were redeemed at full face value in gold, as a result of the Specie Resumption Act.
    –

    The Federal Reserve is neither ‘Federal’ nor has ‘Reserves.’ The Federal Reserve is a private corporation, owned by a consortium of private banks, the biggest of which are Citibank and J.P. Morgan Chase, according to Brown.
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    It is a very strange “private corporation,” in which its chief executive, its chairman, and directors, called governors, are appointed by the President of the United States, subject to confirmation by the Senate of the United States. “Ownership” in the Federal Reserve is not what is ordinarily meant by ownership. It merely means membership in the Federal Reserve System. Reserves refer to the deposits that the member banks maintain at the Federal Reserve.
    –

    “The Fed swaps green pieces of paper called Federal Reserve Notes for pink pieces of paper called U.S. bonds (the federal government’s I.O.U.s), in order to provide Congress with the dollars it cannot raise through taxes.”
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    I’m not sure that Treasury securities are printed on pink paper. They might be, I’ve never actually looked at one. In any case, the Federal Reserve holds only about ten percent of outstanding Treasury securities.
    –

    “Brown quotes a circular distributed to attract subscribers to the Bank of England’s initial stock offering: ‘The Bank hath benefit of interest on all moneys which it, the Bank, creates out of nothing.’
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    I believe the statement is from the Bank of England’s original charter, which may have been written in Latin. In any case, the term “out of nothing” is from the old legal term, “ex nihilo,” which refers to something created through a contract. Modern money is contractual, or “creditary.”
    –

    “In the 1970s, Brown writes: ‘After relentless agitation by [Congressman] Patman’s Committee, the Fed finally agreed to rebate most of the interest it received on its government bonds to the U.S. Treasury.'”
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    That would have been before the 1970s. The Fed began rebating its income in 1948.
    –

    “Brown quotes Benjamin Franklin as stating the real reason for the Revolution: ‘The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction.'”
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    This is another embarrassing claim that does much to discredit the movement for reform. This claim about Franklin did not appear in print before the latter half of the 19th century, when the Greenbacker propaganda machine was in full swing. It is in fact a Greenbacker concoction. Franklin was the most prominent member of the Committee of Five, which wrote the Declaration of Independence. One would think that the “real reason” for the Revolution would appear in the Declaration of Independence. It doesn’t.
    –

    “During the time of the Middle Ages, Brown states that ‘rather than having to borrow the moneylenders’ gold, the people relied largely on interest-free tallies. Unlike gold, wooden tallies could not become scarce; and unlike paper money, they could not be counterfeited or multiplied by sleight of hand. They were simply a unit of measure, a tally of goods and services exchanged.'”
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    The tallies were more than that. They were instruments of debt that were spent into circulation. They were settled through offsetting balances at medieval trading fairs, the forerunners of modern banks.
    –

    Brock

    Reply
28. 

    Jere Hough, on March 4, 2009 at 2:28 am said:

    Brock, I’m sure Joseph Danison will have much to say in the way of rebuttal to most of your red herrings and straw men claims. He has already touched on the Franklin issue, and I am prepared to write volumes on that one. The bottom line to the Franklin issue is that the actual authenticity of the quote is secondary to the point that it represented how Franklin thought about the issue, and much of his life was a testament to that supposed “quotation” authentic or not.

    I’ll be interested in seeing Joseph’s rebuttal to your “assertions”.

    Reply
29. 

    Jere Hough, on March 4, 2009 at 4:23 am said:

    Actually, I take it back. I’m not going to wait for Joseph, and will dig right into the Ponzi smoke and mirrors game:

    Brock Moore said:

    “I object to calling fractional reserve banking a “Ponzi scheme.” Whatever fractional reserve banking is, it is not a Ponzi scheme, as the term is defined in any dictionary. It is used here merely as an inappropriate opprobrium or alliterative phrase.”

    And I object to your objection. A Ponzi scheme is a pyramid shaped fraud, whatever your dictionary says. It is an unsustainable model based on taking money from a ever-widening base and funneling it upwards to appear as “profits” to those higher up on the pyramid scheme. The reason you, and all those who oppose banking reform, dislike the use of the term is because it hits too close to home. It is much too accurate for your comfort zone. The money-changers just happen to write, and re-write the dictionaries and can get publishers to shape the language in all kinds of Orwellian ways, but that doesn’t make a simple and accurate analogy invalid. You will claim, falsely, that a Ponzi scheme has to involve an “investment” and a willing participant, but that is just not so. How one gets into the game is irrelevant, it is the game that counts, and the Ponzi model describes the modern money game as well as any model possibly can. Fractional reserve banking is fraudulent in many or most of the same ways Ponzi schemes are fraudulent. In both instances if all the participants wanted to withdraw all their money, the house of cards will collapse, bankrupt, and nearly all those involved, willing or otherwise, will lose their money.

    All this is true, your nit-picking sophistry notwithstanding.

    Jere

    Reply
30. 

    Jere Hough, on March 4, 2009 at 4:42 am said:

    Brock Moore wrote:

    Quoting AnnT: “Regarding the money supply, Brown states, ‘Except for coins, the government does not create money. Dollar bills (Federal Reserve Notes) are created by the private Federal Reserve, which lends them to the government.'”
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    Brock replied:

    “Actually, Federal Reserve Notes are printed by the government, then sold to the Federal Reserve for the “cost of printing.” The purpose of the notes is to supply them when requested by member banks. The member banks’ accounts at the Federal Reserve are debited in the face value of the notes so supplied. The member banks supply them as a service to their depositors, when requested. The depositors’ accounts are debited in the face value of the notes so supplied.”

    My comment in reply to Brock:

    Actually, this entire bit of slight-of-tongue has nothing at all to do with the accuracy or the intent of Ann’s (and Ellen’s) original statement, which was that the Fed creates money and loans it to the USG at interest. That is the ESSENCE of what happens, no matter how you want to clutter up the landscape with your word-weeds and clarity-clutter. Not to mention the slight detail that you totally fail to mention Treasury Notes and the role they play in the transaction. Anyone with honest intent would not forget such a “slight detail”, especially when trying to correct someone on the basis of superficial technicalities.

    The accuracy of Ellen Brown’s assessment as restated by Ann stands as written, and no corrections are necessary.

    Jere

    Reply