“Print the money” has been called crazy talk, but it may be the only sane solution to a $19 trillion federal debt that has doubled in the last 10 years. The solution of Abraham Lincoln and the American colonists can still work today.
“Reckless,” “alarming,” “disastrous,” “swashbuckling,” “playing with fire,” “crazy talk,” “lost in a forest of nonsense”: these are a few of the labels applied by media commentators to Donald Trump’s latest proposal for dealing with the federal debt. On Monday, May 9th, the presumptive Republican presidential candidate said on CNN, “You print the money.”
The remark was in response to a firestorm created the previous week, when Trump was asked if the US should pay its debt in full or possibly negotiate partial repayment. He replied, “I would borrow, knowing that if the economy crashed, you could make a deal.” Commentators took this to mean a default. On May 9, Trump countered that he was misquoted:
People said I want to go and buy debt and default on debt – these people are crazy. This is the United States government. First of all, you never have to default because you print the money, I hate to tell you, okay? So there’s never a default.
That remark wasn’t exactly crazy. It echoed one by former Federal Reserve Chairman Alan Greenspan, who said in 2011:
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.
Paying the government’s debts by just issuing the money is as American as apple pie – if you go back far enough. Benjamin Franklin attributed the remarkable growth of the American colonies to this innovative funding solution. 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.
But back to Trump. He went on to explain:
I said if we can buy back government debt at a discount – in other words, if interest rates go up and we can buy bonds back at a discount – if we are liquid enough as a country we should do that.
Apparently he was referring to the fact that when interest rates go up, long-term bonds at the lower rate become available on the secondary market at a discount. Anyone who holds the bonds to maturity still gets full value, but many investors want to cash out early and are willing to take less. As explained on MorningStar.com:
If a bond with a 5% coupon and a ten-year maturity is sold on the secondary market today while newly issued ten-year bonds have a 6% coupon, then the 5% bond will sell for $92.56 (par value $100).
But critics still were not satisfied. In an article titled “Why Donald Trump’s Debt Proposal Is Reckless,” CNNMoney said:
[T]he federal government doesn’t have any money to buy debt back with. The U.S. already has $19 trillion in debt. Trump’s plan would require the U.S. Treasury to issue new debt to buy old debt.
Trump, however, was not talking about borrowing the money. He was talking about printing the money. CNNMoney’s response was:
That can cause inflation (or even hyperinflation), and send prices of everything from food to rent skyrocketing.
The Hyperinflation that Wasn’t
CNN was not alone in calling the notion of printing our way out of debt recklessly inflationary. But would it be? The Federal Reserve has already bought $4.5 trillion in assets, $2.7 trillion of which were federal securities, simply by “printing the money.”
When the Fed’s QE program was initiated, critics called it recklessly hyperinflationary. But it did not even create the modest 2% inflation the Fed was aiming for. QE was combined with ZIRP – zero interest rates for banks – encouraging borrowing for speculation, driving up the stock market and real estate. But the Consumer Price Index, productivity and jobs barely budged.
While the Fed has stopped its QE program for the time being, the European Central Bank and the Bank of Japan have jumped in, buying back massive amounts of their own governments’ debts by simply issuing the money. There too, the inflation needle has barely budged. As noted on CNBC in February:
Central banks have been pumping money into the global economy without a whole lot to show for it other than sharply higher stock prices, and even that has been on the downturn for the past year.
Growth remains anemic, and worries are escalating that the U.S. and the rest of the world are on the brink of a recession, despite bargain-basement interest rates and trillions in liquidity.
Helicopter Money Goes Mainstream
European economists and central bankers are wringing their hands over what to do about a flagging economy despite radical austerity measures and increasingly unrepayable debt. One suggestion gaining traction is “helicopter money” – just issue money and drop it directly into the economy in some way. In QE as done today, the newly issued money makes it no further than the balance sheets of banks. It does not get into the producing economy or the pockets of consumers, where it would need to go in order to create the demand necessary to stimulate productivity. Helicopter money would create that demand. Proposed alternatives include a universal national dividend; zero or low interest loans to local governments; and “people’s QE” for infrastructure, job creation, student debt relief, etc.
Simply buying back federal securities with money issued by the central bank (or the U.S. Treasury) would also get money into the real economy, if Congress were allowed to increase its budget in tandem. As observed in The Economist on May 1, 2016:
Advocates of helicopter money do not really intend to throw money out of aircraft. Broadly speaking, they argue for fiscal stimulus—in the form of government spending, tax cuts or direct payments to citizens—financed with newly printed money rather than through borrowing or taxation. Quantitative easing (QE) qualifies, so long as the central bank buying the government bonds promises to hold them to maturity, with interest payments and principal remitted back to the government like most central-bank profits.
As Dean Baker, co-director of the Center for Economic and Policy Research in Washington, wrote in response to the debt ceiling crisis in November 2010:
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.
An even cleaner solution would be to simply void out the debt held by the Fed. That was the 2011 proposal of then-presidential candidate Ron Paul for dealing with the debt ceiling crisis. As his proposal was explained in Time Magazine, today the Treasury pays interest on its 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.
Financial author Richard Duncan makes a strong case for going further than just monetizing existing debt. He argues that under current market conditions, the US could actually rebuild its collapsing infrastructure by just printing the money, 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 can keep up with demand for decades to come. Duncan observes:
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 . . . .
Returning the Power to Create Money to the People
The right of government to issue its own money was one of the principles for which the American Revolution was fought. Americans are increasingly waking up to the fact that the vast majority of the money supply is no longer issued by the government but is created by private banks when they make loans; and that with that power goes enormous power over the economy itself.
The issue that should be debated is one that dominated political discussion in the 19th century but that few candidates are even aware of today: should creation and control of the money supply be public or private? Donald Trump’s willingness to transgress the conservative taboo against public money creation is a welcome step in opening that debate.
