Trumping the Federal Debt Without Playing the Default Card

“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”

— Former Fed Chairman Alan Greenspan on Meet the Press, August 2011

In a post on “Sovereign Man” dated August 14th, Simon Black argued that Donald Trump may be the right man for the presidency:

[T]here’s one thing that really sets him apart, that, in my opinion, makes him the most qualified person for the job:

Donald Trump is an expert at declaring bankruptcy.

When the going gets tough, Trump stiffs his creditors. He’s done it four times!

Candidly, this is precisely what the Land of the Free needs right now: someone who can stop beating around the bush and just get on with it already.

Black says the country is officially bankrupt, with the government’s financial statements showing a negative net worth of $17.7 trillion:

Nations that pass the economic point of no return can’t rebuild until they hit rock bottom. And the US is way past that point. So let’s get on with it already and hit the reset button.

Black recommends doing this by defaulting, preferably on Social Security and Medicare. But that is unlikely to suit this leading Republican candidate. As Trump said on Meet the Press on August 16:

I want people to be taken care of from a healthcare standpoint.… I want to save Social Security without cuts. I want … a strong country with very little debt.

How can the country remain strong with very little debt, without defaulting on Social Security, Medicare, or the federal debt itself?

There is a way. The government can reduce the debt by buying it – and ripping it up. The debt can be bought either with debt-free US Notes of the sort issued during the Civil War, or with US dollars issued by the Federal Reserve in the form of “quantitative easing.”

The vast majority of the money supply today is created by banks when they make loans, as the Bank of England recently acknowledged. Banks create money by “monetizing” debt, turning loans into the digital deposits that make up most of the circulating money supply. The government could push the reset button by monetizing its own debt, turning it into what it should have been all along – debt-free, interest-free dollars. As Thomas Edison observed in 1921:

If the Nation can issue a dollar bond it can issue a dollar bill.  The element that makes the bond good makes the bill good also. . . . It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.

That is not just a quaint idea from the 1920s. Credible authorities are making that argument today. In November 2010, Dean Baker, co-director of the Center for Economic and Policy Research in Washington, wrote in response to the debt ceiling crisis:

There is no reason that the Fed can’t just buy this debt (as it is largely doing) and hold it indefinitely. If the Fed holds the debt, there is no interest burden for future taxpayers. The Fed refunds its interest earnings to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country’s net interest burden. And the Fed has other tools to ensure that the expansion of the monetary base required to purchase the debt does not lead to inflation.

In 2011, Republican presidential candidate Ron Paul proposed dealing with the debt ceiling by simply voiding out the $1.7 trillion in federal securities then held by the Fed. As Stephen Gandel explained Paul’s solution in Time Magazine, the Treasury pays interest on the securities to the Fed, which returns 90% of these payments to the Treasury. Despite this shell game of payments, the $1.7 trillion in US bonds owned by the Fed is still counted toward the debt ceiling. Paul’s plan:

Get the Fed and the Treasury to rip up that debt. It’s fake debt anyway. And the Fed is legally allowed to return the debt to the Treasury to be destroyed.

Congressman Alan Grayson, a Democrat, also endorsed this proposal.

In February 2015, financial author Richard Duncan made a strong case for going further than monetizing existing debt. He argued that under current market conditions, the US could rebuild its collapsing infrastructure with quantitative easing without causing price inflation. Prices go up when demand (money) exceeds supply (goods and services); and with automation and the availability of cheap labor in vast global markets today, supply (productivity) can keep up with demand for decades to come. Duncan observed:

Quantitative Easing has only been possible because it has occurred at a time when Globalization is driving down the price of labor and industrial goods. The combination of fiat money and Globalization creates a unique moment in history where the governments of the developed economies can print money on an aggressive scale without causing inflation.

They should take advantage of this once-in-history opportunity to borrow more in order to invest in new industries and technologies, to restructure their economies and to retrain and educate their workforce at the post-graduate level. If they do, they could not only end the global economic crisis, but also ensure that the standard of living in the developed world continues to improve, rather than sinking down to third world levels.

Abraham Lincoln revived the colonial system of government-issued money when he endorsed the printing of $450 million in US Notes or “greenbacks” during the Civil War. The greenbacks not only helped the Union win the war but triggered a period of robust national growth and saved the taxpayers about $14 billion in interest payments (figuring an average of $300 million in outstanding US Notes over 150 years, at an average real interest rate of 2.6% compounded annually). The US federal debt has been growing ever since 1835, when President Andrew Jackson last paid it off and closed down the Second US Bank. If judicious use of US Notes had continued to the present, there might now be no federal debt at all.

The Inflation Snag

In short, the sovereign debt crisis can be solved by issuing sovereign money. But is there really such a thing as a free lunch? Wouldn’t buying up the debt with newly-issued money lead to a hyperinflationary disaster?That was the fear when the Federal Reserve began its QE program in 2008. But the Fed has now monetized $4.5 trillion in QE ($2.7 trillion of which consisted of buying back federal securities, and these fears have not materialized. The stock market has gone up, but not apparently from an increased money supply. More likely it is from very low interest rates, making bonds unattractive and facilitating stock buybacks and borrowing to invest. The cost of produce has gone up, but it is largely because of drought in California, which supplies nearly half the country’s fruits, vegetables and nuts; and because speculators have moved into foodstuffs. Despite all that, the overall inflation rate remains at manageable levels.

Why didn’t $4.5 trillion in QE drive prices into the stratosphere? As financial writer Matthew Kerkhoff explained in a November 2013 article, quantitative easing is just an asset swap:

When the Fed creates $85 billion, it uses this money to buy bonds . . . . When the Fed creates and gives $85 billion in reserves to its member banks, it removes $85 billion worth of assets (bonds) from the balance sheets of those same member banks. The result is that no new net financial assets enter the economy. . . .

It’s much more accurate to think of the Fed’s QE program as an asset swap. In fact it’s even more accurate to think of it as a liquidity swap. . . . In this context liquidity refers to the ease with which money can be used.

Bonds are more cumbersome to spend than cash, but they still represent purchasing power. Government securities that can be quickly converted into cash or that are near maturity are considered a form of “near money”. When the Fed buys the bonds, it is simply converting this less-liquid money back into more-liquid money. As Warren Mosler and John Carney explain on CNBC.com:

Quantitative easing is about the Fed buying Treasury securities. When you (voluntarily) sell them to the Fed, at current market prices, the Fed just shifts your dollars from your securities account to your bank’s reserve account, all at the Fed. So why should that do anything to the economy? You have the same amount of dollars, and you could have shifted them in the same market place any time you wanted in any case.

The QE liquidity swap does not increase the circulating money supply. The money supply increased when the bonds were issued – when the debt was incurred and the government spent the funds.

Adding to the federal debt beyond its current level (i.e. by funding infrastructure with new QE that is not repaid with taxes) would increase the money competing for goods and services. But the economy actually needs that increased “demand” in order to promote full employment (one of the Fed’s mandates). Demand (money) precedes supply (goods and services). The money has to be out there searching for goods and services before employers will add more workers to create this increased supply. Money can be added to the point of full productive capacity (full use of workers, supplies and machines) before adding more will drive up prices. And as Richard Duncan observes, we are a long way from full productive capacity now.

Whether full productive capacity would exhaust the earth’s resources is another question, but there are many ways to put people to work that either don’t use physical resources (e.g. education, art, social service, environmental cleanup) or that actually make resource use more efficient (investment in improved infrastructure, sustainable energy, research and development).

Time to Reset

Back to Donald Trump. Besides his experience with bankruptcy, Trump, along with Bernie Sanders on the left, is unique in not being beholden to big money. Sanders does not take it, and Trump does not need it. If either candidate makes it to the White House, he will be in a position to stand up to Wall Street and do what is right for the country. And that includes restoring the power to issue the national money supply to the people of the nation through their representative government.

_______________________

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at EllenBrown.com. Listen to “It’s Our Money with Ellen Brown” on PRN.FM.

157 Responses

  1. Minting T$ coins to finance deficits will pay off the debt as well in 30 years, the longest bond sold by the treasury. And it cannot be paid off faster if the holders do not want to sell. The national debt is an integral part of the present banking/monetary system. The following quote from a Randall Wray working paper sums it up very well:

    “Ingham argues “There is, as Amato and Fantacci succinctly observe, ‘no liquidity without a lender of last resort, no lender of last resort without an irredeemable consolidated debt, and no irredeemable debt without an immortal state’” (Amato and Fantacci 2012: 236; quoted in Ingham 2013b, p. 23).”

    Paying off the debt would remove the power of the Fed to control the money supply, placing that power in the hands of the congress. The Fed would then be just a clearing house and Ellen’s public banks would be a necessity and private banks could then operate like other businesses. John Maynard Keynes described banks as “the only business that has to spend money before it makes any” . Without the national debt and backed up by the lender of last resort banks would need to get their money before they spend it like all other businesses.

