The economy could use a good dose of “aggregate demand”—new spending money in the pockets of consumers—but QE3 won’t do it. Neither will it trigger the dreaded hyperinflation. In fact, it won’t do much at all. There are better alternatives.
The Fed’s announcement on September 13, 2012, that it was embarking on a third round of quantitative easing has brought the “sound money” crew out in force, pumping out articles with frighting titles such as “QE3 Will Unleash’ Economic Horror’ On The Human Race.” The Fed calls QE an asset swap, swapping Fed-created dollars for other assets on the banks’ balance sheets. But critics call it “reckless money printing” and say it will inevitably produce hyperinflation. Too much money will be chasing too few goods, forcing prices up and the value of the dollar down.
All this hyperventilating could have been avoided by taking a closer look at how QE works. The money created by the Fed will go straight into bank reserve accounts, and banks can’t lend their reserves. The money just sits there, drawing a bit of interest. The Fed’s plan is to buy mortgage-backed securities (MBS) from the banks, but according to the Washington Post, this is not expected to be of much help to homeowners either.
Why QE3 Won’t Expand the Circulating Money Supply
In its third round of QE, the Fed says it will buy $40 billion in MBS every month for an indefinite period. To do this, it will essentially create money from nothing, paying for its purchases by crediting the reserve accounts of the banks from which it buys them. The banks will get the dollars and the Fed will get the MBS. But the banks’ balance sheets will remain the same, and the circulating money supply will remain the same.
When the Fed engages in QE, it takes away something on the asset side of the bank’s balance sheet (government securities or mortgage-backed securities) and replaces it with electronically-generated dollars. These dollars are held in the banks’ reserve accounts at the Fed. They are “excess reserves,” which cannot be spent or lent into the economy by the banks. They can only be lent to other banks that need reserves, or used to obtain other assets (new loans, bonds, etc.). As Australian economist Steve Keen explains:
[R]eserves are there for settlement of accounts between banks, and for the government’s interface with the private banking sector, but not for lending from. Banks themselves may . . . swap those assets for other forms of assets that are income-yielding, but they are not able to lend from them.
This was also explained by Prof. Scott Fullwiler, when he argued a year ago for another form of QE—the minting of some trillion dollar coins by the Treasury (he called it “QE3 Treasury Style”). He explained why the increase in reserve balances in QE is not inflationary:
Banks can’t “do” anything with all the extra reserve balances. Loans create deposits—reserve balances don’t finance lending or add any “fuel” to the economy. Banks don’t lend reserve balances except in the federal funds market, and in that case the Fed always provides sufficient quantities to keep the federal funds rate at its . . . interest rate target. Widespread belief that reserve balances add “fuel” to bank lending is flawed, as I explained here over two years ago.
Since November 2008, when QE1 was first implemented, the monetary base (money created by the Fed and the government) has indeed gone up. But the circulating money supply, M2, has not increased faster than in the previous decade, and loans have actually gone down. (See chart below from Richard Koo, Nomura Research Institute.)
Quantitative easing has had beneficial effects on the stock market, but these have been temporary and are evidently psychological: people THINK the money supply will inflate, providing more money to invest, inflating stock prices, so investors jump in and buy. The psychological effect eventually wears off, requiring a new round of QE to keep the game going.
That is what happened with QE1 and QE2. They did not reduce unemployment, the alleged target; but they also did not drive up the overall price level. The rate of price inflation has actually been lower after QE than before the program began.
Why, Then, Is the Fed Bothering to Engage in QE3?
If the Fed is doing no more than swapping bank assets, what is the point of this whole exercise? The Fed’s professed justification is that by buying mortgage-backed securities, it will lower interest rates for homeowners and other long-term buyers. As explained in Reuters:
Massive buying of any asset tends to push up the prices, and because of the way the bond market works, rising prices force yields [or interest rates] down. Because the Fed is buying mortgage-backed bonds, the purchases act to directly lower the cost of borrowing to buy a home. In addition, some investors, put off by the rising price of the bonds that the Fed is buying, turn to other assets, like corporate bonds – which, in turn, pushes up corporate bond prices and lowers those yields, making it cheaper for companies to borrow – and spend.
Those are the professed objectives, but politics may also play a role. QE drives up the stock market in anticipation of an increase in the amount of money available to invest, a good political move before an election.
Commodities (oil, food and precious metals) also go up, since “hot money” floods into them. Again, this is evidently because investors EXPECT inflation to drive commodities up, and because lowered interest rates on other investments prompt investors to look elsewhere. There is also evidence that commodities are going up because some major market players are colluding to manipulate the price, a criminal enterprise.
The Fed does bear some responsibility for the rise in commodity prices, since it has created an expectation of inflation with QE, and it has kept interest rates low. But the price rise has not been from flooding the economy with money. If dollars were flooding economy, housing and wages (the largest components of the price level) would have shot up as well. But they have remained low, and overall price increases have remained within the Fed’s 2% target range. (See chart above.)
Some Possibilities That Might Be More Effective at Stimulating the Economy
An injection of money into the pockets of consumers would actually be good for the economy, but QE3 won’t do it. The Fed could give production and employment a bigger boost by using its lender-of-last-resort status in more direct ways than the current version of QE.
It could make the very-low-interest loans given to banks available to state and municipal governments, or to students, or to homeowners. It could rip up the $1.7 trillion in government securities that it already holds, lowering the national debt by that amount (as suggested a year ago by Ron Paul). Or it could buy up a trillion dollars’ worth of securitized student debt and rip those securities up. These moves might require some tweaking of the Federal Reserve Act, but Congress has done it before to serve the banks.
Another possibility would be the sort of “quantitative easing” first proposed by Ben Bernanke in 2002, before he was chairman of the Fed—just drop hundred dollar bills from helicopters. (This is roughly similar to the Social Credit solution proposed by C. H. Douglas in the 1920s.) As Martin Hutchinson observed in Money Morning:
With a U.S. population of 310 million, $31 billion per month, dropped from helicopters, would have given every American man, woman and child an extra crisp new $100 bill per month.
Yes, it would produce an extra $31 billion per month on the nominal Federal budget deficit, but the Fed would have printed the new bills, so there would have been no additional strain on the nation’s finances.
It would be much better than a new social program, because there would have been no bureaucracy involved, just bill printing and helicopter fuel.
The money would nearly all have been spent, increasing consumption by perhaps $300 billion annually, creating perhaps 3 million jobs, and reducing unemployment by almost 2%.
None of these moves would drive the economy into hyperinflation. According to the Fed’s figures, as of July 2010, the money supply was actually $4 trillion LESS than it was in 2008. That means that as of that date, $4 trillion more needed to be pumped into the money supply just to get the economy back to where it was before the banking crisis hit.
As the psychological boost from QE3 wears off and the “fiscal cliff” looms, perhaps Congress and the Fed will consider some of these more direct approaches to relieving the economy’s intractable doldrums.
_______
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 cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com, http://EllenBrown.com, and http://PublicBankingInstitute.org.
Filed under: Ellen Brown Articles/Commentary |
WEB OF DEBT BLOG 
Excellent, Ellen. I favor interest-free personal, business and infrastructure loans from state banks.
RE: State Banks, rather 50 for-profit banks for state citizens, banks that gain income (revenue) instead of taxes.
Ellen,
Please help, answer a question. First of all it is about a year and a half ago I read “Web of Debt”, It was life changing. I started to read some Von Mises, Keynes, Minsky, Keen , Wray , Mosler, etc. and then Michael Hudson and William Black just blew me away. Recently I discovered what Frederick Soddy had to say and I would beg you to read, “The Role Of Money”.
But please, the question.
Almost all economists would agree that a monetary sovereign nation could “print” (issue) all the currency that it needs or wants. Perhaps the only restraint it has is ;It must retain its redeem ability, therefore must contain hyperinflation ( proper inflation is actually a need since as time go ons “more currency” is needed if there is an increase in productivity over comsumption) and must contain “moral hazard”.
I’ll be nice and for now would say “moral hazard” like counterfeiting (Later I would ask, Isn’t that what private for-profit banks do?)
To be a Monetarily Sovereign Nation, that nation must be the only issuer of that currency.
Justaluckfool asks, “How does a people’s owned bank issue currency? If they can not issue than they are no better than Greece, Italy, Spain and any nation ,island, state that is not Monetarily Sovereign ?