________________
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. She can be heard biweekly on “It’s Our Money with Ellen Brown” on PRN.FM.
Filed under: Ellen Brown Articles/Commentary | Tagged: Donald Trump, federal debt, infrastructure crisis, public banking, quantitative easing |
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Great article!
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[…] Posted on May 14, 2016 by Ellen Brown on the Web of Debt Blog […]
The Fed has already proven that it can do this at a profit to the US Treasury (“we the people”)
and with no increase in the debt (it is an asset purchase).
Make America Great Again !
**Why not Trump ? (RAP) Renaissance for the American People.
Donald J Trump,
Gandhi’s famous quote: ““First they ignore you, then they ridicule you, then they fight you, and then you win.”
You will win with your response to your valid reasoning of ” A Monetary Sovereignty
can not default because they are the issuer of the currency…
” if the debt is in their currency”. Period.
WHY not STATE PUBLIC OWNED BANKS (SPOB) with an Honest Central Bank to reverse..”Where We Went Wrong and Fix It.”
Read more: https://justaluckyfool.wordpress.com/2016/05/10/why-not-trump-rap-renaissance-for-the-american-people/
Thank you, Ellen Brown for your due examination…
***** “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),
Share and then share again, why would you not want prosperity?
[…] This piece first appeared at Web of Debt. […]
Thanks! I’m actually a Bernie fan, but couldn’t resist the opportunity to jump in when somebody said “print the money”!
I’m both a Trump and a Bernie fan. Having the govt. print the money for the benefit of the people rather than the banks/Fed print it only for themselves is a policy we should all agree on.
QE1,2 and 3 was only ever about saving the Banking Cartel and nothing to do with “saving the economy”. The Government of the USA missed the perfect opportunity to return the Banking system to the American people by nationalising the(Bankrupted) NYC Banks and ridding the USA of the Federal Reserve altogether, but they failed badly.
Ellen, there are some who insist that you are entirely in error, that the government DOES issue the currency, and that the debt is not really a debt. Regardless of how much information there is out there indicating otherwise, what do you say to these people?
Hi, I’m not sure to whom you are referring, but my response would be to direct them to the Bank of England’s spring 2014 quarterly report, which states that 97% of the money supply is created by banks when they make loans. If you’re referring only to hard currency and if you want to consider the Federal Reserve part of the government, then sure, the government issues the currency. But that currency is only a tiny portion of the circulating money supply.
Commercial bank created money is liability money. It only comes into existence to fund bank loans, so has to be paid back to extinguish it. It means of course that banks get fees and interest on money they created out of nothing, a pretty good racket! But it zeros out over time.
Government created money is not liability money. It’s money is net credited into the economy. This operation allows the economy to grow as long as more money is created than taken away through taxation.
This is called deficit spending. But all these terms are misnomers. A budget deficit means that the government created more money, spent more money than it extracted through taxation. It’s only a book keeping account term. Budget surplus means the tax take was greater than spending, but there is no actual surplus, it’s just a gap, but which has to be filled by the non government sector, so that sectoral balances add to zero.
This discussion just goes to show how ‘FAKE” the USA(and everyone else’s) monetary system is. It’s been said before, but the US Government could ‘mint’ an $18Trillion coin and erase the debt tomorrow.
The “Great Crash of ’08” resulted in the Federal Reserve ‘printing’ over US$4 Trillion, to buy the ‘triple AAA rated Bad Debts’ of the major Banks on Wall St(but kept it in the ‘Reserves” account of the major Banks) and these funds never made it to Main Street, to cause inflation.
If Trump gets elected, he needs to be very careful about how he deals with the Monetary system(and by association, the Federal Reserve Bank). JFK wanted to fix it but he took three bullets to the brain.
No, sorry. The debt called Government Debt is just a language mistake. Investors buy t-bonds offered by Treasury which stores that money in the Federal reserve bank. The government owes that money back to the investors,just like your bank owes you your savings deposit at the bank. Unlike your bank, the Fed doesn’t need any dollars as it can create them ad hoc anytime. Therefore the investors money is held safe at the Fed. At maturity the fed credits those dollars,and any interest it owes back to the investors accounts. Easy done, as the money is never spent. So instead of saying government debt it would be better to say investor deposits. It’s a sign of Wealth, not debt.
If the government borrows from, then owes money to private banks and creditors, it’s government debt. You’re arguing semantics.
The Federal government does not borrow its own money. Surely you can see that is ridiculous! It creates it after all. It can spend whatever it wants without using commercial banks. In the real world the government uses private banks for various purposes, but only as a way to get currency into the economy.. Government debt is in fact the savings invested in bonds. The government never spends these bonds.[see above] The principal is easily returned to the investor when the bonds reach maturity. You do not understand money.
You need to read up on how the Federal Reserve Banking System (The Fed) works. They tell it up front on their own web pages. Why do you think our paper money now says “Federal Reserve Note” on top instead of “US Treasury Note?”
I’d say you don’t understand debt. If it isn’t “debt”, why call it that? For the hell of it? Then use that fake-debt as a political bludgeon? Yes, the government can issue it’s own money, but apparently, with the exception of coins, it’s borrowing it instead; and if it’s not, or just pretending to, then everyone has a lot more to be concerned about than we thought.
There aren’t that many people who understand money, overall. If so, there would be much more consciousness wrapped around the notion that fiat currencies have been developed with the benefit of the price model in mind, for price comparison reasons. It’s the price model , not the currency (debt) application that supports debt-free trading.
Think of the dollar like a segment of string that has two distinct ends, meaning two distinct applications. We have the debt based currency (medium of exchange) on one end and the price model on the other. The segment could not be created without both ends. Have we been using the price model to its fullest potential ??? This is the real question.
