At 20:18 05/05/2011, D and N wrote:
Found on Sam Smith's Progressive Review, from:
<http://www.huffingtonpost.com/stephen-zarlenga/reducing-us-debt-and-crea_b_857230.html>http://www.huffingtonpost.com/stephen-zarlenga/reducing-us-debt-and-crea_b_857230.html
Reducing U.S. Debt and Creating Jobs Through
Public Control of Our Money System
Stephen Zarlenga & Greg Coleridge, Huffington
Post - Be it for ignorance or by intention, few
federal elected officials have examined how a
change in the way money in our nation is created
and issued could reduce our nation's deficit and
debt and, in doing so, increase millions of
vital jobs to transform our economy.
One of the few exceptions is Rep. Dennis
Kucinich (D-OH), who during the last
Congressional session introduced the National
Employment Emergency Defense Act.
The basis of the bill are three essential
monetary measures proposed by the American
Monetary Institute in their American Monetary
Act (AMA). The AMA's recommendations are based
on decades of research and centuries of
experience; are designed to end the current
fiscal crisis in a just and sustainable way, and
are aimed to place the U.S. money system under
our constitutional system of checks and balances system.
The three essential measures include:
Moving the mostly private Federal Reserve System
under the US Treasury Department. The Fed would
no longer be a virtual fourth branch of
government, unaccountable to the public. Their
important financial research functions would
continue. But the Fed would no longer make
unilateral monetary policy decisions beyond the reach of we the people.
(KH) The Fed and the US Treasury are an item
anyway. Central banks and governments always
have been, whatever they may say to the contrary.
The first central bank to be created was the Bank
of England and it was only created because the
government wanted a great deal of money for
warfare. In 1672, King Charles II had reneged on
the debts he owed to London gold merchants and
from then on nobody would lend money to the
government. In 1694 when the government badly
need money for warfare, it only managed to borrow
£1,200,000 (about US$2 billion in modern terms)
from half-a-dozen extremely rich merchants by
giving them exceptional privileges (as well as
charging 8%!). These privileges were (a) the new
Bank of England would be the sole depository for
all the taxation that the government received and
the sole payer of government's bills; (b) its own
promissory notes (banknotes) would be the only
ones in the country (thus outlawing the banknotes
of all the other banks -- of which there were
scores of "country" banks and 20 or so other
major banks centred in London); (c) it could
print and issue (to borrowers) as many banknotes
as it wished. (This was subject to any banknote
being redeemable in gold on demand. Because
banknotes are much more convenient than gold
coins or tablets in normal everyday retail or
commercial use then banknotes became the most
common visible currency, and gold tended to
accumulate in bank vaults as fractional reserves
against bank runs -- the BoE having by far the
largest quantity of all. During the next 200
years the BoE accumulated more gold than any
other bank or private person the world --
probably about 80% of it [similar to the 70% of
the world's gold that the US Fed had at the end of WWII].)
Thus the BoE was a private bank (just as the US
Fed is, and also all the other State Fed banks)
and its governor (chairman) and directors were
private individuals (each with their own
independent wealth) who were (originally!)
genuinely running the BofE for the benefit of the
country when moral principles were more highly
regarded than now. (Obviously, they charged 8% in
order to get their own original loans back but
once they were deemed to be completely safe then
they operated the bank patriotically -- though not always wisely!)
Making the power to issue money a public
function -- bypassing the current system which
invited the careless and risky lending that led
to the global economic crisis. The U.S.
government would be authorized to issue dollars
debt free. This power would replace the current
undemocratic and unstable "fractional reserve"
system in which money is created as debt
through loans by financial corporations who
lend many more times what they possess. Banks
would no longer have this privilege to create our money supply.
(KH) The fractional reserve system is not
unstable when it's 100% -- as all the original
Renaissance banks were originally and many of the
major private banks of Europe were for at least
two or three centuries. But this fraction
gradually sank over the following years. In
fairly modern times (1960s and 70s) the Bank for
International Settlements recommended 7% for all
banks, and this sort of fractional reserve is
what is quoted in the text books. But this was
largely fictional because it had already reduced
in practice to about 2% or 3%. At the time of the
credit crunch the fractional reserves of most
major banks were down to 0%. In fact, they had
lent out so much money (created credit) that
their fractional reserves were more like -10% or
even -20% -- and even then only on the basis that
the collateral lodged with them (mainly property
deeds) were valued far higher than reality. Since
then the BISS has recommended 10-12% as being a
sensible fractional reserve and the banks -- with
copious help from governments (taxpayers) -- are
now struggling to get their reserves up to
strength. But most of them are still technically
bankrupt (with negative reserves) and only one or
two are now gradually getting into the 2% or 3% region.
But as to the main point in the article above, if
the issuing of money were to become a public
function then this would be even more disastrous
than now. They would simply vote for the
political party that would be the most generous
-- and then we would run into hyperinflation immediately.
Enabling the U.S. government to use its money
power -- creating and spending money into
circulation -- to address pressing
infrastructure needs such as repairing our
crumbling roads, bridges, rails and highways.
The government also would be enabled to invest in health care and education.
(KH) This would be fine if governments were able
to do this. But America (and most advanced
countries) already have crumbling
infrastructures, failing health schemes and
declining standards of state education.
Governments only start these projects at
relatively brief periods of peak prosperity, but
cannot maintain them adequately in normal times
because, in the meantime, vast bureaucracies grow
and capture an increasing part of the tax revenue.
These projects would provide a huge numbers of
jobs without going into debt and having to
repay interest on debt to financial
institutions. Economist Kaoru Yamaguchi's
computer model has shown that a public-based
money system and spending government money on
jobs fixing our infrastructure is the best form of economic growth.
The irony is that these three provisions would
institutionalize what most Americans falsely
believe already exists: That the Federal Reserve
is public. That banks only loan money that they
possess. That the government creates our money. Wrong on all counts.
What really needs to happen at the very least is
that, because money is of importance to all, then
the main items of all banks should be available
to public inspection at all times. Among these
would be fractional reserves. Gradually,
competition for customers would drive this to
100% (though it would take decades). As far as
governments' central banks are concerned we would
also want to see that present and future
commitments to basic survival welfare and state
pensions are paid for out of existing invested
funds and not, as now, purely notional figures in
the national accounts which have to be paid for out of future taxation.
Keith
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Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/05/
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