The MS Nation can never got broke, but the people’s banks could.
We would be in the same position, albeit a slightly better one. If the state banks were for profit to benefit the community and not like the present for profit banks that are for the benefit of ONLY their shareholders.
Justaluckfool asks, “Why not do as Soddy, Keynes, Minsky, and others advocate:
Separate for profit banks from government. Stop allowing them to “print” our money and to profit from it by charging interest-their way of taxation of the 99% for the
benefit of the 1%.
READ MORE:zero-income-taxesthe-way-eliminate-poverty-and-secure-prosperity-all/
“The Wealth of a Nation is in how it Redistributes its Wealth” by justaluckyfool.
READ, CHALLENGE, IMPROVE:
http://bit.ly/MlQWNs
Hi, you ask:
“How does a people’s owned bank issue currency? If they can not issue than they are no better than Greece, Italy, Spain and any nation ,island, state that is not Monetarily Sovereign ?” and “Why not do as Soddy, Keynes, Minsky, and others advocate: Separate for profit banks from government. Stop allowing them to “print” our money and to profit from it by charging interest-their way of taxation of the 99% for the benefit of the 1%.”
Sure, I’d be all for making the whole banking system publicly-owned, with no private bank money creation; but how are you going to get that passed? The banks own Congress. Meanwhile, we can work at the local level, establishing publicly-owned banks that quietly go about creating money in the form of bank credit from their deposits, just as private banks do; but using this tool for the benefit of the local economy and the people rather than as a tool of exploitation.
Ellen – Whats your view on individuals being able to issue their own currency/debt? Hit me with some major flaws.
First and foremost, Richard, please note that was not Ellen Brown’s comment. It was justaluckyfool’s comment.
I would love to know if she does endorse, challenge or improve that comment .
Ellen,yes, it would be better to have “people owned” banks that are for profit for the people, but the unintended consequence could be the collapse of the currency simply because of the competion of each state “trying to do more good for their citizens than the other state.
This is why that a nation to be monetarily sovereign, it must be able to control the quality and quantity of its currency. Not perfect but better if the local for the people banks were on 100% reserve that would at least limit their “producing “from thin air” the amount of currency.
As for the issue of ” Changing the way we do things” I believe that you have more power than you think. America is a very unique country that has the “people” as the governning. It is this principle our forefathers implanted in our republic. Confirmed and reconfirmed since it was born.Banks do not own us, not yet anyway. They can only try to control us (We the People).
We still have the possession of the most powerful weapon for our freedom.
WE HAVE A VOICE, A SECRET BALLOT.
And now we have “Social Media”
However , we can not assume that we have 51% of the voices (vote).
If we do than we need only to vote for anyone for any position that
would agree to sponsor and pass legislation they would support our cause.
“We the people “must choose only those who would govern as wished by this majority. We must do that every two years until there is a majority in all offices.
It is a simple plan. Maybe for starters: Ask every candidate, “Would you support legislation that would amend the Fed,?”
The day after the elections, we would know exactly where we stand
We would need only to count how many that said “yes” were elected, as against how many were elected who said “no” or “perhaps, or “if”.”
“Draw the line in the sand “2012
Show that the power is there, they will know that they must perform or look out 2014.
Thank You Ellen Brown.
Please continue to allow challenge and improvement, and may you be successful.
JALF – “it would be better to have “people owned” banks that are for profit for the people, but the unintended consequence could be the collapse of the currency simply because of the competion of each state “trying to do more good for their citizens than the other state. ” – What do you think goes on at a Federal level, have you seen how much the US government owes?
Germany has locally owned public banks — Sparkassen and Landesbanken — that do just that (“trying to do more good for their citizens than the other state ”) and there is no such problem. They compete on a sound basis funding local industry. The Bank of North Dakota causes no problems. Projected onto other states, the competition to do better for one’s own citizens could only be a good thing. What goes on at the Federal level relevant to this? I don’t understand that part of your question. Much of the federal debt is from money wasted by the military-industrial (or perhaps better military-financial) complex (Vietnam, Iraq, Afghanistan,Libya), motivated by the greed and undue influence of private banks and corps. “Doing more for the citizens” would mean having a sound productive economy, not one based on wasteful giveaways to the rich for their wars and financial theft.
. ErnieM, ” Projected onto other states, the competition to do better for one’s own citizens could only be a good thing.”
Having stated that if could be a better thing, I simply wish to state that what may appear to be good now could in the future carry some very bad unintended consequences,
What would happen to that states economy if for example;
“to promote the general welfare” – it made health care absolutely free for its constituants. Just print the money. -it made all education from 10th grade up to Master’s degree, absolutely free. Just become a resident of our state. How good need I be ? Welfare, child support,
unemployment benefits- come one come all to my state.
But believe it or not, we the governing of the United States of America
have the power to do just that and all we would have to do is
give an answer to
(as stated on ” 60 minutes” (12/11/11)”
President Obama said,”You can’t raise revenues by lowering taxes unless you get the money from somewhere else.” ?
YES, YES, stop paying interest on our own money and start charging
interest instead of taxes.
READ MORE: “The Wealth of a Nation lies in its Redistribution”
by justaluckyfool.
Challenge it ,destroy my thoughts so as to make them correct.
yep, that sounds right jalf.
Ernie – “The Bank of North Dakota causes no problems. Projected onto other states, the competition to do better for one’s own citizens could only be a good thing.” – I agree, competition between banks will keep them honest as per your examples.
“What goes on at the Federal level relevant to this?” JALF was implying that the Federal government does not print money to make poeple feel good like a state bank might/could. You missed the biggest example of the federal government using money printing to win votes, social security.
I disagree that that is what Social Security is. Ellen Brown disagrees too. See her articles. Private banks (including the Fed) “print money” to make themselves feel good, which is immoral theft and unjust social oppression in my book. Social security gets paid for by workers.
Ernie – “Private banks (including the Fed) “print money” to make themselves feel good, which is immoral theft and unjust social oppression in my book.” – You dont take it far enough. The Fed prints money so the people feel good so the polticians stay in power. The last part sure I agree.
“Social security gets paid for by workers.” Technically correct but it should say Social security gets paid for by workers in the next generation. if the government put your contributions somewhere and invested them so you could take it out when you retire then everything is cool. But they dont. They are dependent on new workers and more workers coming in to pay the benefits of those that have retired. Which is a complete waste and a burden becuase no interest is earned by the person paying their contributions.
The government took on social security not to help people but to get further into debt and therefore have an excuse to raise taxes to pay for it. The Fed gave it the green light because the Fed is the one receving these bumper interest payments.
Government is a tool of central banks. Government is there to indebt the private population to a level they would not normally take on out of choice.
Of course, your perspective is an excelllent one, from the point of view of pure logic/reason. Unfortunately, it has less than the chance of a snowflake in Hell of happening for at least 2 reasons; the government/burocracy has no history of consulting reason/logic in any decision making, and secondly, governments true objective is to increase the rich/poor gap (contrary to its stated objectives) in the service of their true masters, the uber-rich. Remember, wealth is relative. You can either increase your wealth, or decrease everyone else’s. The effect is the same, but you pay taxes on the former.
Money gets votes, votes get elected leaders, elected leaders ensure public policy that favors their contributors. Therefore money buys policy.
That cycle will unfortunately continue until we have campaign finance reform, or America wakes up enough to disregard the campaign propaganda.
Jeff – “or America wakes up enough to disregard the campaign propaganda.” – or politicians start being held accountable to false advertising laws. This is I think is more realistic
This is the #1 issue of our entire economy!!! If we do not get money out of politics our economy — our democracy — is a goner! ONLY public funding of campaigns will fix it, and ONLY a 100% turnover in November will get us there.
MoneyedPol – “If we do not get money out of politics our economy — our democracy — is a goner! ” – I agree and this is exactly why people like Ron Paul call for a commodity based currency.
Ellen – – –
You’ve got to be kidding!
<>
I doubt there is one person in Congress who could even carry on a conversation on the subject.
John Lounsbury
There is a quote missing:
“…perhaps Congress and the Fed will consider some of these more direct approaches to relieving the economy’s intractable doldrums.”
If everyone writes their congressmen, they will listen. They don’t have a choice if they want our votes.
I’m about to write my representatives about the “fiscal cliff”. It’s another man-made crisis like the debt ceiling, and I fully expect it won’t be resolved until the 11th hour.