RECENT FACT : The USD (as a real-time measure) is now being used in the marketplace each and every day to facilitate debt-free transactions by comparing the price of two debt-free widgets, such that on the basis of agreement, the two widgets trade DIRECTLY for each other with NO DEBT involved in the transaction, whatsoever.
Dr. Anthony Horvath, author of” CAPITALlessISM … published recently. http://www.capitallessism.com
dear sir …. WORDS, SEMANTICS, TECHNICALITIES …. all the same
BOTTOM LINE IS… BANKS CREATE MONEY… GOVERNMENTS DON’T ., WE ARE STUCK WITH INTERESTS, AUSTERITY TO PAY OFF ”PHANTOM-MONEY-CREATED-NATIONAL-DEBTS” please read the evidence :
THE MONEY MASTERS How Banks Create 95 percent of the World’s Money (excerpts from their website and links to their website, if you can still get there before these sites are blocked)
http://www.themoneymasters.com/
http://www.themoneymasters.com/monetary-reform-act/
THE MONEY MASTERS is a 3 1/2 hour nonfiction, historical documentary that traces the origins of the political power structure. “. . . The modern political power structure has its roots in the hidden manipulation and accumulation of gold and other forms of money. The development of fractional reserve banking practices in the 17th century brought to a cunning sophistication the secret techniques initially used by goldsmiths fraudulently to accumulate wealth . . .”
New radio interview from the producer of the Money Masters!
“As you know, I am entirely sympathetic with the objectives of your Monetary Reform Act . . . You deserve a great deal of credit for carrying through so thoroughly on your own conception…I am impressed by your persistence and attention to detail in your successive revisions.. Best wishes, Milton Friedman” Nobel Laureate in Economics; Senior Fellow, Hoover Institution on War, Revolution and Peace
http://www.themoneymasters.com/monetary-reform-act/
“. . .The center of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank . . . sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the levels of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world . . .”
“. . . Several short-lived attempts to impose the central banking scheme on the United States were defeated by the patriotic efforts of Presidents Madison, Jefferson, Jackson, Van Buren and Lincoln. But with the passage of the Federal Reserve Act of 1913, America was firmly lashed to the same yoke, so that a small number of very rich men have been able to lay upon the masses a yoke little better than slavery itself. That yoke inevitably grows heavier with ever-compounding interest, and totals over $20 trillion of debt owed by the American people today ($80,000 per American) ultimately to these bankers . . .”
The Two Step Plan to National Economic Reform and Recovery
Step 1: Directs the Treasury Department to issue U.S. Notes (like Lincoln’s Greenbacks; can also be in electronic deposit format) to pay off the National debt.
Step 2: Increases the reserve ratio private banks are required to maintain from 10percent to 100percent, thereby terminating their ability to create money, while simultaneously absorbing the funds created to retire the national debt.
SO THE ONLY SOLUTION IS A NATIONAL PUBLIC BANK THAT DETAINS/COORDINATES all the national currency creation/supply rights. And it franchises its use to participating PRIVATE BANKS thus sharing the created capital with the government/people.
thank you for your comments
Great article! You can always print the money. But you can´t let the bank,s “print” it for you!!
Anyone who thinks this is a way out of debt for the US knows nothing about how money works in this country! Every time we “print the money,” it comes with more interest! We cannot solve this problem without a systemic change!
You miss the whole point and source of the problem- that we are borrowing the money for our money-supply from private lenders, at interest. The government is well within it’s constitutional rights to create and regulate it’s own interest-free currency.
You are certainly correct that almost no one understands money!.
While the private sector borrows from banks, and that is excessive, the Federal government only prints [so called] money to pay for its debts. The government only uses private lenders as a sop to the banks. Itself it has no need to save or borrow its own currency!.
If you’re correct, which there is a chance you aren’t, but if so it opens up yet another can of worms. Can you speak to that? Since you seem to fancy yourself the expert- everything Congress has or hasn’t done over the last century indicates that they have abrogated the authority to create and regulate the currency. All this swapping of bonds and treasuries is pointless, or would be, if the government issued it’s own debt-free currency. In fact, there’d be no debt, as there would be no reason For the government to borrow the money for the nation’s money-supply.
I learned some time ago that classical-mainstream economics is a lot of bunk, or a “false science” if you will. What’s most relevant is that the debt is always used by pundits and politicians as an excuse for why we can’t spend domestically on things the country needs, yet there’s always plenty for war and corporate welfare. We are quite a ways off from the comprehension of our banking and monetary-systems being common knowledge. It needs to be simplified and exposed.
I don’t consider myself an expert. That would be Professor Bill Mitchell. log onto his blog at “billyblog”. No, my interest is to cut through all the lies and misinformation we are fed as it does enormous damage to society.
Telling the truth doesn’t open up a can of worms, that would be from understanding how we are manipulated by banksters, politicians and the mainstream media.
Our society is close to collapse, as the crunch point comes ever closer due to the desire for infinite growth in this finite world. It has to stop.
What credit does is allow us to consume today what would otherwise be held for the future. It does this today in massive doses and will never be paid back in monetary terms, but will still cost us dearly in environmental etc terms.
The truth is, which you doubt ,that federal governments do issue debt free currency. After all its just a law based event. The government is empowered by the laws of the land to do with currency whatever it chooses. Congress can restrict what the government does and pass laws itself to that end, such as forcing the Fed to sell bonds to match the deficit. A silly idea but typical due to the ignorance at all levels of society. Money is a legal construct and it can be issued by the federal government freely, ad hoc. It does NOT need to borrow or save it’s own currency.
You are correct in criticism of mainstream economics. Staggering incompetence abounds there. There are a handful who do however understand, but it’s difficult to cut through against the tide emanating from high places.
No, it doesn’t have a need to, but it does anyway. If it didn’t we wouldn’t have half the problems we are having today.
