Nervous pundits are predicting the end of American life as we know it, after Fed Chairman Ben Bernanke announced on March 18 that he would be dropping yet another trillion dollars in helicopter money – up to $300 billion to buy long-term government bonds and an additional $750 billion to buy private debt, with the Term Asset-backed Securities Loan Facility (TALF) to be opened up for the sake of consumers and small businesses. The dollar immediately experienced its worst drop in 25 years, amid worries that the Fed’s intervention would spur hyperinflation.

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23 Responses

  1. Another great article. I just wanted to add that I also appreciated your responses to comments on the article, that appeared at this link:

  2. An historical note on William Jennings Bryan. One could say that he was responsible for destroying populism and the greenback agenda.

    The definitive scholarly work on the history of populism is Lawrence Goodwyn’s “Democratic Promise, The Populist Moment in America”, Oxford University Press, 1976. Bryan’s role in the 1896 election is well documented.

    He was not a populist and he did not support true monetary reform. He was a political opportunist who wanted to access the two million votes represented by the People’s Party. Certain populist leaders in the People’s Party advanced a “fusion” program to incorporate the populist agenda within the Democratic Party. This fusion politics destroyed the People’s Party and the populist greenback platform because Bryan promoted “free silver”, not real monetary reform. The famous “cross of gold” speech represented the agenda of the Democratic Party sponsored by the silver mining industry, which Bryan supported.;

    Bryan’s running mate was one Arthur Sewall, a financier, national banker, and railroad magnate, which is like Obama’s deal with the private financial monopoly of today. Bryan refused to accept a populist greenbacker as a running mate. “Free silver” was phony monetary reform.

    Furthermore, as Woodrow Wilson’s Secretary of State, Bryan used his popularity to allay fears about the Federal Reserve Act. He informed the people who trusted him that it was OK, don’t worry, it will serve the public interest.

    I consider myself a populist, a direct descendant of the agrarian populists of the 19th Century and I bristle when this phony William Jennings Bryan is credited with being a populist and a monetary reformer. He was an opportunist and nothing more. What he said has no importance. What he did is what he was. He was an enemy of monetary reform and the fact that he gets so much attention is testament to our distorted understanding of history.

    Richard Cook, gallant monetary reformer that he is, made the erroneous statement that populists took over the Democratic Party in 1896. Just the opposite happened. Bryan’s Democratic Party took over the People’s Party and destroyed the possibility of genuine monetary reform ever after.

    This may be a minor historical point….but not to me!

    “Quantitative easing”. is not monetary reform. I’m in favor of thinking positively, but one has to remember that the financiers ultimately stole greenbackism from the populists and perverted it for their own purposes. It took them a while to arrive at the pure fiat paper we have today. The difference between a greenback and a federal reserve note is public control in the public interest. “Quantitative easing” is not in the public interest, though you can spin it that way. It is being done to support the special interest of the big banks.

    • Okay, well, interesting historical points. If Bryan did nothing else for populism, he wrote a great speech. I’m so swamped with work right now I can’t rewrite those parts; I think we have to focus on what to do now to snatch it out of the fire before we’re in total economic collapse and totalitarian police state territory. But thanks for writing.

  3. Well, I disagree. Bryan was adamantly opposed to the Federal Reserve Act when it was the more transparent “Aldrich Act.” He said he would not support any bill that gave the power to create the national money supply to private bankers. The FRA was so obscurely worded that he thought it gave that power to the government, and people have thought that ever since. But whatever happened historically, I think we need a real populist movement, one that finally takes back the power to create money from the banks and returns it to the people collectively; and in that I think we agree, yes?

  4. Yes, indeed, we need a populist movement, and you, Richard Cook, and Stephan Zarlenga are providing the intellectual foundation for one. I love your work!

    I’m trying to understand why people do not recognize money as a “public utility”, to use Cook’s term. That was the galvanizing insight of the greenbackers and agrarian populists. The rich seem to know well enough that it is their private utility. What is it that prevents this insight among the people?