The Fed can not make low interest loans to state or municipal govts. as this would be interferring in the interest rate swap market. The Fed also won’t increase the circulating money supply as interferrence in personnel credit.. The Fed’s member banks would not allow such. What is needed is debt forgiveness, or as Steven Keen calls it a debt jubillee.
Some interesting analysis there, but I don’t think I agree with some of your assumptions. I admit that I don’t fully understand how the Fed and banking system works wrt QE (it’s a difficult thing to wrap your head around, but I’m tryin’). I come from a more technical background and I think you may be overlooking some critical real world constraints preventing an economic recovery.
The most important of those constraints is that …
… the US has … are you ready? … here it is … are you REALLY sure you want to hear it? … Okay, you asked for it …
FOUR YEARS of oil left! (it passed Peak way back in 1970.)
If you go to the US Energy Information Administration,
http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=5&pid=57&aid=6
you will see that the US has 21 billion barrels of proved oil reserves. The BP Statistical Review says 31 billion. The US consumes about 7 billion a year, leaving about 4 years of supply left, depending on whose data you use. However, the US imports half the oil it consumes, so as long as that can continue, then it has 8 years of oil left.
On the other hand, we all know the only reason the US can run such a perpetual trade deficit is because it enjoys having the world’s reserve currency, and other countries buy US debt. But now with the Fed buying over 70% of US debt by printing up money into thin air (and that’s only going to increase), the days of the US dollar as the reserve currency may be numbered … in that case, we will certainly get hyperinflation and it will be externally driven, not internal.
Now, there are ways that the US will be able to have oil for beyond 4 years into the future. One is that it could open up the Arctic National Wildlife Reserve which may provide several more years of supply. Two is that as oil price rises, more deposits will become economically recoverable. But this only works up to a point, after which geology takes over from price as the primary driver of extraction rates. Three is that as oil price rises, consumption drops.
The much-celebrated Colorado oil shale is not actually recoverable with a surplus net energy return, despite the trillions of barrels underground (it isn’t actually oil). Shale oil (not the same as “oil shale” — this can be confusing — it’s actually oil, but it’s trapped inside tight shale formations) has a very low recovery rate with a sharp production drop-off and therefore will only represent a minor blip for maybe 10 years.
So the US will definitely not run out of oil in the next 4 years. I predict that it has 50 more years of oil … but at MUCH reduced extraction rates (and therefore much reduced consumption rates).
In this context of Peak Oil, it is clear that the US economy cannot possibly grow in the future, in real terms, because it is built around burning copious amounts of cheap oil to get things done, and that would take many decades to change (and it would require oil to manufacture that new non-oil-based infrastructure… an unfortunate catch 22)
Since the economy cannot grow its way out of debt, the only way out is to 1) default, or 2) inflate it away.
I think default is unlikely because then the banks lose their control and the deflationary collapse would cause such social strife that there would be a bloody revolution. I think it is clear that it will be inflated away, especially now with the “beggar thy neighbour” theme emerging around the world as an attempt by which countries try to maintain employment by competitive debasement of their currencies. In this case, at some point foreign countries will dump their Treasuries once they see the US openly monetizing its debt, and this will spark hyperinflation.
“If dollars were flooding economy, housing and wages (the largest components of the price level) would have shot up as well. But they have remained low, and overall price increases have remained within the Fed’s 2% target range.”
Energy and food prices have gone way up and those are the most important factors in inflation (and energy isn’t included in official inflation statistics — amazing!)
But haven’t the printed dollars merely been replacing the money destruction from the collapsing credit of the middle class? Housing is low because WAY too many houses were built up to the 2008 bubble as a result of too-low interest rates (which you seem to be arguing we should continue). Now, the banks have to keep millions of foreclosed pretty plywood boxes off the market to keep the price from crashing.
Wages are low because it’s always the middle class that gets shafted when push comes to shove. Since the economy can no longer grow, the private sector cannot provide the jobs to keep unemployment low (we don’t need any new plywood boxes so all those construction workers are now out of work). Now, the only way to lower unemployment is for the public sector to expand, which is what we’re seeing.
Of course the other way unemployment could be lowered would be if the work week was reduced, but that is unlikely since mainstream economists don’t understand how this works.
Regards, Mark
Mark, “it’s always the middle class that gets shafted when push comes to shove”. Sounds like “Deliverance”
Elen, you are missing a super huge point – “The Fed calls QE an asset swap, swapping Fed-created dollars for other assets on the banks’ balance sheets” – What your failing to see is that these “assets” are complete fiction. They are bad bets that have gone south or will go south at the slightest hint of a normal interest rate. The Fed is giving real money in return for garbage. This is increasing the amount of real money in existence one way or another.
The only reason we are not seeing inflation is that the banks are hoarding the cash to keep inflation down so they can get more money from the Fed because inflation is low. Its a massive bubble that is being blown up. When they are ready, they will move en masse into commodities like gold and silver.
Trust me here, banks are not stupid and they do look at the big picture and they do look long term. It is in their interest to keep inflation low so Bernanke can keep the QEs coming until they are ready. I think it is logical.
Isn’t there a difference between money being hoarded in banks and
under mattresses and money actually circulating, chasing goods
and services. The latter concerns deflation and/or inflation.
And Ellen notes the legal constraint that banks cannot lend or
spend reserves on goods and services. They can only lend
reserves to other banks to bring those banks’ reserves into
conformity with Federal Reserve targets.
stanis – Okay, the fed is monetising these fantasy assets. So like Elen said there is no difference to their balance sheet. So what are you saying, the banks do not meet the reserve requirements so they cannot lend at all? Even if the Fed monetises the garbage? If so, then how are they functioning? Their hands are tied until they build up their reserves from other sources? If so, which sources? and how?
The mental picture of Ben Bernanke, sweat pouring from his brow, tipping millions of US$100 bills from a helicopter is amusing, but who would monitor whether every $100 bill actually was dropped. Dont forget, Bernanke is Chairman of the FED which never gets audited.
Giving the money directly to every American will never happen, because that would make like easier for the ‘plebs’. Imagine the slave owners giving slaves a Christmas bonus. No, it would never have happened. So QE1,2,and 3 benefited the Bankers, who caused this whole mess.
The debt jubilee sounds interesting. Maybe, seeing as Americans homes have lost half their value, couldn’t the Banks reduce everyone’s home loan by 50% using QE3 funds. This would free up their dwindling incomes which would boost that great American goal, Consumption.
A bit simple perhaps, but no worse than what will actually happen.
This is such a wonderful and logical idea that nobody will understand it. But I give it ten thumbs up at least. Bravo!
Justaluckfool asks a foolish question, but in hope of a profound answer.
Would we end the housing crisis and add 3 to 4 million jobs within the next 90 days by simply answering Pres. Obama’s remark,
“President Obama said on ” 60 Minutes” (12/11/11)
“You can’t raise revenues by lowering taxes unless you get the money from somewhere else.” ?
*****Excerpts from :
http://mises.org/daily/6175/How-to-End-the-Fed-and-How-Not-To
Mises Daily: Monday, September 10, 2012 by Gary North
“… a plan proposed by Henry Simons, who taught Milton Friedman. It also goes back to Irving Fisher, the inventor of the statistical-index number.
… His proposal features 100 percent reserve banking,…in short, we can trust the government to manage the money supply.”
…Here is what Henry Simons proposed in 1934:
100 per cent reserves, simply could not fail, so far as depositors were concerned, and could not create or destroy effective money. These banking proposals define means for eliminating the perverse elasticity of credit which obtains under a system of private, commercial banking and for restoring to the central government complete control over the quantity of effective money and its value.”
Herman Daly, “If our present banking system, in addition to fraudulent and corrupt, also seems “screwy” to you, it should. Why should money, a public utility (serving the public as medium of exchange, store of value, and unit of account), be largely the by-product of private lending and borrowing?… “Why should the public pay interest to the private banking sector to provide a medium of exchange that the government can provide at little or no cost?”
ALSO read : Frederick Soddy, “The Role of Money”
Keynes and Minsky and Mises call for “free banking”
a term that should mean- “The truth Shall set us free.”