  2. There is no real national debt problem.
    To see this you have to consider how the securities constituting the national debt can be categorized according to owner and the manner by which the debts are managed by either the Treasury or the Fed.

    Although marketable US securities are all the same, they are owned by different kinds of owners: banks, investors.

    Banks usually hold US securities for deficit spending on government operations and programs authorized by Congress.

    Bank securities for deficit spending are managed by the Treasury by
    rolling-over the debt perpetually through swaps of new securities for mature securities from the banks. Interest is added in at each swap.

    The Treasury gets interest money in the same way it gets funds for the deficit, by issuing securities and selling them to banks at public auction.

    So, the deficit securities will never have their principal paid back to the banks, because the principal (what banks paid to buy the securities at discount) will be rolled-over and over and over forever and ever. Only interest is paid to the banks at each roll-over.

    A debt never to be paid by agreement of all the parties involved is not a true debt.

    However, when the Fed buys securities from banks with quantitative easing or by open market operations at the public auction for securities (when banks want the principal), the Fed buys with money it creates out of thin air in any quantity required.

    The Fed has been buying back most of the mature securities held by the banks. Banks hold currently about the amount in securities equal to the deficit from the previous year plus interest securities to be used to pay interest on the roll-overs. These must not yet be mature, otherwise the Fed would have bought them. In other words, the Fed has been canceling the debt to the banks by transferring the debt to the Fed.

    The Fed however can neither buy nor sell securities from/to the Treasury directly, by law. This is supposed to make them independent.
    But the Fed can swap its mature securities for new securities from the Treasury.

    So, the Fed swaps the securities it has for new ones from Treasury and the Treasury extinguishes the mature securities returned to it. That eliminates the debt on the deficit. And this goes on continually.

    Why would the Fed buy these securities from the banks?
    To have them to sell to the banks and investors later if inflation arises, because this will drain money from bank reserves and circulation, constraining lending and putting investor dollars in time-deposit accounts out of circulation at the Fed. Selling securities is a way the Fed has to fight inflation.

    So, there is no problem on the national debt from deficit spending. It is now mostly redeemed or will be redeemed by the Fed, and any remaining debt will be rolled over by the Treasury in cooperation with the banks, never paying off the principal.

    But what about all those investors? In 2010 they constituted some 87% of the public debt (excluding intragovernmental debt between entities of the federal government). And they may now constitute about 90% of the public debt.

    Well, investors buy US securities at discount at the same public auction as banks do for deficit spending. But unlike the case of the banks and deficit-spending securities, the investors’ dollars are retained in time deposit accounts at the Fed, available on demand from the investors when the securities mature.

    In ways, the securities held by investors are like CD’s held by customers at private banks. Their money is kept in time deposit accounts.

    So, the dollars are there to pay back the investors when their securities mature. The Fed will just add interest which it creates out of thin air.

    So, there is no real national debt problem.

    Taxpayers have no responsibility for paying back the debt with taxes.
    It is all handled by the Treasury and the Fed.

    So, it is about time that we realized this and stopped all this nonsense about how the country is on the verge of bankruptcy. Well, maybe only the federal government is never on the verge of bankruptcy, but the private sector might be because of poor regulation of the banks in their lending, which we saw in 2007 with the bursting of the bubble in the housing market. But that has nothing to do with the national debt.

    Ignorance is infuriating, and this is the case with the national debt as a mythic problem of horrendous proportions.

    • Please! why does everyone refuse to see the wood in the trees?
      There is one, and only one, cause of all our economic woes. During the early 1900’s our stupid/corrupt politicians signed away our Sovereign “rights” , that allowed us to print and issue our own interest free, debt free money; and since then we have all become “debt slaves”. Our rights to print and issue our own money out of thin air were ceded to private banking Corporations, thus now, we borrow all our money from them, and they simply print it out of thin air, and charge us interest for the privilege. Given the nature of our economic cycles, the booms and busts, it is virtually impossible for us ever to repay all such debts, especially since, when they print our borrowings, they do not also print the money to cover the interest repayments. This particular economic consequence was recorded centuries ago in the well known fable about the boy who possessed a goose that laid “golden” eggs; he sold the goose for a paltry sum and forever thereafter he was destitute.

      The remedy for our problems is simple; we abrogate any agreement previously made, reclaim our Sovereign “rights” to print and issue our own debt free interest free money.

      This will enable us to stop income-taxing of individuals; we may pay everyone that needs it a social wage, based on a break even computation, this will eliminate poverty and deprivation; those in receipt of the Social wage will be encouraged into employment, without loss of this Social wage, and to work for any employer for additional income, mutually agreed between them. this gives control of work and income to the “workman”. Employers will gain a workforce of people willing to accept much lower wages than previously paid, thus making the employer production cost significantly lower; plus, the employer no longer collects taxes for the Government. The employer Corporation/business will pay tax annually as usual. The collection of V.A.T. or G.S.T., consumer taxes will cease.

      All Government expenditures will be provided by the planned issue of our own debt free interest free money using legislation approved by Parliament. Health, Education, University courses, Infrastructure of all kinds, etc. etc.

      Provided that all of these expenditures are actually “spent” into circulation they will not create inflation; inflation will occur, for instance, when too much money chases too few “goods”. The Government must own and run it’s own Bank, just like the original Commonwealth Bank. No Private Bank or Corporation will be permitted to create money, under any guise; our financial system will revert to one of “sound ” money. Sound money is that which turns around sound borrowing and lending, controlled by being liquid cash, backed by the ownership of assets, and strict criteria keeping them in balance; borrowing and lending outside of these criteria, characterised as “high risk”, will be permitted between parties willing to accept such risk, and then, only when it involves their own wholly owned assets.

      Interest rates in the private sector will be set by the private sector. The floating exchange rate will be converted into “fixed” rates decided by Government, and as decided between Sovereign Nations and embodied in trade agreements. Our currency will not be traded on “Exchanges”, our Nation will be immunised against the manipulated predations of the “Market”.

      The foregoing explains the broad brush strokes involved, but in summary we would have a Nation with little or no foreign debt, a Nation whose domestic economy sits on a solid unshakeable base, a Nation better able to compete in the wider World, a Nation without poverty whose peoples are empowered to think and work for themselves, a Nation rescued from the avarice of the “Money Lenders”, and above all, a Government able to be free and Independent, instead of being owned by Corporate money and influence. This is named “The Universal Economy” because it will operate anywhere.

      For those who doubt the efficacy of this proposal, I suggest they study the United States example. The clever banking Corporations engineered the U.S. dollar to be the Worlds reserve currency. Ever since the U.S. has been printing money out of thin air, the only Nation to do so, now they have military bases in more than one hundred and seven Nations, they have engineered regime change and wars in countless Nations, and recently have printed trillions of dollars, called quantitative easing, and poured it into foreign banks and financial Institutions trying to prevent the next meltdown; but it is not working because their printed money was not spent into circulation, instead it inflated the prices of shares and real estate, the bust cometh.

      • reedkinney, on August 26, 2015 at 3:40 pm said: Your comment is awaiting moderation.
        Dear Moderator: Please, check for me my previous reply to Thomas Adams and Notify me of new comments via email. Thank you!

      • You need to read http://www.realmoneyecon.org. It describes the specific steps and results of doing exactly what you propose. Many economists from the Fed back the proposal. It is an old idea, dating from 1935 when it was called the “Chicago Plan” , proposed as a way to prevent busts like 1929 and our own 2008.

        • Dear Charles 3000, It’s not reasonable to give any shadow of a doubt to the Federal Reserve System and its owners. Al Capone and his bootleggers were single minded too; except, they did not dominate the economy. There are solutions, and Ellen’s public banking is a step in the right direction. Everything that contributes to decentralization are steps in the right direction towards decentralized economic social organization. What we are embroiled in is the struggle for sovereignty, at all levels. Ellen introduced Herman H. Dally who elucidates that point. (You be well!) *Ecological Economics, Herman Daly:

          • I see four serious proposals to reform/modify/alter/change the US monetary system for the better, to better serve the interests of the citizens rather than the few. The modified Chicago Plan outlined in realmoneyecon.org is the most drastic, converting all commercial banks into trust banks, ending fractional reserve banking, retiring the national debt with about 2T$ surplus. It would require congressional action, rewriting the legal bases of the monetary system as now defined by the Federal Reserve Act of 1913 as amended.

            A second serious proposal requires only executive action under present law, taking advantage of the difference between our coin and our currency/”bank monies” categories in the existing monetary system. The federal government takes full seigniorage on coins but the banking system uses the seigniorage from paper currency and bank money. High seigniorage coins (HSVs) can be minted and used to finance government operations, obviating the need to sell treasury bonds. if bonds were no longer sold then the national debt would be retired in 30 years, the longest term bond. This would take away the Fed’s power to manage the money supply, transferring that power and responsibility to the congress which has the most obvious powers to manage the money supply, taxing and spending.