    So far as Bryan is concerned, he was more interested in maintaining his popularity than principles. Lots of people disliked the Aldrich Act, so Bryan disliked it, too. He said whatever would make him popular. Not everyone assumed the new and improved Aldrich plan was OK. There were strong voices of dissent. Not weasel Bryan, though. And not his fascist president, Woodrow Wilson, either. They were bought.

    • That’s an interesting twist. What’s your source, Goodwin? Bryan was said to be the Lion in the Wizard of Oz, branded a coward by his fellow populists because he wasn’t pushing the money reform agenda strongly enough. That would seem to support your position. That speech he gave at the Democratic convention though was inspired — turning the bankers’ pitch back on them and saying the banks should get out of the government’s business . . .

  5. According to Goodwyn, Bryan would not even grace the July, 1896, People’s Party nominating convention in St Louis with his presence. He had already been nominated by the Democrats earlier in Chicago. He courted the populist votes because there were 2 million of them out there, but he would not accept a real populist as a running mate. The People’s Party wanted Tom Watson, a dedicated greenbacker, as his VP, but Bryan adamantly refused in favor of the establishment banker/financier, Arthur Sewall. This, I think, clearly demonstrates that he was NOT a populist, no matter what he said to the contrary.

    All Bryan’s fine words belied his actions: he argued “free silver” advocated by the mining interests, and this was the Democratic Party agenda. He fooled the populists into believing he, too, was an advocate of true monetary reform, but he was not. He was nominated by the People’s Party because of his phony populism, a shameful compromise by People’s Party leaders, some of them, in their pursuit of “fusion”. This was the end of the populist movement as a movement. It was co-opted by Bryan and the Democratic Party.

    At this point, 1896, populism ceased to exist and transmogrified into “progressivism”. In hindsight, it appears that Bryan was a master of the art of co-optation, which is the strategy the establishment uses so successfully to castrate popular movements.

    You’re the expert on Frank Baum’s allegory. From Goodwyn’s point of view, Bryan was not a “cowardly Lion”, so much as a opportunistic liar. That’s what his actions say. He was not a populist at all. Greenbackism is what makes a populist a populist. It would be more true to say Bryan was a progressive. The net effect of his leadership was to destroy real populism and replace it with the paternalistic crap we know today as progressivism.

    The bankers buy off the people with New Deal social welfare in the name of maintaining their financial monopoly. This is progressivism.

    The fear of “mob rule”, ie, real democracy, is alive and well, and this is as old as the Republic. It represents the consensus of the Founder’s views. They feared direct democracy, except for Jefferson. Adrian Kuzminski explores the evolution of Jefferson’s thinking in “Fixing the System” and describes Jefferson’s idea for direct democracy in his “ward republics” scheme that he developed late in life.

    I am persuaded by Goodwyn’s scholarship. He is an elderly man now in poor health. I can get you his address if you want to write to him. No e-mail. A paperback abridgment of “Democratic Promise” is available, titled “The Populist Moment”, but it’s inferior to the original text, which is OP, of course. The establishment has no advantage in sponsoring real history and how much real history gets into general circulation without establishment sponsorship?

  6. AIG is a test.

  7. A reader wrote to my email expressing disappointment that I changed horses on the Fed, to which my reply is:
    I see the head of the beast as the BIS in Switzerland. They imposed the mark to market rule in Nov 2007, a month after the Dow hit its all-time high. It’s been all downhill ever since, and the BIS knows this and hasn’t changed the rule. I guess the FASB is talking about changing the rule, and I’m not sure how much it has to stay in step with the BIS; that’s something I need to research before writing about it. Mark to market wouldn’t be a bad idea except that it was imposed ex post facto, after the banks already had all those assets on their books. They had to revalue, and suddenly they didn’t have enough capital to make loans. Instant credit freeze. Who is strong enough to stand up to the BIS? Only our Fed and our President. I’m just trying to encourage them. Say something nice and maybe they’ll get on the bandwagon and say “that’s what I meant all along!” I was warned by a man from Eastern Europe that if we’re too negative and suspicious, we’ll precipitate civil unrest, as happened in Russia; then they’ll HAVE to send in their goons and we’ll be in the police state we fear. Expect the best and accept nothing less. Ellen