Excerpts from “justaluckyfool:
“The Redistribution of the Wealth of the Nation”
…..”The Federal Reserve Bank has the legal authority to raise the margin (reserve) rate to 100%. It also has the legal authority to prevent a collapse of the currency by lending the banks up to $100 trillion to make them comply with this reserve requirement.This would not be an increase in the deficit as it is an asset purchase.
Since the US Treasury must by law be given any proceeds (revenue)
from these asset purchases-($100 trillion at 2% for 36 years)- which would be $5.5 trillion per year, would that not satisfy funding for jobs, SS, Medicare, and at the same time reduce federal income taxes to zero?” …..
As for the housing crisis, What if all real estate mortgages were to be purchased (instead of the stupid practice of being guarantor) say for $40 trillion and then modified the loans at 2% for 36 years thereby leaving 85% of troubled homeowners in their property as “good faith creditors”, would that stabilize the housing market, recreate 3 to 4 million jobs, and produce an income (revenue) to the US Treasury of an additional $2.2 trillion ? (justaluckyfool)
***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC),
JALF – “His proposal features 100 percent reserve banking,…in short, we can trust the government to manage the money supply.” …Here is what Henry Simons proposed in 1934: 100 per cent reserves, simply could not fail, so far as depositors were concerned, and could not create or destroy effective money.”
I think we are seeing governments cannot be trusted. About reserves, the issues have nothing to do with fractional reserve banking and everything to do with a banking monopoly. Only when it comes to banks does a so called competitor failing give you nightmares, in every other industry it would be a massive opportunity for the remaining players.
[…] of Debt: – Why QE3 won’t jump start the economy. – The economy could use a good dose of “aggregate demand”— new spending money in the […]
Ellen,
I always enjoy your analysis. I have an ever so slightly off topic question. You’ve done a lot of writing, a lot of speaking and know plenty about the paper currency world. My question is; when you speak with or about folks in the know, the names we see in the news, do you get the sense they actually know, know, what the whole fiat currency scam is all about, or are they as dumb as the come across? T
here is the regimented system of plausible deniability, whereby stooges with actually no knowledge of how something works are put in charge of something, so when they talk they seem convincing, real, genuine and forthright. It seems beyond all comprehension to me that they, the Bernanke’s, the Buffett’s et al actually lie each time the proffer and support things like these QE efforts, but since we NEVER and I mean NEVER see anyone actually challenge them with facts about debt etc. I often wonder.
Each “dollar” has the word “note” written on it, which, in legal terms means “debt” not credit. So on each dollar, in bold faced lettering is the truth – you are paying for your java with a IOU, yet I wonder if the folks in charge get this at all? If I were in charge of dumping toxic waste I’d make damn sure the guy in charge knew nothing of it.
Keep up the great work.
BTW, seems this QE is about paying off CDS gambling debts, just making sure that debts owed won’t tilt the ship too much as some folks seek to cash in at some point, as the entire reason for the whole system is to keep us all in debt, not resolve problems, so there will never be an actual solution available or actuated, only “solutions” that give the stability to keep the humans enslaved by debt.
Ellen you are naive. Money systems work for as long as they are basically “moral” and then a few years more. Our “morality” in our money system as well as just about every other system, has run dry. Our nation is run buy liars bought off by criminals. The world will abandon the dollar, so your $100 a month will buy a McDonald’s Happy Meal very soon. You miss all the major points, but focus on morality and a term called “capital formation”, how and why it happens and what it means to growing economies. Zero star article. Write about the Yankee’s or something.
It’s impossible to deny when looks to history that there have been hundreds and thousands of debt backed fiat currencies brought forth, and they ALL inevitably end in hyperinflation. The longest-lived one in history has been the US dollar (41 years) and I see no reason why this will be any different. Bernanke hasn’t stumbled upon any great wisdom of how to maintain the link between the purchasing power of pieces of paper relative to real world resources taken from the Earth; in fact he seems even more delusional than most.
If anything, the conditions stoking hyperinflation now are worse than those other failed currencies since soon foreign countries will not be willing to sell their remaining precious oil to the US in return for worthless pieces of paper, plus the dollar is the world’s reserve currency and when it goes it will go hard, plus the US economy can no longer grow to serve that exponential interest growth, plus the world is rapidly running out of resources which contributes to higher prices and counteracts deflation, and of course the whole system is completely corrupt. It would have collapsed in hyperinflation years ago were it not for the fact that it’s now the global monetary system in shambles (in comparison, Weimar hyperinflation happened because the money was easily pulled out and invested in other countries that could provide real returns). Now, there is no other place for the money to go because it’s the whole world in this boat. The only place is gold and silver, and real world resources. When the paper gold and silver suppression scam finally fails, that will be when hyperinflation starts.
I know where I’m placing my bets for the 5 year horizon.
QE3 = Quantitative Embezzlement …
“” The Fed’s professed justification is that by buying mortgage-backed securities. “”
And that is just what they will do … trade perfectly good treasury bills for “mark to make believe” MBS worth cents on the dollar.
Hi Ellen, are you up with the Bristol Pound? see article pdf’d below. It could be right up your street.
best regards carlo Melbourne australia.
So QE is great for the Fed and the Banksters, the investors and the predatory corporatocracy. They get a bit of a “high buzz”, but it wears off just a bit too quickly.
On the positive side, it increases the behemoth Wall St. Banks’ reserve accounts. They are “excess reserves,” which cannot be spent or lent into the economy by the banks. The money just sits there, drawing a bit of interest. The banks will get the dollars and the Fed will get the MBS.
QE may also provide beneficial effects on the stock market. Stunning! Of course!!!, as Cenk Uygur says.
But, what’s in it for us, the 99%? Apparently, nada but ripoffs. One of the biggest ripoffs for us, as Ellen says, is that …”Commodities (oil, food and precious metals) also go up, since ‘hot money’ floods into them.” And this also involves criminality as usual because…”some major market players are colluding to manipulate the price, a criminal enterprise.”
Forget about this. We’ve been there and done that how many times? Four?
In this great article, Ellen once again highlights 3 POSITIVES that the Fed could do for us, the people (besides printing money from thin air and using it directly to help us, which is way too logical). This would be money of mass salvation, instead of the ususal money of mass destruction.
It could make the very-low-interest loans given to banks available to state and municipal governments, or to students, or to homeowners and rip up the $1.7 trillion in government securities that it already holds, lowering the national debt by that amount (as suggested a year ago by Ron Paul).
Or, it could “buy up a trillion dollars’ worth of securitized student debt and rip those securities up”.
But this is my favorite: “first proposed by Ben Bernanke in 2002, before he was chairman of the Fed—just drop hundred dollar bills from helicopters.” And hopefully each of us who make a mad dash to catch those bills would be able to bag at least several of those benjamins.
The positive results of these recommendations would be enormous.
As Ellen says, it would be much better than a new social program, because there would be no bureaucracy involved, just bill printing and helicopter fuel, and the money would be spent, increasing consumption by,…”perhaps $300 billion annually, creating perhaps 3 million jobs, and reducing unemployment by almost 2%”.
That would be awesome for the 99ers.
The bought politicians and the media moochers who are abetting them are always repeating talking points, malicious memes that seem to circulate successfully to their clueless viewers which they then repeat like replicants.
Perhaps we need a positive mantra like “THE FED CAN PRINT MONEY FROM THIN AIR AND MAKE IT WORK FOR THE 99%. HERE’S HOW…”
Calliope, “It could make the very-low-interest loans given to banks available to state and municipal governments, or to students, or to homeowners ”
****YES, and that would solve the financial crisis.
BUT…”we need a positive mantra ”
****Yes, so why not, especially if you say you represent the 99%, DECLARE A MENIFESTO !!
“If you had one question you could ask President Obama, what would that question be ?”
Chris Mathews, Sunday Sept.16, 2012 .
President Obama said on ” 60 Minutes” (12/11/11)
“You can’t raise revenues by lowering taxes unless you get the money from somewhere else.” ?
Mr. President you have the ways and means without the need of any new legislation to raise $5.5 trillion per year in revenue from “somewhere else” and at the same time reduce federal income taxes to zero, solve the housing crisis, create 3 to 4 million jobs, while reducing the present deficit by more than $1 trillion a year. Would you please state why you have not put this “raising revenues from somewhere else” into action?