Why are supposed sovereign democratic governments, like Greece or Puerto Rico(a US “territory”, no less) being squeezed by private creditors? If all this debt isn’t really debt, then why call it a “debt crisis?”
The fact is, to the private banking cartel that has captured control over the issuing of currency, governments, even ours, are just clients to them, the same as individuals or businesses. If this wasn’t the case, there’s be no debt-crisis, nor any odious debt to speak of. The whole system is a giant pyramid scheme, obsolete, anti-democratic and highly fraudulent. That private interests are able to “buy-in” to a state’s money-supply or it’s debt and suck out interest payments while creating nothing of value should concern you.
That may be true, but then why aren’t we doing that, why isn’t our Treasury Dept. printing and issuing debt-free money? Two presidents tried that (Lincoln and Kennedy) and both were assassinated.
The “why” is not something anyone can answer. It appears that it has been this way for so long that many in Congress do not question it or understand it. And you’re probably right, out of fear very few are willing to speak honestly or take action.
Don Groves … You’re right. Build on what we already have. That change is up to the market. We have a price model that now allows for debt-free trades on the basis of making direct trades on the further basis of direct price comparisons that are relative.
Eg : Compare the price of a blue widget to the price of a silver widget.
Thanks so much, Ellen: Print the Money: Trump’s “Reckless” Proposal Echoes Franklin and Lincoln – LA Progressive
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From: WEB OF DEBT BLOG To: dick_and_sharon@yahoo.com Sent: Saturday, May 14, 2016 9:22 AM Subject: [New post] “Print the Money”: Trump’s “Reckless” Proposal Echoes Franklin and Lincoln #yiv7196124036 a:hover {color:red;}#yiv7196124036 a {text-decoration:none;color:#0088cc;}#yiv7196124036 a.yiv7196124036primaryactionlink:link, #yiv7196124036 a.yiv7196124036primaryactionlink:visited {background-color:#2585B2;color:#fff;}#yiv7196124036 a.yiv7196124036primaryactionlink:hover, #yiv7196124036 a.yiv7196124036primaryactionlink:active {background-color:#11729E;color:#fff;}#yiv7196124036 WordPress.com | Ellen Brown posted: ““Print the money” has been called crazy talk, but it may be the only sane solution to a $19 trillion federal debt that has doubled in the last 10 years. The solution of Abraham Lincoln and the American colonists can still work today.“Reckless,” “alarmin” | |
Dr. Anthony Horvath author of” CAPITALlessISM … published recently. Many of his view are presented at http://www.capitallessism.com
AUSTERITY MEASURES in order to improve the economy is like your doctor saying ‘’INDUCED ANEMIA’’ is good for your health ..#$@???.
So instead, consider THE RATIONAL FOR CANCELLING 95% OF THE NATIONAL DEBTS ON LEGAL AND ACCOUNTING GROUNDS.
When we play a game of ‘’monopoly’’ I pay you back ‘’with play-money’’ a loan you gave me also from your ‘’play money’’. Nations are paralyzed by their national debts because governments must prioritize the interest payments over their national economy’s survival. But, what is the nature of national debt anyways? We have never analysed it! Originally these weren’t all loans from “real capital reserves” (like pension funds) because there wasn’t enough real capital in the bank’s reserves. 95% of these loans were made by banks with just “make-believe” non-existent capitals created through ‘’fractional reserve banking process’’.. guaranteed by the taxpayers. So what’s wrong paying back the 95% ‘’ virtual-portion of the debt’’ also with ‘’virtual-play-money’’ created by a national ‘’fractional-reserve-banking’’ process by a NATIONAL PUBLIC BANK?…. Or, should we pay interest on the fictitious ‘’virtual-portion of the loans’’? .. or what’s wrong, recalculating retroactively the interest on the real capital portion of the loan vs. the virtual-capital-portion of the loans’’ …. You can also question the real market value of the national debts on the international money market….. so why not sell them off at 5% of its original value? Well these are just some fundamental thoughts … the rest are just technicalities. Thank you for your comments.
Fractional reserve lending assumes the bank spends part of your deposit or investment money to grow its loan ability. But it’s not done any more. The system today is Credit Creation Theory. The bank creates all the loan money from thin air whenever they lend to a customer. Commercial banks need customers, the Government needs debts and then both can create money [deposits in accounts] not otherwise. You need to adjust your narrative to show this.
Dr. Anthony Horvath author of” CAPITALlessISM … published recently. http://www.capitallessism.com
Thank you for your stimulating comment. However…please !!!!????
-1- We both agree that BANKS CAN CREATE MONEY UNILATERALLY ‘’FROM THIN AIR’’ while YOU, I, any BUSINESS, INSTITUTION or ANY GOVERNMENT CANNOT.
-2- We both agree that, this UNILATERAL MONEY CREATION PRIVILEGE GIVES BANKS UNLIMITED UNDEMOCRATIC ECONOMIC, MILITARY, AND POLITICAL POWER over any member of or society.
-3- We both agree that while many are debating on the terminology, modality and technicalities, in our technologically advanced economy 800 MILLION PEOPLE GO HUNGRY EVERY DAY, 8 MILLION PEOPLE LOST THEIR HOMES IN THE UNITED STATES ALONE AND HUNDREDS OF MILLION CHILDREN PICK GARBAGE FOR FOOD EVERYDAY, 3 BILLION PEOPLE IN THE WORLD MAKE LESS THAN 2 DOLLARS A DAY, because of LACK OF MONEY … while hundreds of TRILLIONS OF DOLLARS ARE CLOGGED UP IN OFFSHORE BANKS and while 1% of the people control 95% of the world’s capital. It seems obvious that our PRESENT FORM OF CAPITALIST SYSTEM WITH ITS PRESENT FORM OF PRIVATE BANKING SYSTEM HAS BEEN INCAPABLE TO SOLVE THE PROBLEM FOR THE PAST 100 YEARS. So, when no capital is available for our national survival, as the ultimate solution, we must create a new type of an artificially invented e-capital WITH DEMOCRATIC ACCESS TO IT, under the coordination of a NATIONAL PUBLIC BANK. (like Dr. Ellen Brown and her associates have been crusading for ). OTHERWISE WE WILL ALL DIE OF HUNGER OR WE WILL ALL KILL EACH OTHER. … well please…. do you have a better democratic solution?