  8. Another reader wrote to my email:

    I cannot arrive at any mathematical justification for conjuring money by legerdemain, which is what “quantitative easing” is. The creation and dissolution of capital by mark of the pen is not an exercise of the Constitutional design that government establish uniform currency and just weights and measures. If government or private banks can play at will with the money supply, it changes the value of things, and no amount of mechanics will change that fact. It’s a bubble that will either manifest itself in deflated currency or inflated value, and because it works on mathematical principals, these things cannot be avoided by simply adding and deleting fiat currency.

    My response: I know that’s the common perception; that’s why I’m arguing the other way. (The good lawyer can argue either side!) We NEED a credit mechanism, and credit IS simply created on the books. Every time anyone goes to a bank to get a loan to buy a house, the bank merely creates the money on its books. Basically, the buyer is “monetizing” his own promise to repay and is putting the house up as collateral. In fact, that’s all money is today — monetized promises to repay. When you use your credit card, that is all you’re doing — drawing on your own credit. The bank doesn’t lend you any of its money or of its depositors’ money. You create the “credit” yourself. So ALL our money is “fiat”, and we NEED that fiat; THERE IS NO OTHER MONEY IN OUR MONETARY SYSTEM. In Nov 2007, the BIS came in and imposed its mark to market rule and suddenly the banks couldn’t meet their capital requirement. Credit froze and it’s been all downhill since. If the Fed steps in and makes credit available again, AND rebates the profits to the government, I see that as a good thing. It’s just restoring the credit system we had, but going one better because the profits go to the public instead of to the banks.

    Here’s what another reader wrote to my email on that, which was very well said I thought (I’m immodestly leaving in the flattering parts!):

    “That is a great article! In many ways you have already said it, but may I suggest that you start referring to money as a part of the “commons” just as the air we breathe and the laws under which we live are also a part of the commons? If people grasp that money is like law they may be able to also latch more firmly to the idea that it actually should be a function of government to regulate it…in the full light of day…rather than to people operating in secrecy with questionable motives. Thank you for the wonderful work you are doing to bring understanding to very misunderstood issues.”

  9. But what’s wrong with marked to market rule? Do you think it’s better we get a quarterly report filled with marked to fantasy number in every enterprises’ balance sheet?

    What’s the point of stating balanced sheet if the number is full of lies?

    • It would be a good rule except that it was imposed AFTER the banks had valued their assets the other way. That meant they could suddenly not meet the BIS capital requirement and could not make new loans, grinding credit to a halt. How to reconcile those 2 interests? I think only a public banking system will work, one with full discloure and accountability, but no worries about meeting capital and reserve requirements because the United States IS the bank and can therefore come up with “the full faith and credit of the United States” as needed. It requires a Copernican shift in our thinking about what money, banking and credit are.

  10. Ellen

    I believe the meltdown has its roots in a single problem: the maturity mismatch.
    The housing bubble boomed when the shadow banking sector was able to explode
    credit by borrowing short-term (commercial paper, etc) to lend long-term (mortgage backed securities). There was
    simply too much easy money available because speculative 30 day funding was used to finance
    illiquid 30 year mortgages.

    Its like giving drugs to addicts. This easy money is too hard to resist for financiers that rake in the profit on the short to long term
    interest rate difference and party while the party lasts.
    But maturity mismatch is a structurally flawed and fundamentally unstable system and will eventually lead to a run on the short term debt.
    When the panic ensues and the rollover of short-term funding dries up the bubble bursts.

    A reform to disallow the maturity mismatch in businesses that borrow in order to lend – would as a consequence
    put an end to “Fractional Reserve Banking” because demand deposits could not be loaned out at all resulting in 100% reserve requirements on
    bank checking, savings and money market mutual fund checking accounts.
    There is a moral as well as practical justification for this kind of reform because essentially borrowing short-term to lend long-term is
    the same as selling what you dont own. Note: At this point cowboy capitalists and free banking advocates will disagree saying it is done with full
    disclosure and mutual agreement and is therefore not fraudulent.