For the answer: “We cannot solve our problems with the same thinking we used when we created them”.Albert Einstein
Excerpts from “justaluckyfool:
“The Redistribution of the Wealth of the Nation”
…..”The Federal Reserve Bank has the legal authority to raise the margin (reserve) rate to 100%. It also has the legal authority to prevent a collapse of the currency by lending the banks any amount needed to comply, perhaps up to $200 trillion may be needed.This would not be an increase in the deficit as it is an asset purchase.
Since the US Treasury must by law be given any proceeds (revenue)
from these asset purchases-($200 trillion at 2% for 36 years)- which would be an income stream of $11 trillion per year, would that not satisfy funding for jobs, SS, Medicare, and at the same time reduce federal income taxes to zero?” …..
As for the housing crisis, What if all real estate mortgages were to be purchased by the Fed (instead of the stupid practice of being guarantor) say for $40 trillion and then modified the loans at 2% for 36 years thereby leaving 85% of troubled homeowners in their property as “good faith creditors”, would that stabilize the housing market, recreate 3 to 4 million jobs, and produce an income (revenue) to the US Treasury of an additional $2.2 trillion ? (justaluckyfool-“The Redistribution of the Wealth of a Nation”)
***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC).
Thank You,
Carmen Basilovecchio
“justaluckyfool”
P.S.*******YES, How about student loans. Have the Feds BUY all of them, instead of the stupid practice of guaranteeing them, and modify those loans and all future loans at 1% for 72 years. The first payment would be due when borrower has full employment and the payment is to be 5% of their income until balance is paid.
How fair is that ?
Yes, I believe we are in agreement on most of these issues that you mention, and I like your quotes from Einstein and the Buddha. I am a fan.
I suggested a mantra, not a manifesto. I believe there is a 99% manifesto, and I read it some months ago, not lately. Perhaps the mantra should be: “Why not get rid of the Fed?”
There is a question that we all (not just Chris Mathews) should ask the president.
The question for everyone might be: “Why are we still letting the Fed control us? Why don’t we get rid of the Fed?”
Calliope, the more I think about it, the more I realise that it is Bernanke’s job to save the “economy” and to retain the status quo (ie rule by the 1%). His least concern is the for “American people”. His job is to keep the blowtorch on the people’s A$$ so they don’t have time to work out what is being done to them.
So, her saves the Banks, which tightens the screws on the people.
Freedom and Democracy, anyone?
Thank you Brian for your funny reply.
Yes, I believe that his LEAST concern (and I suppose we are complimenting him by assuming that he is concerned) is for the American people. His job (I like your metaphor) is to massage the sphincters of the Banktocracy, who are just sitting on our money, and who are extremely constipated. So, it looks like this QE bu!!$hit is like a laxative pill that Bernanke gives himself (latest version 4.0) and his minions (or vice-versa) to relieve the enormous pressure that has been created by sitting on all that money for such a long time. This is a great sideshow to try to make us think that he has done something for us. And you are also correct, because the great sideshow is to distract and confuse the masses. I hear him saying, as in the Hunger Games – …”and may the odds be in your favor. ” Wink wink.
Are you by any chance a fan of Jon Stewart? What is happening is very sad, so we need some really good laughs every now and then.
Calliope, Yes, I’ve seen Jon Stewart. He’s very good. He’s kind of the direct opposite of the uber evil FOX Network, run by Mr Murdoch (an American, I believe). It’s good to see America has some voices of reason on TV to repell the likes of Limbaugh, O’reilly(?) and other highly paid but revolting “Shock Jocks”. As far as I know Stewart was the only media person giving Ron Paul any air at all (I may be wrong)
My previous suggestion that the Banks use QE3 to reduce customers mortgages(to match the drop in home values) was not totally “tongue in cheek”. The money would have ended up in the banks just the same, but the customers would have benefited first. It’s clear that Bernanke never even considered doing it, despite his helicopter gag when the
‘sh!t hit the fan’ in 2008.
I think your suggestion that the Banks use QE3 to reduce customers’ mortgages to match the drop in home values is an excellent idea.
There is so much good than can be done that it’s mindboggling. The problem is the mindset of these Murdochs (haha – an American with an unusual accent) much like the cartoon character of the Simpsons – Mr. Montgomery Burns. “What good is money if you can’t inspire terror in your fellow man.”
Any hint of the 99% benefitting sends these guys into automatic austerity mode. They can’t and won’t consider anything that will help humans. In fact, an Exxon Mobile official has recently said something to the effect that he doesn’t consider his corporation “American.” They don’t give a rats A$$ about Americans or their country or the world, and as you know, are only concerned about their profits. They look upon us as the rabble, the muppets, the plebs, the serfs, or potential slaves.
Someone like yourself trying to understand what is going on here, as I am trying to imagine, must think we’re batshi! crazy. But it’s not all of us, although everyone has his or her problems. It’s the greedy part of the 1%, and with all their money, this will be an interesting “election.”
It’s been about a year since I’ve discovered Ellen Brown’s writings, and before that, I had been trying to figure out what the hell is going on here. Banking and finance are not my background (I majored in Greek and Latin and English) and had been studying many other things, until 2008, when the shi! hit the fan. Derivatives and swaps are like Greek to me. But now the various pieces of the puzzle that is the U.S. are starting to fill in. Yet, there are still many people in many different states who don’t keep up with the news (most of the media is bought) and are being bombarded with so much sludge from the wealthy that they don’t know what to think or how to think.
I would love to see public banks and postal banks, but not too many on TV want to talk about it. Ellen, if you are reading this, is there any chance that you can get on Current TV. ??? Or Jon Stewart? I don’t know how the process works, but you can at least reach more progressives. Eliot Spitzer, Jennifer Granholm, Cenk Uygur, John Fugelsang. And Gavin Newsome was talking about using Eminent Domain to help with the mortgages. People know more now than we did in 2008, so it might be a good time to get invited or can you invite yourself to one of these programs?
Brian, do you guys in Australia have any public banks?
Calliope. All of Australia’s states had their own Banks, and the federal government had The Commonwealth Bank of Australia until the mid 90’s(see “The Remarkable Model of the Commonwealth Bank of Australia”, on this web site)
“Globalisation” (under Thatcher and Reagan) saw deregulation of the World’s Banking industry, which resulted in the following….
During the mid ’80’s to early ’90’s, Australia’s Banks embarked on an inprudent lending binge,(I know because I was employed by a large Australian (and NZ) Bank), and our instructions at the time were, “Do Not Say No To Any Lending Proposition”.
Needless to say, Australia’s banking system was forced to write of many billions of $’s in the mid ’90’s. The State Banks all went bad and had to be “rescued” by the “Big 4” national banks.
Following this disaster, interest rates went to 20% and above for several years(I believe this allowed the remaining Banks to ‘recapitalise’, and recover their previous profitability).
The USA had a similar “S & L” meltdown at around the same time.
The Commonwealth Bank was “privatised ” with shares issued @ $3.50/share (which now are $55/share)
In hindsite, the collapse of the publicly owned Banks in Australia, and the S&L’s in America, does seem more than a little suspicious.
Can anyone reading this around the World have a similar scenario in their countries??
OMG. I thank you for describing what happened in Australia. I think I see the larger picture emerging now, because back in the late sixties and early seventies began a very big effort by the monied interests (and this is the latest cycle, as I now see it) to start a power surge through the Supreme Court and the Chamber of Commerce. They’ve been getting lots of their bills passed through the state legislatures, bills in their own interests, bills that take away our rights, and people have been just snoozing until lately, as news of ALEC and the agenda of the gazillionaires is now becoming public. The 99% are going to find out.
So what you are saying is very helpful to me to see because perhaps this very movement that has been going on here appears to have also been emerging globally. Yuck. Well, as you know, Big Brother is watching, and hello agent Mike! But your observation that “In hindsite, the collapse of publicly owned Banks in Australia and the S&L bailout in America, does seem more than a little suspicious.” is a great one. Suspicious is a good word. I think I hear you.
I am sorry to hear about what happened in your country, and I will check out the article you mentioned on this website. I think it was before I discovered the WebofDebt.
But a similar phenomenon appears to be happening in many countries around the world now, including this one. What began forty years ago here now is acquiring a brand new disastrous look. But I would rather be depressingly informed than ignorant. Thank you for another piece of this puzzle.