            Ellen’s public bank approach is a great way to use simple competition to win the day but it also requires legislative action at many levels to be effective.

            Finally, the approach devised and advocated by MMT, would use policy powers in the present system to get the very most from it. MMT is, in that view, an apologist for the current monetary system.

            The approaches are not mutually exclusive. HSCs and public banks would work well together as would public banks and the modified Chicago Plan. And MMT is a good approach while the other approaches progress through the gestation phase.

            • Charles 3000, those are excellent ideas. I am glad that you introduced them. Anything that increases the capitalization of folks and reinforces public services constitutes bolstering national and regional sovereignty, and weakens the domination of the private Bank. And, those same economic initiatives that you propose would afford time for, and would help facilitate, the accelerated development of decentralized economic social organization. Were what you suggest realized, it would demonstrate the people of mass society coming together into spontaneous, concerted effort; the decentralization of power. If that came to pass it would be well and good.
              * The problem is that all things are not equal. Prevailing, economic convention detecting whatever contentions integrates and neutralizes them. Deception is a weapon of control. In truth, the “consumer-based” market is a vulgar, economic proposition. Economic “competition” stifles conviviality (community), and is used as justification for mass, synthetic poverty. “Free enterprise” is incommensurable with transnational, economic monopolies. In truth, imperialism is obscenity. And, any power concentrated beyond the control of the people is criminal organization.
              * What we need is the development of real, sovereign communities and confederated communities, which theory represents a contrasting economic proposition. I am not being discouraging. Economic organization is needed, yes, but it must be based in authentic democracy. I cannot elaborate here, but, simply put, like my father said, “If I was you mister, and I was trying to get to Wheeling, I wouldn’t start from here.”
              *However, were folks to be living in the contrasting civilization that I allude to, then, they would have the economic independence needed to actualize the ideas you provide, and, yes, in the context of the economic system we are currently embroiled in. But, that platform of sovereignty must be actualized by the people first, then, the reforms you suggest will have teeth.
              *You be well!

          • In concurrence with your statement: ”What we are embroiled in is the struggle for sovereignty at all levels.” you may have an interest in the video that details the U.S. military and the CIA being used to depose or assassinate rulers all over the world who disrupt an unidentified agenda. Ref.
            http://www.informationclearinghouse.info/article42686.htm : also WAR IS A RACKET by Smedley Butler ; https://www.scribd.com/doc/49566880/CIA-ROGUE-AGENCY-RUN-AMUCK

            The objective of the background operatives has been identified by ex-CIA agent John Perkins in CONFESSIONS OF AN ECONOMIC HIT MAN to be economic exploitation. Impoverishment follows their actions. Ref. Michel Chossudovsky in GLOBALIZATION OF POVERTY.

            The above forces originate on Wall Street and utilize the structures of the IMF and WB.
            Ref.  http://farmwars.info/?p=12078 FUNDING THE NEW WORLD ORDER.

            The same Wall Street entities manage the U.S. $18 trillion debt and internal memos have identified collection of that debt is the “ultimate goal.” The debt has been alleged to be the result of a vast embezzlement by the Federal Reserve. .Ref. https://www.scribd.com/doc/153024003/Amended-Complaint-Federal-Reserve-whistleblower.

            Are you ready for the austerity of Greece ??

            • Thank you Olde Reb. I’ll respond to your letter soon.
              Meanwhile: Only 3 Countries Left Without a Rothschild Central Bank

            • Dear Old Rebel, Thank you for the links. That is all true of course, but, as always, its worse than that. Watch this link, and I look forward to your comments: Beyond Treason: The True Story of Depleted Uranium

      • By the way, the Fed buys national debt to replace the interest banks take from the economy. A national debt is necessary for fractional reserve banking.

    • Thanks stanislaus2; very savy explanation; I question the amount of securities you suggest the Fed has bought from the banks, because of the annual Treasury interest on the debt; I see the debt to be in the trillions of $’s with annual interest being what it is. I may be misreading what you said about the Fed buying most of the debt mature securities; also, your reference to the securities held by the banks being about the same as the previous years deficit; does this mean deficit for one year or overall debt at the end of the year. I really enjoyed your comments and it brought into perspective things I had not thought of before. Thank you.

      • A treasury is identical, functionally, to a bank CD, money is taken out of circulation and you have the promise it will be returned plus interest at a later date. There is just one big difference between a treasury and a bank CD; the government can always keep its promise but banks can default. That is why individuals and organizations with lots of idle cash buy treasures. Another point. The debt of banks, viewed in the same way as the government’s debt, is about 2T$ larger that the national debt, 19T$ v. 17T$. If you are inclined to worry about debt you should be more worried about banks than the government.

        • If this statement is correct, may I paraphrase, “The National debt is $36 trillion, surely one must recognize that the $19 trillion is ‘issuance’ created legally by the Private For Profit Banks that the FEDS must back or (as already asserted) create “systemic failure”.
          Have you read….. DO FOR OURSELVES WHAT WE HAD ALLOWED THE CENTRAL BANK TO DO FOR THE Private For Profit Banks (PFPB) ! LOAN OUR own MONEY and CHARGE (interest) A TAX ON IT.
          AMEND THE FEDERAL RESERVE CHARTER; TURN THE FED RESERVE INTO THE FEDERAL RESERVE BANK OF AMERICA (FRBA),RESTORE MONETARY POWER BACK TO THE PEOPLE ,OPERATE THE FRBA WITH ABSOLUTE TRANSPARENCY, (“GLINDA,the Good Witch, owns a Great Book of Records that allows her to track everything that goes on in the world from the instant it happens.”_The Road to Oz)
          Form a more perfect “capitalistic “monetary circle: $100 trillion issued as loans to come back as $200 trillion as payment while at the same time as it returns creates $100 trillion in new loans while spending $100 trillion as Congressional appropriations for the benefit of the people.
          No inflation or deflation for there is zero change in the capital value of the sovereignty.
          There is zero change on the balance sheet of the Central Bank; a true zero net change.
          Comments by Justaluckyfool ( http://bit.ly/MlQWNs )
          ( “You are always welcome to share, copy, plagiarize, improve, etc..any comments.)
          Read and challenge:
          Frederick Soddy writings, namely “The Role Of Money” (Entire book as a free download… http://archive.org/details/roleofmoney032861mbp

          • No, banks owe us (the US Treasury) 19T$ making the US Government a creditor nation, 2T$ in the black. Check out http://www.realmoneyecon.org

            • Doesn’t the US Treasury belong to the IMF? http://www.treasury.gov/resource-center/international/int-monetary-fund/Pages/imf.aspx

              So I guess we still owe the banks.

              • All of our debt is in dollars and we have a monopoly on creation of dollars. Re IMF, the USA basically owns and operates the IMF.

                • The IMF is a branch of the of the Federal Reserve which in turn is a private banking cartel with shareholders — that are not the American people. Congress, the President , and Judiciary has no authority over them in any way.

                  How am I wrong about this?

                  • I know the IMF is a fascist outfit, but have never heard that it is a branch of the Fed. I found nothing on the net about this. What is your source?

                  • The Federal Reserve is a central bank created by the congress and signed into law by Woodrow Wilson just before Christmas in 1913. It is an agency of the US Government and operates only under the authority of the congress which is supposed to represent the citizens of the nation. It is the third central bank organized under US law. The congress did not renew the charters of the first two and can do the same with the present central bank…if they wished to do it.

                    The central bank manages the money supply of the dollar economy and maintains liquidity in the privately owned banks by using the national debt, the key entity maintaining the power of the central bank.

                    The moral transgression of the central bank is that it controls and uses the seigniorage on all paper currency and bank created money for the private benefit of banks when it, seigniorage, should benefit the citizens of the nation, not bankers.

                    • Well, maybe you believe all that mumbo Jumbo put out by the Fed stating that they operate under the authority of the US congress, but Alan Greenspan doesn’t. https://www.youtube.com/watch?v=ol3mEe8TH7w

                    • That is correct. Greenspan always thumbed his nose at Congress every time he was asked to explain anything. Also, Greenspan would double talk his way past all questions put to him. Bernanke did the same. You can see plenty about them on YouTube. Thanks for the link!

                    • That is not mumbo jumbo, that is US Law. Congress has taken them down a notch or two, demanding payments to the Treasury from their interest earning on the debt they hold. The congress could close them down as they did the first two. The congress can also make significant changes in how they operate as they did in 1933.

                    • According to Ellen Brown the Fed is a private for profit corporation. A statute exists granting congressional oversight, but in practice the Fed has never permitted congress to exercise this power. http://www.globalresearch.ca/who-owns-the-federal-reserve/10489 To me this suggests that this statute really doesn’t exist, but is just a public relations deception.