I think that we are on the same page generally speaking, and I can assume you have also seen my other comments herein? They explain further the reality of modern money mechanics. I should start here by stressing this money creation I explain is the REAL WORLD of money as it ALREADY EXISTS.
My suggestions/explanations refer to working with the existing situation. I believe we don’t have to change it to get improvements. They too are possible within the current system.
The problem is not macroeconomics. The problem is politics. Stripping wealth away from the poor and even the middle class is purely a POLITICAL OPERATION. It is embodied in what is known as Neo-liberal politics. We desperately need a new narrative to consign neo-liberal mantras to the dustbin.
IMO it will be easier to do this than to change the macroeconomic situation. Take US situation; Bernie Sanders understands how modern money works. He has Stephanie Kelton advising him.and she is Guru on modern money mechanics. But Bernie knows that if he owns up he will shoot his prospects in the foot. So he could only change course if he gets power. Hillary and Trump are utterly ignorant, so expect no good news there!.
Politics is the answer, not macroeconomics. Macroeconomics is the tool. Understanding how this tool works will clear way the dead wood of neo-liberal economics.
How do you know that Trump is utterly ignorant? I think he’s pragmatic and will do what works–no matter what he has to say to get elected–and that includes working with the monetary reality of which you speak. He said the govt. prints the money and therefore can’t default, evidence that he grasps the realities. He’s definitely not on the side of the hedgefunds and bankers, but on that of the real economy, which bodes well.
Ignorant of macroeconomics, unlike some respondents here. Politicians don’t want to know [Bernie does] the way money is dealt with in the mainstream is wrong. Just for starters Trump et al would not understand the federal government does not spend tax dollars. If they did their rhetoric would have to be entirely different, or they would lie. Take your pick!
Dr. Anthony Horvath author of” CAPITALlessISM … published recently. http://www.capitallessism.com ….. please …. IS IT THE DOG THAT WAGS ITS TAIL OR IS IT THE TAIL THAT WAGS THE DOG. Well it seems, that in our society big-banks/big-corporations wag the nation. I thank you for your many interesting comments. I note however, that many status quo advocates are confusing/frustrating people with terminology and technicalities… while nothing is changing. So do you wonder why Trump is so popular?… To 50 million Americans the complicated terminology jargon, or the intricate complex technicalities presented by the gurus of the economy are not producing the magic WOW effect anymore. While we lose our jobs, our homes, our health care, our pensions….. our children’s lives and future to unnecessary wars… people believe more and more in a harmonious PUBLIC/PRIVATE BANKING NETWORK SYSTEM under the coordination of A DEMOCRATIC GOVERNMENT for a FAIR CAPITALISM as proposed by Dr. Ellen Brown and her associate authors…. Also as proposed by ROSEVELT’S SECOND BILL OF RIGHTS for a fair capitalist system… in order to balance out legitimate corporate profit goals with the economic survival rights of 95% of the people.
So the big question is not just TRUMP or NOT TRUMP, … all he did is let the genie out of the bottle…. Now Bernie is also trying to catch some wind it…
The bottom line is people realize more and more that :
-1- …PEOPLE AND GOVERNMENTS DON’T HAVE CAPITAL CREATION POWER BUT BANKS DO …. And WHY only banks ????
-2- …BANKS SELECTIVELY SUPPLY/ERASE CREDIT/DEBTS TO THEIR FAVORITE CORPORATE FRIENDS…(giving them undemocratic economic power to stamp out competition with small and medium size businesses),
-3- …with money from ‘’thin-air’’ BANKS are in UNILATERAL POWER POSITION DICTATING GOVERNMENT POLICIES(, …austerity measures, privatisation of social services, cutting health care etc.),
-4- …BANKS REPOSESSED 8 MILLION HOMES FROM POOR AMERICAN FAMILIES (in the U.S.) while started a new corporate socialism for Wall street. (the 800 billion dollars bail-out package backed by the taxpayers )
This is what our politicians must deal with to defuse the radicalization trend in the world. You are quite right, ‘’politics is the answer, not macroeconomics’’. So our politicians must deal with the impoverished middle class. Ralph Nader, in his latest book titled ”The Unstoppable”, advocates “the emerging left-right alliance to dismantle the corporate state . . . to prosecute big-time Wall Street crooks . . . breaking up big banks.” He states: “We are up against big corporations and big government . . . Nobody is more fearful of the Left-Right Alliance of the American Middle class than the plutocrats and the oligarchs (Allen Abel, Gazette 2014, July 12).” I guess Trump and Bernie Sanders saw the signs on the wall. So this is the question form people … to BE … or NOT TO BE HEARD.
Now, just to get this issue back on the table, I’m pondering now voting for Trump, unless Hillary shows similar knowledge of monetary policy. I see in Bloomberg (mag) that Sommers understands this too.
But what is reckless is all these so-called monetary experts arguing that the national debt is already $19 trillion and implying taxpayers must pay for it. Most of that national debt is already backed by the money paid by investors who bought the securities (excluding the banks, who actually lend the money for deficit spending). Investors in US securities don’t fund the deficit spending. Deficit spending securities are either rolled over at maturity by Treasury swapping at face value a new security for the mature security or the Fed buys them with QE or at public auction And the Fed indeed bought much of the securities held by banks for deficit spending with QE.
The reason there was no inflation: the securities are IOU’s for loans.