    The Georgist Robert DeFremery spells this reform out in his books “Rights vs Privileges”. Georgism (based on Henry George) has much in
    common with the kind of monetary reform you advocate because there are two basic kinds of wealth that are not created by
    individual human effort – Land and Money. By default they should be socially owned and taxed thereby freeing Labor and Trade to
    be tax free or taxed at a reduced rate. In this scenario Government acts “as if” a landlord to the landlords charging rent for the use of land and
    “as if” a banker to the bankers charging interest for the use of money.

    The FED can still act as an independent guardian and trustee of the money supply with a legal mandate to target a small stable inflation rate such
    as between 3-4 percent. Without banks being able to inflate the money supply by creating credit money there is only base money
    ordered by the FED and more of it can then be created by order of the FED (seigniorage) to achieve the same inflation target goals.

    Seigniorage money created by order of the FED can be helicoptered in to purchase public debt but can also be loaned at interest to the banking system
    and a profit returned to the government as was done in colonial Pennsylvania.
    The 3-4 percent inflation tax then becomes a public tax on the holding of all dollars in any form anywhere in the world (as Silvio Gessell advocated)
    – and is collected as a public tax rather than by the private banking cartel.

  11. Actually I still have a hard time understanding why money (credit) has to be debt. The problem is that I can’t see how the money (credit) can be allocated benefitting all (nor by the right wing “trickle down” theory, or the left “take from the rich and give to the poor”). As I described in a previous post.

    Imagine an Island where they only use tally sticks as medium as exchange (permanent money). The tally is split and one part is used as money and the other part is used as reference and kept in a secure place in order to prevent forgery. Lets say they are spent into circulation on the Island by building something that’s useful for the public, let say a school, a library, a road, a hospital or what ever. Nobody is put in debt and the money exist without anybody having to take a loan. Thereby I have proved that the thesis “All money is loaned based on some existing asset placed as collateral” is wrong.

    It’s true that inhabitants on the Island can lend tally sticks to each other and loans can be made among the inhabitants using the existing tally sticks. But no new money (tally sticks) are created thereby. Conclusion: a debt don’t necessarily means newly created money- if a loan is created using the existing permanent money supply. Thereby I have proved that debt don’t necessarily equals money creation.

    If all those indebted on this Island paid of their debt the tally sticks, hence the money would still exist. It’s possible to have an equal distribution (or what ever you prefer) of the existing money (tally sticks) without anybody being i debt.

    Now lets consider an Island where they let the only money consists of debts in the form of IOUs. So the only way money can be created is by putting someone in debt. So in order to build a school or a hospital or what ever some people in the community is forced to get into debt in order to create the money. And if all pay of their debt the money supply would disappear. So in order for the money to exist there’s got be those in debt and those holding the money asset in the form of a claim. And in order to expand the money supply the disparity between those in debt and those not in debt will have to increase since you can’t indebt those having a money asset since they will be able to pay of their debt and hence destroy part of the money supply – the only way to increase the money supply is to indebt those not having any money assets but have something they can put up as pawns. So an inequality is built into the system escalating with increasing debt = money creation. If all on this Island paid of their debt the money supply would shrink to zero. Money should have the property as a catalytic converter, just being the medium of exchange, not being destroyed in the process – well, as I have showed – debt based money don’t have these properties.

    This actually explains why the bankers/government don’t help poor people pay of their mortgages – because if they did they would kill an equal amount of the money supply and pushing the system into depression (according to Friedman the great depression was caused by a reduction of the money supply by about 30%).

    Perhaps you, Ellen, can explain to me how to accomplish a debt based monetary system based on equality by either the right wing “trickle down” approach or the the left “take from the rich – give to the poor” approach (or any other way) without destroying the money supply when the poor pay of their debt. I still don’t get it.

    I still admire your work, though, even if our views might differ on this subject!