                      The Fed had always made policy independently of congressional purview. For example, did congress have any oversight in the 27 trillion dollar bailout? Well, I suppose they did if you consider being rebuffed in an inquiry after the fact counts. https://www.youtube.com/watch?v=n0NYBTkE1yQ

                    • Dear PM, Of course Americans will prevail. We will soon enough get past the smoke screen, and create real sovereignty among ourselves. You be well!
                      Vermont Dollars, Vermont Sense
                      http://www.resilience.org/resource-detail/2800255-vermont-dollars-vermont-sense
                      Vermont Dollars, Vermont Sense by Michael Shuman and Gwendolyn Hallsmith
                      http://www.resilience.org/resource-detail/2800255-vermont-dollars-vermont-sense
                      A project of Post Carbon Institute, Vermonters for a New Economy, Global Community Initiatives, The Public Banking Institute and The Fresh Sound Foundation.

                    • Thanks reedkinney. I added you to my follow list on Twitter and look forward to promoting public banking in Vermont with your articles and tweets.

                    • Dear Charles, Thank you for your kind encouragement. I am at your service. Perhaps, in seven months, or so, I will be on Twitter, when I plan to be promoting my book. You be well!

                    • “Who owns the Federal Reserve ?” is a flawed question. It is submitted the Federal Reserve is not an incorporated entity.

                      The twelve Federal Reserve Banks have been repeatedly identified by U.S. Courts as privately owned corporations. They each have a nine member board of directors. The commercial banks put up the operating funds and purchase a franchise from the Federal Reserve Board of Governors (BOG). The BOG has administrative and supervisory authority over the FR banks. The BOG can remove any director without cause and without recourse.

                      The real question that escapes review is “WHO OWNS THE BOARD OF GOVERNORS ?” It is alleged the owners are hidden among the Primary Dealers. https://www.scribd.com/doc/153024003/Amended-Complaint-Federal-Reserve-whistleblower

                      Title 12, section 247 requires the Federal Reserve to make an annual “full report” to Congress. All audits and Annual Reports are conducted in accordance with guidelines from the BOG.
                      Title 31, section 714 is claimed to make certain actions of the Fed from being audited.

                      It is alleged the accounts of disbursements of receipts from the auctions of Treasury securities are used to embezzle money that belongs to the government. Ref. https://www.scribd.com/doc/153024003/Amended-Complaint-Federal-Reserve-whistleblower Those accounts handle $8 trillion annually and are exclusively handled by the FRBNY. Ref. 31 CFR 375.3

                    • I’m uncertain whether or not FOIA requests apply to congress, but if they do, the Fed has 9 different reasons to deny one access or oversight to their operations. http://www.federalreserve.gov/foia/exemptions.htm

                    • Perhaps, but I’m not holding my breath. Tyranny can be defeated, but achieving that will require the coordinated, concerted effort among many to establish an altogether different economic/political/social, and independent way of life; decentralized economic social organization – authentic democracy, which is a far cry from what we are currently embroiled in. Unbeknownst to most Americans is that what tyranny does to them is most disconcerting. I apologize for seeming so negative in my assessments. but, I am actually very optimistic. For many reasons, I think the table will be turned, and soon enough, at that. You be well!

                    • * That is correct. But, the Federal Reserve System and other transnational corporations have usurped the American Government and use it to fool Americans into believing that it is still their Government, which it is if what Americans consider has nothing to do with the Bank’s interests. Otherwise, the Bank paves its way with sneaky manipulations to always legislate in its best interests, which interests have nothing to do with the good of Americans.

                      * But, public banking and many similar initiatives that push for local and regional sovereignty are managed by people who do hold the real interests of the people first and foremost in their minds. I applaud such initiatives, which are beginning to coalesce into an effective movement for people’s independent autonomy that we all so richly deserve. Authentic democracy is contingent on decentralized, economic sovereignty! You all be well!

                      * Vermont Dollars, Vermont Sense
                      http://www.resilience.org/resource-detail/2800255-vermont-dollars-vermont-sense
                      Vermont Dollars, Vermont Sense by Michael Shuman and Gwendolyn Hallsmith
                      http://www.resilience.org/resource-detail/2800255-vermont-dollars-vermont-sense
                      A project of Post Carbon Institute, Vermonters for a New Economy, Global Community Initiatives, The Public Banking Institute and The Fresh Sound Foundation

                    • I am not disagreeing with you either but am saying it can be accomplished by establishing an understanding of the issue and getting people into congress who will take the needed action to change the monetary system.

                    • I think that is too optimistic. AIPAC is not American and cares not about the needs of Americans. Nobody is elected into congress, or government, unless approved by AIPAC. Wages have been frozen, and tax payers supplement the income needs of the folks working in private companies. Yes, the tyrants can be neutralized, but doing so will require an unconventional methods.

                  • That is correct. Herman E. Daly explains that, The IMF and the World bank and the Bank for International Settlements are private, transnational “corporations” that work to end all national sovereignty in order to establish an economic monopoly for themselves and to dominate all political functions = globalization = world totalitarianism by the Bank and the other sundry, transnational corporations = war against humanity. A criminal organization by any other name is just that.

                    • The existence of those organizations is not the problem. Their functionality is needed. The real issue is who creates money, who controls the total quantity of money in circulation and who controls the distribution of that money. Those are the real issues, not the mere existence of those organizations.

                    • The existence of those organizations is not the problem. Their functionality is needed. The real issue is who creates money, who controls the total quantity of money in circulation and who controls the distribution of that money. Those are the real issues, not the mere existence of those organizations.
                      *The function of transnational private banking is to cause governments to go into debt and use that leverage to foreclose on all national assets and services; enabling private, transnational corporations to expropriate them. That is the preditorial function of the IMF and the World Bank, the Bank of England and the Bank for International Settlements. That is what those organizations exist for. Did you listen to Herman E. Daly? Whenever power is concentrated beyond the control of the people it is criminal organization. Pre 1913, banking was private, but in the sphere of competitive banking, which is a type of control. However, public banking is in the control of the people and, thus, not criminal organization. Authentic democracy is contingent on regional sovereignty; real community. Real community can establish autonomous, public, monetized organization contingent on a “production-based” economy. Mass centralist society, such as ours, is antithetical to authentic democracy.
                      *The real issue, as you point out, is definitively the structure of monetized organization. The structure determines the function. Transnational, private banking is structured for the function of ending sovereignty and destroying all forms of community at all levels – criminal objectives.
                      *You be well!

                • According to Herman E. Daly the IMF is autonomous. It is beholding to no country, but, it does make loans to governments.
                  You be well!
                  Ecological Economics, Herman Daly:

                • The U.S. has a 15% interest in the IMF. It is the only nation that has exclusive veto of any action by the IMF. The ownership control is managed by Wall Street–not the government.

                • The gold hoard at IMF is 2,814 metric tons. Obama wants to give the IMF $64 billion.

  3. […] Congressman Alan Grayson, a Democrat, also endorsed this proposal. […]

  4. Ellen,
    I find myself in concert with everything you have to say in this missive with the exception of some of what is enshrined in your last paragraph.

    “Back to Donald Trump. Besides his experience with bankruptcy, Trump, along with Bernie Sanders on the left, is unique in not being beholden to big money. Sanders does not take it, and Trump does not need it. If either candidate makes it to the White House, he will be in a position to stand up to Wall Street and do what is right for the country. And that includes restoring the power to issue the national money supply to the people of the nation through their representative government.”

    Are you serious about this comparison(highlighted), or are you just adding a little levity to such a serious topic?
    “Work is love made visible.” KG
    As Usual,
    EA

    • Trump has never criticized Wall street finance or the private Fed cartel banks for any of our nations debt or employment woes. He has instead chose to blame Mexican immigrants and Chinese export dumping. That should be a red flag right off the bat that he has no intention of changing the status quo.

      His famous deals have never benefitted anyone but himself. His casinos city have only created more poverty and crime. Trump is also guilty of profiting from jobs he has outsourced to Mexico and China. He doesn’t care about workers rights, is against unions and is clearly in favor of lowering wages to sweat shop rates. http://www.occupydemocrats.com/trump-to-u-s-autoworkers-to-keep-your-job-you-must-accept-mexican-wages/

      Both Trump and Bernie Sanders are Israel Firsters. As such they cannot be trusted to direct the American economy in a manner that would benefit the USA. Sanders has a long record of voting for unconstitutional wars and weapons on behalf of Israel. If you want this country run by AIPAC, vote for either of these two.

      • Your clown act needs a bit of work; and more than a little fact-checking.
        As Usual,
        EA

      • I would have included these sources in my comments, but I thought it was common knowledge.

        Trump Blames Mexico, not wall street or Banks for our nations economic problems. http://www.economist.com/blogs/democracyinamerica/2015/08/donald-trump-immigration-reform

        Guess where Mexico basher Trump makes his clothing? http://www.patheos.com/blogs/dispatches/2015/07/03/trump-clothing-line-made-in-china-and-mexico/ Insincere rhetoric? hypocrite much?