Fractional reserve banking is passé, obsolete, not used anymore by private banks in the US. We have fiat money! Banks don’t have to lend from their customers’ deposits to new borrowers in order to get dollars backed by gold to lend.
When private banks now lend money, they create dollars out of thin air and deposit them into a loan account from which they withdraw the dollars and put them into a borrowers’ checking account to spend. When the borrower pays back the loan, it is drawn out of money in circulation in the possession of the borrower and when he/she pays off the loan, the loan account is erased from the bank’s books and the dollars used to pay it off are ‘extinguished’ (maybe put in bank vault–bank cannot use vault cash to buy things for itself.) So, the supply of money in circulation decreases by an amount equal to the repaid loan. That’s why when the Fed buys the bank’s security, that money cancels the loan at the bank to the govt, and the dollars used to pay it are ‘extinguished’…. Or remain in the reserve account at the bank. But reserve dollars themselves never go into circulation.
And one other thing, the Federal reserve is not the cause of money increasing in circulation. Banks are (by lending money created out of thin air). Congress is (by deficit spending requiring Treasury to borrow from banks.
Banks cannot lend without there being a demand for the money. Congress can create that demand with deficit spending making Treasury borrow from the banks.
The Fed can take the securities it has bought at OMO auctions or by QE and when they mature swap them for face value in new securities with the Treasury. Treasury will then extinguish the mature securities back in its possession. They no longer represent an obligation of the government to anyone.
The Fed does this swap when there is inflation, because it needs new securities to sell to private investors in order temporarily to drain money out of circulation to fight inflation. The only time the Fed “prints money” (it doesn’t: the Bureau of Printing of the US govt does) is when it buys securities at public auction or from banks with QE, but those dollars cancel a loan and are ‘extinguished’ or ‘inactivated’. They do not go into circulation where transactions involving exchange of goods and services for money occur. That’s where inflation can arise under certain circumstances.
And why and when should Congress do deficit spending? When there is deflation, recessions, depressions, economic stagnation. That’s because there is not enough money in circulation to buy all the goods and sevices being produced. It’s gone off into savings, to buying imports. At every transaction a seller keeps some of the dollars he/she has received (saves) and only some of the money received for the sale is used to buy something else. Over time, as the money circulates, if not replenished, it could all end up in savings, and the economy collapse. Congress needs to prime the pump so to speak by deficit spending on infrastructure to get value for the new dollars created and put money into hands of consumers who will buy goods and services. Business will come to expect more buying by customers (as long as there is money circulating) and borrow from banks to expand production. That will grow the money supply in circulation.
I don’t visit this site often, but when I do, I can count on an excellent summation by Stanislaus2!
Bottom line: Taxpayers never pay for federal spending. The federal government pays all its bills (incl. interest payments) by simply crediting accounts. Lingering output gap says fiscal in order. The rich don’t want this, that’s how they stay rich. (It’s solely about increasing the wealth and power gaps between the rich and the rest.)The “debt” is handled exclusively through the Fed/US Treasury nexus-and again, no ‘taxpayer dollars’ involved.
” Lingering output gap says fiscal in order. ” I don’t understand this part. Please explain.
great debate
Mostly correct except for saying the federal government borrows from banks to deficit spend. It doesn’t. Deficit is not debt. Budgets are just an accounting convention for knowing how tax “revenue” compares with spending. Deficits mean that the government spent more than it withdrew in taxes. Surplus means they spent less. Surplus says the government cuts the economy performance, which lowers jobs and investment by the private sector. This sounds the opposite to what one usually imagines a surplus to mean.
Congress, in its sublime ignorance, requires the Federal reserve to issue bonds to match federal deficits, simply idiotic.
Inflation only arises when the deficit spending exceeds to capacity of the economy to absorb it. Right now the output gap is likely over a $Trillion, so there is lots of room to spend our way out of deflation, by initiating infrastructure repairs and freeing up health and education costs.And the fed can buy all these debts without involving commercial banks. Doing that can triple the bottom line, but banks love it.
They are just against of bailing us, the people. They can have all the bailouts they want at our expense.
And thats really the most relevant thing, Javy. Its not that there isn’t enough to go around, it’s that it’s all being siphoned and manipulated to a very small portion of the population. This is simple enough, yet the “experts” never speak to it. Our system is based on debt and borrowing, credit and “debit”, which has overall done more harm than good. Congress has not dealt with this in any realistic way, though they have the power to do so. The so-called experts want to deny that the power over money-creation and all the manipulations that have followed has been allowed to concentrate into private hands, but this is obviously what has happened. Money and debt are now commodities themselves! This is not the way to do things.
Completely agree.
Reblogged this on Dreams of Liberty and commented:
Bailing out us the people instead of the rich. What a concept!
Printing money that leads to inflation actually benefits the rich more so than the poor. The rich can store capital in whatever asset class is “the bubble of the day”, while the poor focus on lifestyle and the essential spending that’s associated. The poor and middle class are not subject to protecting themselves and suffer most.
Well, it depends on who gets the money. If the people get the money and the fake debt is erased it would work. See Iceland for example.
Freeing the ‘people’ from debt would release them from debt slavery, and consequently, will never be allowed…….
Exactly.
http://www.opednews.com/articles/Can-we-together-end-artifi-by-Eric-Encina-Banking_Banks_Financial_International-160514-504.html
[…] the Money”: Trump’s “Reckless” Proposal Echoes Franklin and Lincoln https://ellenbrown.com/2016/05/14/print-the-money-trumps-reckless-proposal-echoes-franklin-and-linco… or #germany […]
[…] ⇧ "Print the Money": Trump's "Reckless" Proposal Echoes Franklin and Lincoln … […]
Issuing excessive currency may not cause official inflation, but what about asset inflation — stocks and real estate, for example?