CALLIOPE and all, Here is the Keystone piece to the puzzle:
“How the Banks Broke the Social Compact, Promoting their Own Special Interests” by Dr. Michael Hudson
“The inherently symbiotic relationship between banks and governments recently has been reversed. In medieval times, wealthy bankers lent to kings and princes as their major customers. But now it is the banks that are needy, relying on governments for funding – capped by the post-2008 bailouts to save them from going bankrupt from their bad private-sector loans and gambles.
Yet the banks now browbeat governments – not by having ready cash but by threatening to go bust and drag the economy down with them if they are not given control of public tax policy, spending and planning. The process has gone furthest in the United States. Joseph Stiglitz characterizes the … vast transfer of money and pubic debt to the banks as a “privatizing of gains and the socializing of losses. It is a ‘partnership’ in which one partner robs the other.” Prof. Bill Black describes banks as becoming criminogenic and innovating “control fraud.” High finance has corrupted regulatory agencies, falsified account-keeping by “mark to model” trickery, and financed the campaigns of its supporters to disable public oversight. The effect is to leave banks in control of how the economy’s allocates its credit and resources.
If there is any silver lining to today’s debt crisis, it is that the present situation and trends cannot continue. So this is not only an opportunity to restructure banking; we have little choice. The urgent issue is who will control the economy: governments, or the financial sector and monopolies with which it has made an alliance.”
The solution is simple:Justaluckyfool, excerpts from http://bit.ly/MlQWNs
“As Keynes, Minsky, Soddy, von Mises, Desoto, and many other economist all agree (but stated in different ways) -They call for “free banking”, taking away the legislated goodies they received which “We the People” allowed thru false or deceitful information and let them be subject to the civil and criminal rules of law.
They must be made to operate at 100% margin, 100% reserve so they can not only collect what they earn, but also must pay their losses.
We the people must govern our nation or we shall be governed
by others.”
AWESOME! Thank you. I’m thinking about this.
jalf – Hudson is right of course, but all this they must do this, they must do that, sounds a bit like government involvement to me. Just give banks the right to print their own money and everything will be okay. Governments and big banks will despise that idea though because they will no longer have a cash cow that is the taxpayer!
I guess your reply is to JALF, but it came to me. I like your comment about the banks being a black hole, and that the taxpayers are a cash cow. Well said. I definitely agree with that.
Calliope – Thanks!
BTW, I am sure you know and we are discovering, this includes our northern neighbor Canada and how they’ve been manipulated so the bankers can “harvest” (great new word flying around now, and coined by none other than a presidential candidate) their profits, and sadly includes many of the European countries today. Tomorrow, the world. This can’t possibly be a “coincidence” and if memory serves me correctly, I believe one of the Bush Bros. was a key player in the S&L debacle.
The full quote referenced in this article from Keen is: “Banks themselves may (if they are allowed–I simply don’t know the rules here) swap those assets for other forms of assets that are income-yielding, but they are not able to lend from them.”
Well, if he doesn’t know the rules for potentially the biggest swap of all – reserves for other forms of assets, then those assets might be derivatives (JP Morgan alone has $70 trillion), bonds, even stocks. This is what the banks are doing apparently, not loaning at paltry interest rates, but speculating on the secondary markets. All of these secondary markets are up big since the Fed starting QEing, which the Fed itself happily claims credit for (pun intended). Without QE, we’d still be in a bank depression, with it, we are just in a depression everywhere else.
It’s time to put money, debt-free, into the real economy in the form of U.S. Notes, or their electronic equivalent, as Lincoln did, as the constitution allows for, as we did for 14 series (1862-1972).
“It’s time to put money, debt-free, into the real economy in the form of U.S. Notes, or their electronic equivalent,” – or we could just stop printing money and giving it to banks
Money should exist in sufficient quantity to meet the productive capacity of the country. Right now it either does not, or it’s been siphoned, or dumped, on the FIRE sector via the banks. We have to jumpstart the economy if the private sector won’t do it, and apparently, it won’t, for now.
Hello Scott – However much money there is, it is enough. The problems come when the supply gets distorted by printing for poltical/fascist reasons, this makes people defensive until things are stable and predictable. You cannot create wealth by printing pieces of paper & creating debt, it sounds simple because it is.
In just so few words you have stated where we went wrong when printing money, our own currency.
****Allowing banks to profit from our currency , thereby taking away from all the people, their wealth and using it “FOR THEIR OWN PURPOSES, and not for the common good.
“The Redistribution of the Wealth of a Nation” by justaluckyfool
Dear Ellen:
You seem to be the only voice of reason in the world of economic distress.-
As History shows, economy was much before finances started to show its claws around in the shape of usury.-
By definition, economy it is the conjunct of activities done by man for the satisfaction of his needs.-
To say that the US has satisfied all its needs would simply take us away from reality.- Infrastructure, Health, Education, Energy fell behind at some point when outsourcing, importing of goods and manpower, and overgrowing military spending since 1990 took a central spot in the American scene.-
Indeed, previously rehearsed from 1973 (1st oil crisis) on, in undeveloped countries, the combination of overloaning, debt and subsequent fianancial crisis with privatizing of state assets as the beggining of national sovereign displaced by banking government overtake finally arrived to the US and the EU.-
So, finances became the central motivation of any State or private
activity, and the pivotal point of State decisons.-
The replacing of workshp jobs by speculative desk positions sooner
or later was going to be reflected in bankruptcy of the remaining sound economy where the american cooking range, TV set or garment was replaced by bank to bank fast travelling electronic security “paper”: honest labour traded by interest rates for the sake
of the so well called “1%”, and in the end the “99%” becoming redundant people, only worth for two or three “battle tours” in the Middle -East.-
Certainly, instead of bank bail outs and QE-1-2 &3 a jubilee on mortgage debts would have saved a lot of defict, but the outstanding fact it is that Americans need jobs, decent steady productive jobs and not speculative flying gambling chairs, because
even without debts, basic needs are to be fulfilled from week to week.-
The point to be defined it is: are Americans worth anything to Gvmt.
decision makers other than every two years election day voters?
[…] some of these more direct approaches to relieving the economy’s intractable doldrums.Ellen Brown Web of DebtPubished: Saturady, 22 Sepember 2012 About Ellen BrownEllen Brown is an attorney, president of […]
[…] Ellen Brown Featured Writer Dandelion Salad webofdebt.com Sept. 21, 2012 Image by untitledprojects via […]
What amazes me when reading the comments is how none of them can see that depressions are caused by Imperial Wars of Aggression. Look at the material fact that the fed. budget consists of 60% spending towards the Militarization of the American State. Means of Destruction is not means of production.
What this tells us is that America is in daily practice using unlabour to ecologically destruct the web-of-life of the Planet Earth. Truth be known, nothing could be more material depressing of all societies on the planet than that.
Real political economy which is scientifically based really only backs economy that is reguarded as means of production, such as constant Capital, Variable Capital, and thirdly Surplus Value. Marxism is really in its flegling position here, but in truth only fully backs means of production which improves living and working conditions–Trade Unionism which both Marx and Engels consider from their foundations to be the workers vehicle to the last classicist state, the workers state, which uses its power to end all exploitation of the majority working classes globally.
The state then ends and whiters away haveing no further functions as exploitation will have ended and a classless free working specie will attain full liberation status.
Marxism retains its scientific usefullness, and shows a way out of crisis of monopoly capitalism, by showing the necessity for the modern working classes to take over the main means of production and distribution as well as the banks and credit unions ( yes to Ellen Brown), so ownership and control returns to the true majority in each and every country, and the anarchy of private ownership of the public banks and main means of production ceases, and a planned, harmonious society prevails everywhere.
The organized working classes are the only class that can achieve such a worthwhile goal. What is then now on the agenda? End aggressive war as foreign policy, and all the pollution that the first industritrial revolution has brought by motivation of coal, gas, oil and atomic energy, which is destroying the planets livability.
Re-tool the industrial revolution to the renewables such as wind, tidal, and solar energy that transforms to electricity and is more power than all fossil fuels. That would end the burn-out of oxygen (already 38% gone to CO2-carbon-dioxide that we cannot live on).
It does not take a rocket scientist to figure that if the present society continues we will soon be out of oxygen in our world’s atmosphere, and we already are in the ‘fail safe’ mode and the temperature is rising with cascading streams of CO2 going into the atmosphere at a rate more than oxygen, because mother nature cannot replace clean oxygen fast enough, as the burn-out of O2 is too huge.