        Trump has a history of abusing Eminent Domain to strip people of their property rights. http://linkis.com/johnlocke.org/fG6Js

        Trump commitment and relationship to Israel https://www.youtube.com/watch?v=jinjRYNuVyo

        The Problem With Bernie Sanders. http://www.counterpunch.org/2015/04/30/the-problem-with-bernie/

        Blinded by Israel, Visionless in Gaza http://www.counterpunch.org/2014/07/22/blinded-by-israel-visionless-in-gaza/

        • Your continuing attempt to denigrate Sanders by conflating his record with the likes of Trump is not the stuff of either honest or factual debate/discussion. Neither of your two Counterpunch references support your absurd contentions in this regard.

          “After all is said and done, the question here is not whether Bernie Sanders is the progressive savior so many people want him to be. Instead, it is whether or not such a politician can even exist in the United States. I am one of the first to admit that Sanders’ record on labor, veterans, and most civil liberties issues is mostly decent, especially for someone who is part of the ruling elite (even if he doesn’t see himself that way.)”

          Counterpunch 04/30/2015
          “Work is love made visible.” KG
          As Usual,
          EA

          • As for me, I’m glad that a politically incorrect candidate–of the people in his opinions–such as Trump can exist and get as far as he has in the election process.

            As for your motto at the bottom, work is certainly not “love made visible.” “Don’t tell me that you worked hard for your gold: so, too, does the devil work hard.”–Henry David Thoreau

            • Re: EarnieM & pm
              EarnieM – If the “work” that one does, either by word or deed, reflects visions of hate, greed and avarice, then that is certainly not the nature of the work reflected in my quotation. If you think that Trump somehow embodies the work of Thoreau, then you and I have a distinctly different understanding of it.

              pm – Your selective cherry-picking of Sanders’ record demonstrates nothing more than your preference for fashioning facts to support your opinions and political rhetoric. As far as your attempt to impugn my being a progressive, you impale yourself on such a petard.
              “Work is love made visible.” KG
              As Usual,
              EA

              • How am I being unfair or misrepresenting so called man of the people Bernie Sanders? It’s a fact that his voting record on wars in Kosovo and the middle east has marched in lock step with the neocons. I am not “fashioning facts” , these facts speak for themselves. Explain how that moral depravity makes him a progressive in good standing.

          • My references demonstrate as does his voting record that Sanders does the bidding of AIPAC. If you care so much about the lives of ordinary people, then why would you vote for wars in the middle east and military aide to Israel to bomb innocent Palestinian women and children? No true progressive would do that. None. This moral hypocrisy makes him unreliable champion of American interests.

  5. Tags

    Amend The Fed, End the Fed, Jobs, JUSTALUCKYFOOL, QE4 the people, ZERO INCOME TAXES
    “QE4 the people.” – ” J.O.B.S. = Full Employment”
    October 31, 2012

    “QE4 the people.”

    Perhaps, it won’t be the same for most of us, but it can be better for all of us.
    Renew the American Dream. Invest in America
    If I were a candidate.
    This is what would be an immediate announcement.
    ****The Federal Reserve is to STOP immediately buying “private for profit bank” bonds, notes, derivatives, or any product that could possible be backed by their assets.Stop the process commonly known as QE3 (sometime called QE Infinity)
    Also since it has been proven that the Federal Reserve can purchase assets without an increase of inflation to any level of danger, the Federal Reserve shall begin immediately the purchase of State Bonds (a new emergency issue with an interest rate of 2% for 36 years). This purchase shall be at a rate of no less than $90 billion per month for a total of 4 months.
    This amount ($360 billion) will not add to the national debt as it is an asset.
    Read more:
    ***** “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),

    “Yes, You Can Lower Taxes, Pay Off The Debt, And At The Same Time Increase Revenue.”(Justaluckyfool)

    And yes, both have stated that, why not then as Einstein said, “Make it simple”?
    Reduce federal income taxes to zero while at the same time raise TWICE as much revenue
    using a fair system of taxation that is ; collecting interest on our own money instead of income taxes!

    Read more: http://bit.ly/MlQWNs

    • Do you, justalucky…., think it is a bad thing that the Fed has been buying up all the mature securities banks have for deficit spending?

      That takes those securities out of action, and ultimately, when the Fed swaps them for new, sellable securities, that extinguishes them at the
      Treasury. The public debt on deficit-spending securities is being wiped out. What is growing in the national debt is the proportion due to investors whose money does not fund government operations but is kept in time-deposit accounts. The money is there to return to their owners. And Fed will make the interest out of thin air.

      The new securities will also be out-of-action until the Fed decides to sell them, and that will wait until inflation arises. We are in a deflation right now. Banks may have more reserves, but banks don’t lend out their reserves. They create new deposits and lend those out of thin air, just like the Fed. But the banks can’t buy securities with ordinary bank-created loans. Banks have to get loans of reserve balance dollars from the Fed to use to buy the securities.

      Both banks and Treasury want to roll over the securities with security swaps from the Treasury of new securities for mature securities. They both lack the money to pay off their debt. Treasury doesn’t have it because it has a deficit to begin with. Banks owe the Fed for the dollars it lent to them to buy the securities. Banks can use the securities to cancel the debt by giving it to the Fed. But Fed has to want them. It wants to allow the banks a good number of cycles to earn interest before demanding surrender of the securities. The Treasury will be pleased then, because it no longer owes the banks, and in time the Fed will swap those securities for new securities, allowing the Treasury to extinguish the deficit-debt.

      When the banks bought the securities with Fed-lent money, that created new money which was spent into circulation, increasing the money supply. During a recession or depression that is good for the economy. Furthermore, even while the Treasury and banks are rolling over the securities as they mature at the banks and are swaped for new ones from the Treasury, that means the Fed’s money deficit-spent by Treasury is debt-free. And it will be absolutely debt Free if the Fed buys back the securities, giving the banks the dollars with which to pay off their debt. Or, if the banks just surrender the security to the Fed, that will also keep the deficit-spending money debt-free.

      Securities can only be bought with government-created dollars, which are the reserve balances or settlement balances. That forces the private sector to use the government-created dollars, just as they are forced to use them to pay their taxes. That there is one legal money system in force is a simplification.

      The national debt and how it is managed is so beyond most people’s comprehension because nothing in ordinary experience corresponds to it, and few people seek to penetrate the veil of obscurantism that hides what really happens, that people use the wrong analogies and metaphors with which to understand it. They think federal finances are just like household finance, business finance, state and local government finance. All of those have to get money from elsewhere in circulation to spend and pay their debts. But the federal government in the Fed and Treasury can create new money out of thin air and pay any debt, spend any amount appropriated by Congress. None of these other systems can do that.

      • Where we went wrong:We are not doing what we allow the Private For Profit Banks do.PERIOD.
        Issue our currency as loans and place a tax 0n it (a/k/a Interest)

        • Dear Justaluckyfool, The private, transnational Bank conglomerate is not part of any government, and it makes governments debtors in order to destroy national sovereignty. Greece is a current example. That opens the way for transnational corporations to take over all public services. Ellen introduced Herman E. Daly who explains the predicament well. Do you think that there is sufficient sovereignty left in America for our government to defend us from transnational corporate totalitarianism? Imagine all public services privatized, water, electricity, police, army, fire departments, Postal Service, courts, penal institutions, roads (all toll roads), EDUCATION, medical help, Medicare, Medicaid, Social Security, and so on. Imagine a transnational economic monopoly on food production and distribution. All national and regional sovereignty hangs in the balance. You be well!

          Ecological Economics, Herman Daly:

        • Interesting.

          • Thank you,
            A Monetary Sovereignty that has debt in its own currency at ZERO interest can neither default nor be forced to default.

            Read: https://justaluckyfool.wordpress.com/…/the-national…/ PLEASE, then share… “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

  6. Why is no one, absolutely no one in main streàm media ever talk about this? Why, why whhhhyyyyy!!!!! Ellens book should be mandatory reading by every college student.

    • Good question. Maybe the reporters are just too ignorant of these issues to ask the good questions. Besides conflict in the news, two sides always in a struggle, seems more interesting than public banking.

  7. I think Ellen should be given a Nobel Peace prize for economics! She has solved many of our most pressing economic issues, but can’t get the solutions implemented.

  8. “They should take advantage of this once-in-history opportunity to borrow more in order to invest in new industries and technologies, to restructure their economies and to retrain and educate their workforce at the post-graduate level.”

    One might offer that the great fear is that “they” are borrowing the money and doing very little of the above. The above sounds grand. Where the tire hits the road, however, the perpetually borrowing bureaucracy seems more like a burden than a blessing.

    Like that once old friend who, after all these years, persistently calls to borrow another 20 bucks.

    Are you so confident in these regimes that you would give them more?

    • It’s not a perpetually borrowing bureaucracy. They don’t do the borrowing. The Treasury does because Congress has appropriated more than it has taxes to cover it.

      Under ordinary finances that would be bad. Congress is living beyond its means.