Reblogged this on The Most Revolutionary Act and commented:
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Even broken clocks are right twice a day.
yep, I suppose that gives you one more time to be right today
Someone please tell Dean Baker the federal government pays all its bills (incl. interest payments) by crediting accounts-no taxpayer dollars are ever involved.
https://research.stlouisfed.org/fred2/graph/?graph_id=307669&category_id=
Certainly printing cash to pay off public debt would cause inflation so that yields on US treasuries would become negative. Creditors would dump their T-bills and the price of gold would grow exponentially again as it did between 1966-83 (see link) As the debt/gdp ratio fell to zero, investment and wages would take off and unemployment would be low.
The flaw in the Keynesian argument is that they failed to account for the debilitating effect of public debt accumulation. With debt free national money, public debt would not accumulate.
Most importantly, however, is that without public debt there would be no profit in war.
[…] “Print the Money”: Trump’s “Reckless” Proposal Echoes Franklin and Lincoln […]
Nationalize the banking system, put the creation of credit back into the government’s hands, recognize there is not debt, just evil accounting principles designed to fortify the mega rich establish global control through the fantasy of DEBT.
Yes, print the money, it is such a simple means to regain independence from the Rothschilds, Rockerfallas, the vatican, etc.
Introduce Social Credit economics as designed by C.H. Douglas.
Credit banking works, is sane, moral and would eliminate all debts to the bankers in 24 hours. Just to it, don’t talk about,
It is time for politicians to start working for their constituents, to recognize that the game finally is up, and the public is now aware of the evil economic system to which they have been enslaved since the original founding of the Fed.
Dr. Anthony Horvath author of” CAPITALlessISM … published only recently. http://www.capitallessism.com
Please… FORGET ABOUT NATIONALIZATION OF BANKS, ….they have useful expertise. Push rather for the NATIONALIZATION of the FRACTIONAL RESERVE BANKING RIGHTS, as proposed in Iceland by Frosti Sigurjonsson, a lawmaker from the ruling Progress Party, who suggests taking the power to create money away from commercial banks, and hand it over to a CENTRAL ‘NATIONAL PUBLIC’ BANK and, ultimately, to the Parliament. Banks should be allowed to practice only FULL RESERVE BANKING, I.E. only to the extent of their reserves as any other business. CAPITALlessISM then proposes FRANCHISING this NATIONALIZED FRACTIONAL RESERVE BANKING RIGHT back to cooperating banks and sharing the created e-capital wealth with the nation WITHIN A NEW PUBLIC-PRIVATE BANKING PARTNERSHIP. CAPITALlessISM suggests a NATIONAL CURRENCY be created by this NATIONAL PUBLIC-BANK, based not on gold reserves but on the global stable commodity base of the national production potential (based on national necesities) (as suggested also by Thomas Edison). Cooperating private banks could assure its coordinated circulation in the economy. Then, this massive new created e-capital would finance public-social-development programs as Roosevelt’s second bill of rights envisioned it, enabling democratic and fair capital access to individuals and institutions.
Sorry to be flippant, but in Iceland, some people call their children ‘Frosti’?……………I must say that I’m impressed with the way Iceland dealt with their criminal Banksters. Why didn’t the American FED do the same?(silly question, I know).
Can the author (or contributor to this discussion) of this article, explain to a dummy like me, is Trump’s proposal a good thing, or a bad thing?
I thought “The right of government to issue its own money,” is why the USA is in the debt mess it has now.
In other words, why is it acceptable for Trump to suggest that the USA print money to pay off debt??
Trump’s idea that the government can create its money and spend it is partially right. But then he went off on a tangent to discuss how he would deal with the problem of buying and selling bonds which he has done in the private market. We would try to negotiate down the price of the bonds. But you can’t do that with US Treasury bonds and securities. When they mature they have face value and can be exchanged for money dollar for dollar. No one would give up mature govt bonds for less than face value. Knowing that the government can pay face value (should), they would demand face value. But what is ridiculous is the fact that he tends to accept the debt as a real problem. (As do most naive people–which includes a lot of expert economists). About 87% of the national debt consists of investors’ buying the US securities. The rest if deficit spending. Investors dollars remain in time deposits at the Fed, recorded with their securities and name of holder. When the securities mature, Fed will give back their principal (which equals the discounted price they paid for them , plus add interest to bring the returns up to face value of the security. Fed can either create the interest out of thin air or let Treasury borrow the interest money from banks and then go into endless roll-overs on the securities. As for bank-held deficit-spending securities, Treasury will negotiate with the banks to roll over the debt using securities swaps, new for old, and do this over and over for ever. In that case the debt is never repaid, but in that case it is no longer a true debt. Banks love it because at each swap they get interest–free. Banks don’t borrow deposits from their depositors to lend money to the government. They just create it out of thin air. Treasury can convert the debt into nondebt by rolling over the debt on the securities by the securities swaps, and do this for the interest also. If ever the banks need to redeem their securities for dollars, they can put them up for sale at public auction and the Fed will buy them at face value with money it creates out of thin air. This will not be inflationary because these dollars cancel the debt on the books at the bank and as with other repaid debts, the money received back is extinguished back into thin air. None of these dollars will go out into circulation. But the original money lent to and spent by the Treasury continues to exist in circulation, and it could be inflationary or anti-deflation, depending on the status of the economy.
Does the Fed really borrow from banks, at all? It is monetary sovereign and can buy any of its debts whenever it wants to. That means it has no need to save or borrow,since it is its own money. This does not exclude borrowing from banks. But it is just does out of ignorance or wilfully, so banks get a cut of the action. As you rightly say bank money is also created from thin air, but as a liability. So it has to be paid back to extinguish it. Even though bank money is 97% of the money supply it doesn’t figure in government accounts as it sums to zero over time.
Government money is a net credit to the economy, free from double entry accounting. Government can only “print money” to buy its debts.