  12. Would like to recommend these videos made by an Argentinian about their experience. He describtion on what’s comming is one of the best I’ve heard even if I hope he is wrong about the future:

  13. It seems to me that the only reason money has to be debt, is that in our system, someone decided to reconcile the difference between a zero-sum accounting system and a non-zero-sum economy by having privileged parties create a credit and debit simultaneously. This preserves the accuracy of the banks’ books, while allowing the money supply to expand and contract. Unfortunately, the privileged parties are more interested in serving themselves than in serving the public — thus the wealthy owners get richer while the rest of society gets poorer

  14. I’m beginning to believe that monetary “savings” where your money “works” for you, is a farce. Going with the island example where the island has a fixed amount of money – say $10,000. If everyone on the island saves 10% of their annual salary in locked safes in their homes, at the end of the first year, only $9,000 will remain in circulation. As long as enough money remains in circulation to support full salaries for everyone, the money supply will get smaller and smaller and smaller. Sooner or later, prices will crash, business owners will lay-off employees in order to conserve cash. As people’s net income decreases, everyone will start cutting back on expenses, saving every penny that comes to them. This takes useful money out of circulation and makes the situation worse.

    The flip side, is if some event triggers a positive economic outlook, and people start spending their savings, prices will rise and more people will spend their savings. The island will soon experience inflation and economic growth (compared to their previous depressed situation…) So monetary savings contributes to inflation and deflation.

    Silvio Gesell’s suggestion to apply a periodic charge to money would encourage people to spend money rather than save it. At this point, many people will wonder how they prepare for a rainy day… They should spend 10% (or more) of their income stocking on provisions, maintaining their homes, investing in business, lending money to their neighbors, or simply donating to charity. All this will build the community, better enabling the community to avoid economic downtowns and preparing them to handle natural disasters.

  15. I agree. Having an parking ticket on money in the form of negative interest seems to be a good idea (Gesell). Money should only be seen as medium of exchange and not as a commodity by itself. Aristotle was right on this issue, Adam Smith wrong.

  16. Regarding the question of why we’re in debt to China, instead of just the Fed, “Copenhagen Blues” posted the following:
    “Actually, the Fed has been forced to return all interest less cost (including 6% dividends to their shareholders)to the US Treasury since Patman and the 70’s. Thats why they do not normally lend us much money but force us to sell treasuries to the principal dealers (some of them member banks of the Fed), OPEC and China where we must pay the interest. The fact that they are doing so however allows the system to monetize this debt. For example, 1 trillion will allow the creation of 10 trillion in new money since we have a fractional reserve system (actually, the rules have been adjusted to make the 10% more like 3% ) Money of course is just a reflection of debt, no debt, no money, so they issue a loan and then create the money to give those they loan the money to, 10 trillion in new money, and 10 trillion in new debt of one form or another. A system like that is FUBAR.”

    Any thoughts on this?

  17. AnnT – I completely agree .

  18. Michael, on April 9th, 2009 at 4:58 pm Said:
    Would like to recommend these videos made by an Argentinian about their experience. He describtion on what’s comming is one of the best I’ve heard even if I hope he is wrong about the future:


    I heartily second that emotion!!! I was just about to post the links myself, along with two other 10 minute videos he has on his take of the history of the new world economic order.

    Like Ellen, Adrian Salbuchi, who lived through the Argentine hyperinflation and monetary collapse, has a wonderful gift of explaining the most complex concepts in simple terms and everyday language. This is a gift to be cherished by those who can benefit from it.

    I would also like to encourage all those who would like to discuss money matters to visit and use our new forum at:

    We are just getting the doors open, and hope all serious money reformers will join in the debates and discussions.

  19. Thanks for the link to the forum, Jere!
    Here’s two other intresseting interviews. One with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout:

    The other is with Michael Hudson who advocates wiping out debt. He makes some interesting historical references.

  20. Hyperinflation seems like can’t happened without somebody betting hugely on currency exchange rate. If based on natural money creation (requesting debt to commercial banks), hyperinflation like Argentina / Weimar seems impossible…

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