      But the federal government has to create new money and spend it into the economy when there is a depression or recession. Money is always leaving circulation into savings of some form or another. There has to be a renewal of inflows of new money into circulation to sustain a sufficient amount of money to clear the markets of goods produced and to keep industry operating at full production with full employment and stable prices and wages.

      Government is one source of new inflows of money, using deficit spending, but best when spending creates jobs in construction and education and healthcare and defense, because workers will have to be paid, and they will create demand for more goods and services, causing the businesses to seek to expand and to borrow from banks for the expansion. Then banks will begin to lend and put even more new money in circulation. Cutting back on imports and discouraging savings with low interest is another way to keep the amount of money in circulation at a high level. Exports also bring dollars back into circulation from foreign buyers of our goods.

      • We had greenbacks put into circulation until 1971 and some are still in circulation; bills with red serial numbers.

      • The Govt can remove money from the economy with taxes and by selling bonds. It can put money into the economy by spending. This process moves money around in the economy and can increase or decrease demand but it cannot change the quantity of money in the economy. That can only be done by the central bank buying national debt. QE did not change the amount of money in the economy; it only replaced the money that was lost during the down turn. Money also disappears when loans are paid and when foreclosures occur.

        • In my view, the increase in the money supply comes when the Treasury spends its dollars received from the banks. Remember the banks are not lending deposits of the bank (other than the one created by it out of thin air). So, the Fed does not increase the money supply when it buys the securities back from the banks. Those dollars are extinguished (sent to the reserve dollar pool). But the original dollars spent by the Treasury for deficit spending do augment the money supply in circulation. But the endogenous cause of those dollars were the creation of the dollars out of thin air by the banks. They are endogenous because the banks wouldn’t lend them without the Tsy’s demand for them, and the Tsy’s demand for them is the authorization by Congress that certain spending be done. The ultimate cause of deficit spending is Congress, not the Fed. So, you may have been stumbling along the same path I’ve gone more recently.

          • Stan, I like the “broad view” analysis of an issue and the true ultimate cause of deficit spending in my opinion is the decision of a sovereign government to supply money to the economy of it’s citizens. When that decision is made the government must spend into the economy enough money to satisfy the economy plus “more”. They must then redeem the “more” part via taxes and, in a later cycle, spend to add additional money for a growing economy plus “more” again. Therefore sovereign spending is always, by definition, deficit spending to a conventional bookkeeper. The “more” part must always be taken back and it is limited only by resources available for purchase by the government. If it is done wisely and correctly we will have both price stability and full employment. The obvious tools for money supply management are taxing and spending, not the Fed’s bank to bank interest rate and OMOs for reserves plus endogenous supplies from banks. When our 3rd CB was formed 103 years ago it was probably the best that could be devised but we are in a different era now with high speed data collections, fast communications plus AI and enormous computing and memory power. Spending and taxing could be reduced now to a self learning computer program that would provide both price stability plus full employment. To a control systems person taxing is the high speed negative feedback required to stabilize a system. That was not feasible 103 years ago but it is feasible now.

  9. The problem is that borrowing is a constraint forced on our monetary system by banks. We had greenbacks until 1917. Then when we joined the English and French and other allies against Germany, the banks were able to argue that the banks were going to create inflation if it was easy just to appropriate any amount of money out of thin air. Wars did that. So, the banks were able to succeed in forcing Treasury to borrow instead of create the money supply, just so they could get interest. But letting the banks have their interest is just a small price to pay to keep them satisfied. It is the private sector banks who create money out of thin air when they loan (do not believe anymore those accounts about the fractional reserve system; it doesn’t apply anymore; with fiat money banks don’t have to lend their customers’ deposits to lend legitimate gold-backed dollars. So, the fractional reserve system no longer applies to the banks and they know it.

    • I need to point out that some experts on how the public auctions work at which US Treasuries are sold say that banks do not ordinarily buy the securities for deficit spending. I was surprised at this but I think it may be true. A simpler method by which the deficit spending is conducted is for the Treasury to issue marketable securities, put them up for public auction at the New York Federal Reserve bank which conducts the auction, and the primary dealers who are middlemen and brokers for securities, will buy them with money they draw down from the Fed as overdrafts and use that money to buy the securities.
      Then the Fed itself will wait a week and then buy the securities from the dealers with money it creates out of thin air (also used to fund the overdraft).
      The dealers will then turn around and use the money they got in the sale to the Fed of the securities, to pay back the overdraft loan they got from the Fed.
      The Fed will then be able, when the securities it holds mature, to swap them with the Treasury for new securities, which will allow the Treasury to repossess its mature securities and extinguish them and their debt obligations. That leaves the money spent by the Treasury on the deficit now debt free.

      This indirect method by which the Fed buys and monetizes the securities is due to the law: The Fed is not permitted to buy securities directly from the Treasury.

      Somehow when the Fed was created Congressmen and Senators were under the impression that this would constrain the tendency to deficit spend (which really is an act of Congress, only carried out by the Treasury). So, the Fed has to use indirect purchases through middlemen to fund deficit spending, which really is no problem at all.

      It is true that banks can collect the reserve balance dollars needed to buy the securities and buy them. There are two ways to do this: (1) the banks borrow the reserve balance dollars from the Fed at the Fed’s discount window plus pay a penalty interest. The banks can put up the securities themselves as collateral, since they will necessarily default on the loan.
      Because the Treasury usually does not have tax revenues to pay back previous and current deficit spending loans, it has to ask the banks to cooperate with it in just rolling over the securities for deficit spending plus interest to the banks. Since the banks are also in debt, this time to the Fed for the reserve balances to buy the securities, they can’t pay back the Fed either. So, better to just never pay off the principal by rolling over the securities for ever and ever each time they mature. But that means the Fed loses out on ever getting its principal back. But since the banks borrowed directly from the Fed and used the securities as collateral, the Fed can bide its time, let banks earn interest over a few maturity cycles and then demand the surrender of the securities themselves to the Fed, which cancels the loan.

      The Fed could also accomplish the same thing by buying the securities from the banks directly. That gives the banks money with which to pay back the loan. The same result occurs: the Fed gets the securities and the banks get their interest and canceling of the loan.

      The loan from the banks to the Treasury is also cancelled. But there is still the ‘debt obligation’ of paying whoever owns the securities on demand the face value of the security at maturity. This is extinguished when the Fed swaps the security for a new security with the Treasury. Treasury just takes the mature securities and extinguishes them.

      (2) The banks can borrow and collect reserve balances from other banks and its own operations with which to buy the securities. In these cases the banks will end up also rolling-over the securities as they mature, over and over, since they may not have the reserve balances to pay back to other banks the loans on reserve balances.

      In this case the Fed can intervene, for example, by using Quantitative Easing to buy the securities from banks, or the banks can put the securities up for auction to settle the loans. The Fed will buy the banks’ securities with reserve dollars made up out of thin air, and the banks will then have the money they need to pay off loans from other banks.

      The Fed will have the securities and swap them as above for new securities with the Treasury, extinguishing the mature securities.

      Why does the Fed want to acquire securities? It will use the new securities during inflations by selling them to investors and banks to drain excess money from circulation and curtail more money creating by lending by the banks.

      Investor purchases of US securities do not fund government operations or purchases, but serve the government as a savings instrument for keeping excess dollars out of circulation that might cause inflation. They are just like bank CD’s, kept in ‘time deposit accounts’ at the Fed.
      Most of the ‘national debt’ today is for investor securities and not deficit spending. Most of the deficit spending securities have been bought up by the Fed and swapped for new securities to be held in custody by the Fed until inflation arises.

      The national debt criterion is a poor measure of government spending.

      There is no real problem with the national debt for taxpayers.

      • Your convoluted description of how money is created is irrational. A concise presentation of the sequence is at https://www.scribd.com/doc/153024003/Amended-Complaint-Federal-Reserve-whistleblower. and references therein.

        The concept of a loan from the Fed to fund government spending is absurd. If consideration was received as a loan—from whatever source— there would be no increase in the national debt nor would there be any inflation.

        Your statement that the U.S. taxpayers have nothing to worry about because of the $18 trillion national debt brought uproarious laughter to all of the Greek readers. Both national debts have been created by the same Wall Street financiers. Internal WS memos have identified the US debt collection as the “ultimate goal.”

        • There is a BIG difference between the USA and Greece. Greece does not print and issue euros but the USA does print and issue dollars.

          •  
            The common concept is that the green papers in your billfold are dollars. It is incorrect. A “dollar” is established by statute as 371 grains of silver. Ref. https://en.wikipedia.org/wiki/Coinage_Act_of_1792

            The green paper in your billfold is clearly identified as FEDERAL RESERVE NOTE (FRN). It is a debt (FR Note) of the Federal Reserve system. They are denominated in dollars. In years past they were identified as redeemable in lawful money or in gold or silver. They are a legal tender; i.e., they must be accepted in lieu of dollars [by law] for all debts public or private.