This ONLY applies to monetary sovereign entities, so state and county arms of government are like the popular household analogy. Politicians push this idea so they can say the government can run out of money, but it’s a lie. Federal governments can never go broke.
[…] Web of Debt Blog […]
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LET US START TAKING APPROPRIATE AND SIGNIFICANT ACTION TO IMPLEMENT THE SOLUTIONS WE ARE ADVOCATING HERE TO REMEDY THE PROBLEMS ON FINANCE BEFORE IT IS TOO LATE.
Ellen (or anyone else)I need your help in understanding how printing money will not cause inflation.
1. You say, “When the Fed’s QE program was initiated, critics called it recklessly hyperinflationary. But it did not even create the modest 2% inflation the Fed was aiming for.”
• But you also say, “In QE as done today, the newly issued money makes it no further than the balance sheets of banks.” My understanding is that most of this money went into the books of banks simply to cancel out the bad debt they were holding. Virtually no money went into the real economy of providing goods and services. So this doesn’t seem like supporting evidence that printing money will not cause inflation.
• Even if this works in the United States, would printing money be a solution for only our country, since the US dollar is pretty much the global currency. So, we could buy what we want from all over the world. A secondary question: Is there a difference between the “petrodollar,” which I understand is more specifically the global currency, and the “regular” dollar?
2. Concerning the idea of not enough supply to meet demand, you quote Richard Duncan: “with automation and the availability of cheap labor in vast global markets today, supply can keep up with demand for decades to come.”
If our government started vast infrastructure projects and lessened taxes or just made direct payments to US citizens, how would this situation be different than in the Weimer Republic or other hyperinflationary countries? Raw materials and basic goods would still have to be produced or acquired. Labor forces would have to be mobilized and moved into production. All of this would take time, so wouldn’t inflation happened during that period of time?
3. Finally, although this is not in your article, I understand that if the government prints money and puts it into the hands of the public for new goods and services, it would not be inflationary. How would anyone ever be able to create the rules or procedures to make sure that this happened, i.e., it went for new goods or services?
I very much admire the work you do and look forward to your thoughts and clarifications on this.
Let’s start at the beginning. The FEDERAL DEBT is not a debt requiring selling anything to repay. It’ is debt from the government’s point of view, exactly as your savings account is a debt to you from your bank. From your side the debt is your savings account and to repay you the bank simply gives your savings back to you. The government does the same. It simply gives back the $19trillion to the depositors who bought the bonds. The bonds you bought are never used by the federal bank, because they do not need the money. You could rather call it a sort of corporate welfare, a benefit to investors who can safely store their money at the federal reserve where it is guaranteed by the state and earns interest, sometimes at a better rate than if the investors, [banks etc] lent the money elsewhere!
This fact changes the rest of your blog. The government can ONLY create money to repay its debts, and a bank can only create money if it has a customer wanting a loan. Money is not created for nothing, for saving or spending later, only as required.
Regarding inflation, that depends on whether the government buys stuff the economy cannot afford. Right now in the current deflationary environment this is a remote option. Spending on a lot of necessary work will create employment and work which will counter deflation, far from excess inflationary pressure. The limit to spending is the limit to the economy at full employment and no runaway inflation.
QE was just an asset swap. The government took over under performing bank loans and so allowed the banks more space to start lending, except the banks found the demand was not there, or not credit worthy enough.
Western nations are “mature” economies now and there is less demand that was the case when economies were growing strongly, up until 1970. After that demand paucity was disguised by credit creation for a lot of useless superfluous work, and little fundamental infrastructure etc.
Now we need to restart infrastructure because it is getting to be a parlous situation. Money is instead concentrating on financial dealings which are an economic cost to society.
The money that now circulates has to come from somewhere, yes? Who issues it? Not the government, but private banks, by lending it to the government, businesses, or individuals, AT INTEREST. But wait, there is never enough money in circulation to cover both the principal and the interest, so only the interest gets paid, while the principal continues to grow. It doesn’t make any sense, it’s just a pyramid scheme. The government should reclaim it’s constitutional authority and just issue the money into circulation, debt-free, like they do with coins. It can be done.
Banks were generally not lending money to business because business was not borrowing, because it did not see enough consumer demand for it. Government could create demand for money at the banks by borrowing money for deficit spending. But then banks saw the near zero interest rates on borrowing dollars from the banks. So, they have borrowed those and piled them up in savings accounts, because they still don’t see much demand for goods and services over and beyond what they are currently producing, which is not at full production or employment. Businesses will start to spend their savings on expansion of their businesses when consumer demand returns and increases. That could come about if Congress realized it has to create consumer demand for goods by paying them for producing infrastructure for wages as credit to their employers–not debt. Wages for work performed is not debt to the worker.
And because Treasury never pays off the loan but instead rolls over the debt perpetually for deficit spending with swaps of new securities it can create for the old mature securities from the banks, the debt is no longer a real debt, because if everyone know the debt will never be paid off because of the roll-overs, it is no longer a debt. But the banks created the money out of thin air in the first place. What they want from the loans is the interest at each roll-over.
Doesn’t a bank have to cancel a debt when it gets back from someone or the borrower the value for the debt? And isn’t the money then exitinguished? The original bank-created money came out of thin air and as the debt is paid, returns to thin air.
Banks no longer have to borrow dollars from their depositors because that is an old practice required when dollars were backed by gold. When banks made new loans, they had to use dollars backed by gold. Where would the bank get those? From its depositors. So you got fractional reserve banking, a hold-over from when the goldsmiths lent out gold from their depositors’ gold deposits at the goldsmiths. To prevent being short on gold to return to depositors withdrawing from the bank they learned to keep on hand a fraction of the gold on hand stored in the bank. But now, there is no need to do this, and banks don’t wait to see if they have reserves to make loans. They aren’t needed other than a formality. The banks create dollars to lend out of thin air.
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