Remember six overkill in stockpile of WMD–weapons of mass destruction is in place now by the Imperialist Camp to hold the dysfunctional Monopoly Captialist system in place, and we must in reality dismantle the war machine and its manufactury to attain real liberation globally. Workers of the world unite!! End pollution wars, not endless wars for more and more pollution. You yet have a world to win!!
Those who do not understand modern money concepts may wish to listen to several presentations of the concepts which are presented/ explained by economists/financial experts who have/will discuss various aspects of this subject over the 2012-13 interval at the Columbia Law School:
Announcement:
Modern Money and Public Purpose
The first session, lasting around 105 minutes is currently available:
First Session: The Historical Evolution of Money and Debt
featuring economists – L. Randall Wray and Michael Hudson
William – It is not a good video, I whatched it for a minue and L. Randall Wray, made 2 fundamental errors. 1 He says all currency is government debt and the second error, which explains the first error, is that he believes Federal Reserve Debt is government debt. I stopped whatching after that. http://youtu.be/0zEbo8PIPSc?t=34m51s
Patience. Hudson’s presentation begins at 42:00. Well worth watching.
Hudson’s responses in the Q & A are good, too.
Dana – Hudson I like usually, ill take a second look, but the first guy put me off completely.
I agree, Wray’s presentation is a big bore. Nevertheless he’s talking about the *realities* of contemporary banking operations which, as convoluted as they may be, we’d do well to try to understand.
Dana – that was my original point. Wray has a fundamental misunderstanding of the money system.
Yes, this is exactly the same problem I have with Wray too. He and co-MMT founder Warren Mosler keep promoting this fiction that the Federal Reserve is part of the government. From there comes the other incorrect notion that debt doesn’t matter because it’s money we owe “ourselves.” I’ve contacted them both on this separately, in emails, and while they were good enough to correspond on this with me, they won’t budge on this essential point. I haven’t seen Michael Hudson yet, but he is as brilliant an economist as there is, and I’ve worked directly with him in the past, and may do so again, as part of a panel discussion, and he knows my position on Greenbacking vs. MMT, and the essential difference. I wish he would distinguish that more.
Yes, Scott, assuming that the Fed is part of the government sector screws up Wray’s and Nosler’s analyses. It is a big flaw and makes them seem dishonest . Hudson on the other hand takes the position that the Fed works purely for the banks and I know he says in his new book that the debt matters greatly because it is the 99% that owes it to the 1%.
Ernie – The banks are happy with Wray, they probably support him whether he realizes it or not.
Richard, “Randall Wray, made 2 fundamental errors. 1 He says all currency is government debt and the second error, which explains the first error, is that he believes Federal Reserve Debt is government debt.”
***Perhaps you can help in the education of all by using what may be “The new age of social media” by challenging and improving
what has been said so that “after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha.
Perhaps you can show, “How all currency of a Monetary Sovereignty is not debt.” as well as “Federal Reserve Debt” is not the MS’s “I.O.U.”?
I would adhere to Frederick Soddy’s thinking, “Now money is the NOTHING you get for the SOMETHING you give to get ANYTHING”
IT is a receipt (at first written or displayed in some manner that now may or maynot be physical except in an accounting ledger) that is to be redeemed.
Please help.
P.S. In the replys Hudson is mentioned as , ” such a great, charismatic teacher.” OMG I was shocked that he got in “Frederick Soddy”.
But that’s the chance they take when “social media” is live.
I hope MITx is watching. Could you imagine -“Economics For The Masses. FREE education. NO student loan required.”
JALF – What specifically (underlined) is your issue with my comment?
You make a statement that you assume to be correct and base your opinion as if it is correct.
“L. Randall Wray, made 2 fundamental errors. 1 He says all currency is government debt and the second error, which explains the first error, is that he believes Federal Reserve Debt is government debt. I stopped watching .”
Why would you not challenge, and improve ?
Why would you not endorse what you find to be correct or that wich would benefit?
As in some of the replys on this page, great concepts with supporting evidence.
Maybe,just perhaps “social media” could become the greatest free education (As MITx- How great is that- no “Loans” required) ever for all mankind .(As MITx- How great is that- no “Loans” required). “Social Media has the power and speed-you need only to apply it.
A gigantic thanks to Ellen Brown for allowing challenges, and questions.
JALF – I gave facts not opinion. If you want an opinion, your probably the only person on this blog that thinks The Fed is owned and controlled by government.
Thank you for posting this excellent presentation by Wray and Hudson. I’ve just finished watching it elsewhere. It’s well worth the time.
Hudson is such a great, charismatic teacher.
How does someone say “Thank You” is such a way that it shows an unmesuable graditude.
Thank You, Ellen Brown for allowing The video;”Modern Money and Public Purpose” to be posted.
With the hope that this may begin a “social media” in which many more may be drawn this may in fact begin a new age.
And a “Thank You” to William Wilson for posting it.
If only all that see and read it were to :***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC),
Ellen, a huge flaw in your article… You state how QE doesn’t cause inflation/hyper inflation because the $ goes straight to the reserve accounts of the banks which cannot be lent out to the public. I am no expert on QE, but let’s just say that this is true. If that is the case, then how is dropping $100 bills from a helicopter a good solution? You said yourself that the thought stream of the doomers is that with more QE money printing, “too much money will be chasing too few goods, forcing prices up and the value of the dollar down.” You go onto prove this line of thinking wrong because as you say, the $ generated from QE never reach the circulating money supply. Well dropping $100 bills printed by the FEDwhich are backed by nothing from helicopters IS adding money into the circulating money supply. This would then, as you put it, leave too much money chasing too few goods, which will drive prices up and the value of the dollar down. This is just another can kicking alternative as the increase in consumption would be short lived due to the out of control inflation from all the new money in the circulating money supply. Eventually, demand will dry up when the inflation becomes so great that people can no longer afford the goods and services. Then any short-term boost in employment will begin to unwind as companies will begin to lay workers off to survive the eventual decrease in demand caused by hyperinflation.
Matt, “dropping money from helicopters” would increase the money supply without increasing indebtedness, and so would be a better stimulus than loans. Since there is excess capacity — unemployed workers, inventories of goods, materials available — it will not cause inflation, but increased demand will increase production and stimulate the economy. There is no reason to fear “out of control inflation.” The money supply is still $3.9T below what it was in 2007 because of the shrinkage of the shadow banking system. The previous QEs did not cause inflation, as the article details, and this one is not significantly different.
Hello Ernie – What Money supply? M1, M2, M3… what?
Richard. Looks like M3 to me. I’m using a figure from this article “The Fed Has Another $3.9 Trillion In QE To Go (At Least)” (http://www.zerohedge.com/category/tags/shadow-banking) It refers to the shadow banking system, which “creates credit money which can then flow into monetary conduits such as economic “growth” or capital markets, however without creating the threat of inflation – if anything shadow banks are the biggest systemic deflationary threat”.
If I understand it correctly, banks are a black hole. About the inflation. Either the taxpayer is stuck footing the interest for the loans the government took from the banks to pay for the bank bailouts or we get inflation. I think we are screwed from both ends
“There is no need to fear out of control inflation.” That is if you assume wages will rise in unison with inflation, but this hasn’t happened for decades so what makes you think it would start now? Also, you are defining inflation by the government figures which exclude food and energy… These two things make up well over 1/4 of the majority of household budgets, and prices have gone way up. So keep lying to yourself if you think there hasn’t been inflation. Since 2009, oil has gone from $40, to as high as $105, and currently sits at around $90. That is a 125% price increase over 3 years since QE began. Oil will not end the year below $80, so even if it goes there it’s still a 100% price increase in 3 years. And seeing as the world currently produces more barrels of oil per day than it consumes, the increase in price is not supply and demand based.
Matt: No, I don’t think I’m lying to myself. I took my antipsychotic pill this morning. I don’t deny inflation, but “out of control” inflation and hyperinflation as a result of injecting needed money into the economy when there is unused capacity — plenty of unemployed, etc.. Your explanation made no sense to me. Perhaps you meant “assume wages will NOT rise in unison with inflation”, but even at that there is no mechanism here for causing hyperinflation. Ellen Brown in her articles (and in Web of Debt) argues and gives evidence that hyperinflation has only been caused historically by foreign exchange and debt problems, not by govt. supplying needed money. Economist Michael Hudson confirms this in his book The Bubble and Beyond. Some, like Cambridge economist Ha Joon Chang in his excellent book Bad Samaritans, argue that some inflation can be good for an economy because it spurs growth, economic dynamism, and employment. He gives the examples of Korea and Brazil that had high inflation during their high growth periods to no ill effect and not leading to hyperinflation.