            FRNs are printed by the U.S. Treasury. They are sold to the FR system for $48.07 per thousand of one dollar face value; $117.98 (estimated) for 100 dollar face value per thousand; other values vary. Ref. ANNUAL REPORT: BUDGET REVIEW published by the BOG of FR System, Manual MS N-127 page 24, date of printing May 2010 (available from the FR for various years).

            The exclusive buyer of the printed product is the FR system. They are listed as an expense in the ANNUAL REPORT TO CONGRESS BY THE BOARD OF GOVERNORS. The FRBNY issues the documents to various commercial banks upon request. The government does not issue any of the above.

            It is alleged the national debt of Greece and the national debt of the United States have both been fraudulently imposed by the same Wall Street financiers. http://www.scribd.com/doc/49040689 rip off by the federal reserve

        • Greece and the Euro are a much different system than what we have with the Fed and Treasury. So, it doesn’t apply. I now agree that my explanation that you commented on was wrong, because the spokesman for the Fed in a letter to me said so. I now think the banks create the money out of thin air, exchange their dollars for reserve settlement dollars at correspondent banks, and these latter dollars are put in the Treasury’s general account to be subsequently distributed to the reserve accounts at banks of recipients for the govt spending, where they are exchanged back to bank dollars and deposited by that bank to the accounts of the recipients of the government checks.
          That is pretty straightforward, I think. About 60%, I think of the national debt now is due to investor dollars invested in time deposit accounts at the Fed in the form of US securities. Fed has been paying down the deficit spending debt with QE as it buys also private corporate securities. You can’t match the figures for accumulated deficit spending to the value of all the US securities active in the economy. Much of the national debt is backed by the dollars in the investor’s time-deposit accounts involving the US securities they bought. The rest will be rolled over perpetually by Treasury in swaps of new securities it creates and trades for banks’ mature securities. Or the banks will bring their securities to public auction and the Fed may buy them with money it creates out of thin air, but cancelling the govt’s debt to the bank, calling for the extinguishment of the dollars used in repaying the bank’s loan. That’s why the QE is not inflationary. It adds nothing to the money supply in this. The addition to the money supply came from the banks’ lending the money to Treasury and spent in deficit spending. Do you notice lots of inflation now? No? Veddy Interesting.

          • Yes, ” stanislaus2, ” I now think the banks create the money out of thin air..” that is correct; just as the Private For Profit Banks do by using the Fractional Reserve system.
            OMG !!!, Where did we go wrong- – -BOTH CREATE TEMPORARY MONEY yet We The People must pay interest to the banks either way,
            to use our own money ! ! Quote Frederick Soddy (The Role Of Money) ” It is important to realize that whichever way it
            works it is a case for the bank of ” Heads I win,
            tails you lose “…”…(U)sually by some such lying phrase as ” Every
            loan makes a deposit “.

            Genuine and Fictitious Loans.
            For a loan, if it
            is a genuine loan, does not make a deposit, because
            what the borrower gets the lender gives up, and
            there is no increase in the quantity of money, but
            only an alteration in the identity of the individual
            owners of it. But if the lender gives up nothing
            at all what the borrower receives is a new issue
            of money and the quantity is proportionately
            increased. So elaborately has the real nature of
            this ridiculous proceeding been surrounded with
            confusion by some of the cleverest and most
            skilful advocates the world has ever known, that
            it still is something of a mystery to ordinary
            people, who hold their heads and confess they
            are ” unable to understand finance “. It is not
            intended that they should. But if, instead of
            trying to puzzle it out along the lines of ” what
            you get for money “, these people will reverse
            the procedure, as in this book, and do so on the
            of ” what you give up for it “, the trick is clear
            enough. “

  10. […] Source: WEB OF DEBT BLOG “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.” — Former Fed Chairman Alan Greenspan on Meet the Press, August 2011 In a post on “Sovereign Man” dated August 14th, Simon Black argued thatRead more… […]

  11. MAN O MAN IF PIGS COULD FLY! WHAT WONDERFUL TALK AND THATS ALL THIS IS ,IS TALK.NOT THE WAY THE REAL WORLD WORKS ON THE REAL ECONOMY.ITS SMOKE AND MIRRORS TO KEEP THE PUBLIC OUT OF THE WAY.SHOULD THE PUBLIC EVER FIND OUT WHAT THE FED REALLY DOES AND NOT THIS @#$%^ THAT THIS ARTICLE SAYS IT DOES ,WE WOULD./COULD HAVE A NATION THAT HAS HEALTHCARE THAT REALLY IS HEALTH CARE AND NOT A CHARADE.. AND SOC SEC THAT YOU COULD ACTUALLY LIVE ON.SEVERAL PRESIDENTS HAVE BEEN MURDERED BECAUSE THEY TRIED TO GET THE INT.BANKERS/FED.RES.OUT OF BUS.STEALING THE HARD EARNED WEALTH OF A NATION.CRIMINALS ALL AND I LL LET YOU GUESS WHO THEY ARE????

  12. Awesome work as usual, E; thank you! Shared with ~2,000 AP Econ teachers to be able to explain QE as an asset/liquidity swap 🙂

  13. […] Trumping the Federal Debt Without Playing the Default Card – Ellen Brown […]

  14. How about opting out of voter registration corporate United States corporation and do not give consent to the criminal treasonous current system and have the sovereign people of America decide using the original organic constitution and severing ties with the foreigners who
    Currently run our country. Maybe Trump and Sanders should learn the history of what is going on in this country and how in 1871 congress committed treason against the people which stands today.

  15. Worrying about the $17 trillion National Debt of the U.S. should be no more of a problem than Greece has had with their national debt. Both debts have been arranged with the same source – Wall Street financiers.

    Paying off the U.S. National Debt in the manner envisioned by Alan Greenspan, or Trump, would be by Congress approving the transfer of U.S. Treasury securities (bills, bonds, or notes) to the FRBNY. The FRBNY would then create the book entry (fiat money) to pay off the existing debt with more debt. This action has never in the 100 year history of the Fed ever reduced the National Debt. It only transfers Treasury securities to the FRBNY which are then sold by auction. The accounts of the auctions are exclusively handled by the FRBNY and have never been audited. Ref 31 CFR 375.3.

    [This action creates the principal of a “loan” but does not create the interest to pay on the loan. A contract that cannot be culminated is an act of fraud and is void from its inception. The “loan” additionally does not involve any consideration from the “loaner.” The “loan” is a fraudulent illusion.]

    If the money from the auctions were credited to the government, it would result in NO increase in the National Debt and would produce NO inflation. The only viable and realistic alternate destination for the money from the auctions is to the owners of the BOG; i.e., the Wall Street bankers..Ref. https://www.scribd.com/doc/153024003/Amended-Complaint-Federal-Reserve-whistleblower

    Paying off the National Debt by creating more National Debt only perpetuates the embezzling of money that lawfully belongs to the government. The Ponzi scheme would continue for a few more years.

    Internal Wall Street memos identify collection of the U.S. National Debt is the “ultimate goal.” Are you ready for austerity ??

    • Treasury bonds and bank CDs are identical instruments; agreements to return monies at the end of a defined length of time at a stated rate of interest. As such both can be viewed as debt of the issuer. Viewed in that way the debt of the federal govt is 17T$+ and the debt of the private banks is 19T$+ or -. The US govt can, will and does pay their debt but banks can fail. That is why entities with large suns of extra money choose to buy treasury bonds. If the national debt were paid off (and it cannot be paid off faster than the longest term bond, assuming the holder will not sell) then all of those extra funds would need to be invested or placed in banks where deposits are protected only up to 250k$. It would create a very different economic panorama. It would also strip the Fed of the ability to control the money supply by buying/selling national debt. The Fed would end up being just a clearing house and the congress would become responsible for management of the money supply via its taxing/spending powers.

  16. The corporate United States corporation not the sovereign people of America owe any debt. The fascist criminals are apparently bankrupt
    and are looking at any way possible to get their hands on money.
    Everybody’s money and it is all a fiction of their illegal laws from the corporate office CEO to all the departments under it’s control.
    That is from the presidency to congress the judicial and everything
    created within the district or shall I say the State of Columbia.
    Again any part of the political system as it stands whether they are aware of it or not is meanies to the people of America. It only falls under the corporation the United States. The city of London and the Vatican and the United States corporation are joined at the hip.
    Their not running for president they are running for the position of CEO
    Trump is the most qualified since he knows a lot about bankruptcies.
    This still doesn’t change the corrupt , fraudulent the American people
    Have been hoodwinked for over 200 years. Treasous acts have been committed and they all know it except the people. This is all coming out so you had better learn the true facts before you let any political
    Bulcrap continue. And yes it doesn’t matter which party or even a third party gets going. It will still be under the same corrupt system which
    Works against the people of America.

  17. Spot-on Ellen, in economic terms there is no need whatsoever for a federal debt. My only concern is in regard to low-risk investing. Once the cheerleading for 20% annual returns in the stock market, a common event in the 90s through 06, was shouted down by the 2009 swoon, many of us who save for our retirement watched our returns on our hard-earned cash slip far into single digits or below. At present, a buy-and-hold strategy on T-bills makes no sense at all – and absent federal debt there would be no “sure thing” investment at all. My answer to this issue is that the government should continue to issue a modest amount of debt, simply to support low-risk savers – or, of course, your other mantra – public banks should offer CDs that earn at least 4%, or the rate of inflation, whichever is greater.

    There are a number of other measures the U.S. should take if it wishes to go from a nation of debtors, enriching the rentiers, to a nation of savers, enriching ourselves. Primarily this would entail changing the tax code to encourage saving and less aggressively support credit creation.

    • The problem of the Great Recession of 2007 was a result of private banking fraudulent behavior which created a Ponzi scheme in the housing market. One can only fault the government for not more closely monitoring and regulating the banks who did this. But then again, regulating the banks has been inhibited by Congressional legislation backed by bank lobbyists to weaken bank regulation.

      In any case it was not a result of major government deficit spending.

  18. […] Ellen Brown Writer, Dandelion Salad The Web of Debt Blog August 19, […]

  19. Most of the country’s debt is the result of unnecessary illegal wars, tax cuts for the obscenely wealthy and recessions caused by wall street fraud.

    If the Federal Government issued notes to purchase this debt they’d effectively be endorsing and supporting these behaviors.

    Unless accompanied by prosecutions of war and wall street criminals and an iron clad assurance that it’d be a one time event it’s hard to support monetizing the debt in this manner.

  20. The Federal Reserve paid 100 cents on the dollar for virtually worthless mortgage backed securities held by the banks.

    The Fed’s total spending for MBS is $1.8 trillion.

    https://research.stlouisfed.org/fred2/series/MBST

    Therefore, the Fed’s QE program did indeed increase the money supply by swapping $1.8 trillion in digital dollars for MBS with virtually no market value.

    • The money supply is increased when the money goes into circulation. QE reserve dollars used to buy US securities and bank MBS’s are not spent into circulation. In our fiat money system banks do not need to loan their depositors deposits to loan legitimate money. Banks just create money out of thin air when they loan. Banks are not lending because businesses and consumers are not borrowing (except for credit cards). This is why there has been no inflation from QE.

      If there was $1.8 Trillion added to the money supply in circulation where is the evidence of it in inflation? We are still in a recession. That’s an awful lot of money.

      The Fed has no problem in buying worthless MBS’s since it used money it created out of thin air. The only problem for the Fed is that when it spends it should get something of comparable value. Maybe the Fed rationalizes this by saying that it helped to clean up the banking system by removing from it toxic assets.

      • QE didn’t increase the money supply because it was buying privately held securities that had been paid for by money in the economy. QE replaced that money or established liquidity at the banks, which ever way you wish to view it. The money supply can only be increased by the Fed buying the national debt

  21. The predicted consumer inflation never materialized because the wall street casinos shoveled the Fed’s largesse back into the stock and bond market instead of loaning it into the productive economy as promised.

    This has resulted in a hyper inflated stock and bond market.

    The hyper inflated stock and bond markets have doubled the wealth of billionaires since 2009 producing record wealth inequality.

    Wealth inequality at these extremes is incompatible with functioning democracies.

    Printing money to bail out criminal banks and cover the debts from illegal wars and immoral tax cuts for the filthy rich has cemented the U.S. as an oligarchy and police state.

    Inflation is now the least of our problems.

  22. […] ⇧   Trumping the Federal Debt Without Playing the Default Card | WEB OF DEBT BLOG […]

  23. […] Trumping the Federal Debt Without Playing the Default Card – by Ellen Brown, EllenBrown.com – “In 2011, Republican presidential candidate Ron Paul proposed dealing with the debt ceiling by simply voiding out the $1.7 trillion in federal securities then held by the Fed. As Stephen Gandel explained Paul’s solution in Time Magazine, the Treasury pays interest on the securities to the Fed, which returns 90% of these payments to the Treasury. Despite this shell game of payments, the $1.7 trillion in US bonds owned by the Fed is still counted toward the debt ceiling. Paul’s plan: Get the Fed and the Treasury to rip up that debt. It’s fake debt anyway. And the Fed is legally allowed to return the debt to the Treasury to be destroyed… Congressman Alan Grayson, a Democrat, also endorsed this proposal.” […]

    • At this time about 90% of the ‘national debt’ or public debt (if we exclude intragovernmental debt) is held by investors not deficit spending securities. Those securities are just like bank CDs. If we cancel these securities, we wipe out the savings of several major world governments. Besides, Rand Paul doesn’t realize that the 14th Amendment makes the debts beyond question and must be paid.
      What he should focus on is getting rid of the debt ceiling because it too is Unconstitutional. The Constitution Art. I sec. 8 says that the Congress has the power to pay debts and to borrow (without any limitations or conditions). Congress cannot put a priori limits on those powers with its own legislation. It needs a Constitutional amendment to make such a change.

  24. Allen Greenspan speaks double talk.

    The purpose for engineering debt is foreclosure, and political monopoly.

    Unless Trump kowtows to the bank he will not be nominated by the Republican Party.

    As an independent candidate, Trump can openly challenge the Bank; always hazardous.

    Clinton is the Bank’s hand maiden.

    • The national debt has a purpose in the system. It is the only means of adding money to the economy which happens by the Fed buying debt. Without a national debt the Fed would be just a clearing house with no power to manage the money supply in which case the central government would have to do that job by taxes and spending which is the direct way to manage the money supply.

  25. There isn’t much to do about the Bank/Government. It is aiming to do to the U. S. what it did to Greece. Resistance equals community and confederated community independence from the Bank and its transnational corporations. Establishing local sovereignty is an economic and an organizational proposition; a distinct civilization. These are interesting times.

    • There is another very interesting way and it is in operation and very successful in Spain. It is called the Mondragon method for the town where it started. You can find it with Google. It is a local initiative, local community approach as opposed to a national policy approach.

      • Charles 3000, Thank you for your kind letter. Of course, However, Mondragon does not lurch into expansion. The turning point is from a position of autonomy and independence for the purpose of overturning, transforming the no man’s land of globalization, as well as abandoning it by all. Dealing with globalization is fighting for sovereignty. That means that, as Paul Goodman used to say, “The Jig is Up.” Recognize private banking as unequivocal criminal organization. A contrasting market-banking organization would be a public service. Public services are our reward to us for a job well done. Community organization presupposes community. You be well!

  26. Charles 300, I am grateful for you kind response. That is what is missing, the structure that can expand due to the need of its economic organization to always increase its autonomy, its sovereignty. The Kurds are having a hard time defending themselves from the “governments,” and the Bank dogs (ISIS). I will not discuss that further here, except that the Kurds are more democratic; councils and councils of such. Rather, I promote universal decentralization, a different type of socio/economic organization. It has unique objectives. Its purpose is to engender individuation, the development of the self (Jungian psychology) Humanistic psychiatrists confer that the prevailing society, ‘civilization, cannot bring self-realization to most. Abraham H. Maslow estimates the incidence of self-actualized folks (peak experience, sane health) at less than 1% in this ‘civilization.’ The point is that the prevailing society is incapable of meeting the needs of its members. That is the challenge, to establish a society, a civilization that is structured to encompass the balance between individuation and community, survival with growth, maximum individuation with maximum community; people-working-with-each-other-for-each-other. That has nothing to do with the term human nature being conflated with psychopathology. The challenge is structural, and therefore doable; the only force capacitated to supersede power concentrated beyond the control of the people. You be well!

    • Money has been and is an enabler of people to help people in a measured sort of way. The sickness I see in our society is that many people have found ways to obtain money without helping others. It is not new but it is very pervasive now. Making money with money and doing nothing for the welfare of one’s fellow man is a moral transgression of principal.

      • Charles 3000, thank you for your kind comments. Trade is natural and good, but it presupposes production. I am weary of folks theoretically remixing the mechanics of monetized systems that that are beyond their slightest effect. I do not think that is the way to deal with the problem. Ellen made it clear with her concise report on the predicament the IMF and the World Bank caused Greece. I agree that “not seeing the woods for the trees” is what, I think, most of you are doing. The IMF and the World bank and the Bank for International Settlements (Also, mentioned by Ellen) are not part of any national government, but are transnational, private corporations. Ellen introduced Herman E. Dally, who elucidates the point. The “woods” is a vast, transnational, criminal organization, crouched behind its Bank conglomerates and sundry transnational corporations. However, for all the trouble they cause, and for all the influence they command, they are not omniscient nor omnipotent. The question is what alternative options can we devise that will bring about the equitable society we would like to have our families living in. Economics is the basis of civilization, and distinctions must be made between economic organizations that have yet to be created. The economic organization determines the psychic-corporal quality of life of the people, and there are economic organizations feasible, doable, within our grasp that engender kindness. You be well!

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