Ernie – “gives evidence that hyperinflation has only been caused historically by foreign exchange and debt problems, not by govt. supplying needed money.” – maybe you want to reconsider that sentence?
No. Maybe not the clearest statement, but I think it says what i meant. If you see a specific error, point it out. From Ellen’s article on QE2 on the blog:
“What really happened in Zimbabwe? And why does QE2 seem to be making the dollar stronger rather than weaker, as the inflationistas predicted?
Anatomy of a Hyperinflation
Professor Michael Hudson has studied hyperinflation extensively. He maintains that “every hyperinflation in history stems from the foreign exchange markets. It stems from governments trying to throw enough of their currency on the market to pay their foreign debts.”
It is in the foreign exchange markets that a national currency becomes vulnerable to manipulation by speculators.”
Ernie – you said “debt problems, not by govt. supplying needed money.” money is debt = hyper inflation is caused by debt problems not by government taking out more debt. its a contradiction.
I said “foreign exchange and debt problems,” meaning “foreign” to modify “exchange” as well as “debt”. My fault for not being clear. See quote from Ellen’s article on QE2 below ” It [hyperinflation] stems from governments trying to throw enough of their currency on the market to pay their foreign debts.” There is much that is not clear, but I believe she and Hudson are correct. A monetarily sovereign nation can always just produce the (non-debt) currency to pay off its domestic bills and is not constrained at all by the need for taxation, or so say the MMT people. And since the US has the world reserve currency it can do so internationally. Any tendency for inflation can be handled by taking money out of the system through taxation. The Fed does not go into debt when it creates the money to buy things. So money=debt is not true.
Ernie – I don’t think anyone is saying that the Fed can go bankrupt or that the Fed has debt.
“It [hyperinflation] stems from governments trying to throw enough of their currency on the market to pay their foreign debts.” – With regards to Weimar Republic, the primary aim of money printing was to inflate away the debt not to “pay” foreign debts. When you print money you are inflating the currency first and paying the bills as a consequence ( as long as someone accepts the money).
Richard — thanks. I don’t think Ellen would agree with your “When you print money you are inflating the currency first.” Of course when you create new credit you are expanding the money supply, so that’s monetary inflation, but if there is excess capacity and new goods and services are produced to absorb the extra money, there will not be price inflation. One unit of currency will buy the same as before. That’s a point she constantly makes. I don’t know the details of the Weimar hyperinflation, but Dr. Michael Hudson has looked into them, so you might want to check what he says out as well as Ellen’s account in Web of Debt. What we started our discussion focusing on was hyperinflation — not mere inflation — and we seem to be conflating the two.
In that respect it is worth noting that in the last 2 weeks, China has set things up with Russia, and several African nations, to pay for oil in its own currency, the Yuan. If the Yuan becomes a viable alternative to the petro-dollar, expect to see a substantial weakening (i.e. inflation) of the petro-dollar. In fact, this began already when China started this alternative. The U.S. has a recent history of going to war with nations that get off the petro-dollar (Iraq, the Euro; Libya, the gold dinar; Iran (still in the saber-rattling stage), the Euro). This will not be a sane option with China/Russia.
Thank you Ellen, you’re one of the few who understand and help. I’m one of the frustrated who want to help too, but how ?? Lot’s of people with good intentions write articles from the scholarly to the screamers on the internet who understand but don’t know know what to do. Out there in the world are the folks ( bankers and their cronies ) with power, money and control in mind who have in the past and will in the future try to get what they want no matter who suffers. But NOW we have an internet where people like you can communicate with all of us who care but don’t know how to help. I read your book about the Fed but when I dare to mention these obscure subjects with our professional and very smart friends ( in order to help ) I get blank stares ( except from my wife who gives me a look with daggers in the glance ).
You’re preachin’ to the choir unless you can get Joe Sixpack to get a tiny grasp on what you are saying. You gotta dumb it down. Surely there’s a way to help ” the people ” see a glimmering of the real truth that’s evolving now before everything crashes down around us.
I’m a person who believes that the road to hell is paved with good intentions, in this case by power people and banksters. They feel OK with what they’re doing even though WE know it’s wrong.
I want to help and I know that a lot of others want to help too. Just look at Zero Hedge. Help us to help.
John Meyer MD
Atlanta
A brief overview of the system and the history of banking and currency is the only way to go here.
The Bank of England was put in place by the families in charge of Europe at the time and you get the “British empire.” Well now, how did that happen?
The Bank of England provided Britain with all the currency needed to colonize 30% of the world’s surface. (they colonized China also…just never really admitted it). Honestly folks, how else would the Brits have the necessary $100 bills to pay for all of that economic activity? You think Victoria had that much gold sloshing about that she could maintain armies, navies and opium cartels along with assorted wars and skirmishes with close royal relatives? You run out of gold…it is a static thing…you never run of paper money unless you are an absolute nincompoop.
Now, let’s move a little closer to today. The Morgans and their close pals were the de facto central bankers in the US up until Wilson signed the Fed act. New York maintained currency velocity then and still does… they just have a building in Washington DC with columns and a solid PR agency now.
This is our system. We are stuck with it. They don’t care what you think. The one chance we have is to keep educating and come up with a replacement. I love the folks who want to tear down things they don’t like with no plan for what to do with the resulting vacuum. State banking is just fine. Go after it in your state or stop complaining.
Back to today:
Key part of the whole affair is a function called “monetization.” This is a fancy way of saying “getting the money into the economy.” In our system we NEED to get money into the economy or we will all die (in a manner of speaking). Our most recent bout of “monetization” was that real estate thing that happened. Loaning cab drivers $450,000 for houses in the country is bound to fail and it did. Now what do we monetize next? Well, we already monetize about $300B in illegal narcotics so that’s out. We blew the Nasdaq into outer space in 1998. Railroad bonds would be fab except there aren’t any of those anymore…I think. Gold has gone up ten times, but, there simply isn’t that much of it. Tulips are big in Holland. We really have already had our commodity bubble…haven’t we? The copper used in pennies now costs more than a penny and all that?
Hmmmm, now what? Guns, bombs and drugs are maxed out. Household debt has dropped only a little. Harvard costs about $58,000 a year. The US government is breaking it’s butt in two trying to spend enough to keep us all afloat. God bless’em. What was a $9.95 a month in 1997 for basic cable is now what? Sixty bucks? We have succeeded in monetizing the living spit out of TV. Football players get paid a minimum of about $100,000 to knock heads for one hour on Sunday. Now there is some real hyperinflation.
The Dow will hit 15,000 eventually.
I’ve got it! Monetize state debt! They are hopelessly mired in interest payments on bridges and horrors! Pensions! What all we need to do is take over all the states and put them on the Fed’s payroll. You know? The next bailout! Phew! Problem solved. Fed will buy all their debt and then Ben can be the head of California…sort of. He can fly into Sacramento and talk about lending facilities to Orange county. This is going to be great.
Fight for a state bank in your state…not anyone else’s.
The amount of hopelessness, rage and despair in some of these comments tells me that there is enough juice to get this done.
Leave QE this and QE that behind. Who cares about the next bubble.
There is always another one somewhere. Farmland has tripled in the last 8 years (they did this 30 years ago…time for another round I’d say)
Enough of a bubble for ya? Crisis proportions yet? Give it time. CNN and Fox will start screaming about it right on cue.
I thought this was a state bank website…get’er done!
The Fed’s prime concern is the stability of the financial system, therefore QE 3, with the state of the economy coming second as dependent on the financial sector. The Fed’s grasp over their system is almost out of control due to secondary markets in derivatives and their effects .
MMT has some of the answers to our current monertary problems but is not the complete solution. Under MMT banking remains under a fractional reserve system, still with ultimate control over the money supply and credit but heavily regulated; which as we have seen can be undone….need I say more?
QE3 is to cover up and clear out the Fraudclosure, derivative, wall st. FRAUD
http://www.kpfa.org/archive/id/84644
Catherine Austin Fitts Buns&Butter radio audio
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