Life Or Debt?

For years the AMI has labored to create a bill that would nationalize the Federal Reserve, prevent private banks from creating money out of thin air (which they do now under the current fractional reserve banking system), and enable the government to spend it into existence by investing in much needed public infrastructure, including education and health. The conferences feature speakers who understand the current process and how our dishonest, private, oligarchic system could be retooled into an honest, public, transparent, and accountable one.

The recent four-day conference in Chicago included outstanding speakers with extensive knowledge and expertise in a wide range of areas, including some who had worked at the Federal Reserve— whistleblower William Bergman and Meredith Walker; authors, economists, and advisors to Congressman Kucinich—Michael Hudson and David I. Kelley; as well as William Black, who led the Savings and Loan rescue effort in the 90s and spoke in detail on “Fraud's Critical Role in Producing the Financial Crisis.” The talk that moved me the most, however, was about the history of Canada’s monetary reforms, presented by Will Abram—- who was born a year before the 1929 stock market crash and vividly described his life during and after the Great Depression.

As Will Abram explained, the Bank of Canada was created in 1935 under the leadership of Gerald Gratton McGeer, who was the true father of the Bank of Canada, and William Lyon Mackenzie King, who was Canada’s prime minister when the Bank of Canada was nationalized in 1938. The Bank enabled Canada for decades to create money to fund government programs, expand the railroad system, provide jobs and healthcare, build a large navy, and educate its people--all without skyrocketing debt. That changed in 1974 when Canada decided to allow other banks to “create money,” and then Canada began borrowing from these banks! As a result, the growing debt has siphoned off much of the country’s wealth in the past 35 years, resulting in the selling of the Canadian Railway system, the erosion of public services, and loss of control over national resources. Will Abram noted that Gerald Gratton McGeer has been basically written out of the history books—the book that he authored, Conquest of Poverty, (described as a good read by Will, who brought a rare copy to the event) has been long out of print, and McGeer’s ideas about money have been all but forgotten.

Upon hearing this presentation, the first question I asked was “What happened in 1974?” Will gave a cautious, evasive response, saying that he needs to research the issue more thoroughly (Zarlenga later told me that he expects Will to present his findings at the next AMI Conference). Apparently it is legally possible for Canada to reclaim control over its monetary system. The laws still exist, but no one in powerful government positions is exercising these laws.

Deregulation and privatization—the policies championed by the World Bank that have concentrated wealth and power, increased poverty, and been a disaster for the bulk of humanity—continue to be prescribed for countries hardest hit by the global crisis, such as Iceland and Latvia. Michael Hudson jokingly skewered the ‘neoliberal kleptocracy’ meeting in Pittsburgh for rewriting the rules to continue to extract wealth from the countries that have been lured into debt. He detailed his visits to Iceland and Latvia, which can’t possibly pay back the debts that the corrupt forces within their countries have incurred and then shifted onto the public. He described the dire situation in each country, including the exodus of people who cannot afford to stay. An article he wrote in August summarized the gist of his narrative:

‘Iceland promises to be the first nation to lead the pendulum swing away from the “real economy” ideology of free markets to an awareness that in practice, this rhetoric turns out to be a junk economics favorable to banks and global creditors. Interest-bearing debt is the “product” that banks sell, after all. What seemed at first blush to be “wealth creation” was more accurately debt-creation, in which banks took no responsibility for the ability to pay. The resulting crash led the financial sector to suddenly believe that it did love centralized government control after all – to the extent of demanding public-sector bailouts that would reduce indebted economies to a generation of fiscal debt peonage and the resulting economic shrinkage.

‘This agreement is the first since Germany’s World War I reparations debt to subordinate international debt obligations to the capacity-to-pay principle. Iceland spells this out in clear legal terms as an alternative to the neoliberal idea that economies must pay willy-nilly (as Keynes would say), sacrificing their future and driving their population to emigrate in what turns out to be a vain attempt to pay debts that, in the end, can’t be paid but merely leave debtor economies hopelessly dependent on their creditors. In the end, democratic nations are not willing to relinquish political planning authority to an emerging financial oligarchy.

‘No doubt the post-Soviet countries are watching, along with Latin American, African and other sovereign debtors whose growth has been stunted by the predatory austerity programs that IMF, World Bank and EU neoliberals imposed in recent decades. The post-Bretton Woods era is over. We should all celebrate.’

Reality trumps fraud.

Hudson clearly spells out the fraud or ‘misguided wishful thinking that has dominated neoliberal thought’ –

‘Debts are a claim on output, revenue and wealth, not wealth itself.

‘This is what pro-financial neoliberals fail to understand. For them, debt creation is “wealth creation” (Alan Greenspan’s favorite euphemism), because it is credit – that is, debt – that bids up prices for property, stocks and bonds and thus increases financial balance sheets. The mathematically convoluted “equilibrium theory” that underlies neoliberal orthodoxy treats asset prices (wealth in the financial sense of the term) as reflecting prospective income. But in today’s Bubble Economy, asset prices reflect whatever bankers will lend – and rather than being based on rational calculation their loans are based merely on what investment bankers are able to package and sell to gullible financial institutions trying to pay pensions out of the process of running economies into debt, or otherwise disposing of credit that banks freely create.

‘The amount of debt that can be paid is limited by the size of the economic surplus – corporate profits and personal income for the private sector, and the net fiscal revenue paid to the tax collector for the public sector. But for the past generation neither financial theory nor global practice has recognized any capacity-to-pay constraint. So debt service has been permitted to eat into capital formation and reduce living standards.’

William Black’s presentation detailed how those committing fraud, the crooks, can undercut and drive out honest, ethical people, in industry as well as in the financial sector. For example, in China unscrupulous companies added a poisonous, cheap substitute (melamine) to healthy milk powder to undercut and eliminate their competition and make larger profits, not caring that their actions killed babies and endangered public health.

The Ponzi scheme that ballooned into the current global crisis was characterized at the most basic level by loans that were made to people who could not possibly repay them. It was only by lenders not looking at these loans, failing to act ethically and responsibly, that these loans could be approved, repackaged, and resold, again and again, for the profit of those who participated on one level after another. There was systemic fraud taking place, and there was pressure on honest people to not look and not tell. Some courageous whistleblowers were punished, but only a token few of the many perpetrators have been punished, and there are still no real investigations or accountability. At the highest levels of government, the financial entities most responsible for the economic crisis are still directing government policy. As a whole, Congress remains subordinate to the financial sector and actively participates in the coverup.

There have been a few, very rare politicians who have had the courage to speak honestly and challenge the monopoly capitalists who have recently turned into financial cannibals in their struggle for survival. One such politician was Henry George, who wrote Progress and Poverty in 1879, which showed how the monopolization of land deprives society, as a whole, of wealth, and how this problem could be solved by the imposition of a tax on land. Land reform and monetary reform go hand in hand. Dr. Cay Hehner, director of the Henry George School of Social Science in New York, spoke eloquently about the “End of Capitalism As We Know It,” emphasizing the abrupt inversion of language as those in power scramble to change the rules that contradict ideologies that they have been pushing for decades, simply to save their own skins. Henry George inspired Tom L. Johnson, perhaps Cleveland’s greatest mayor, who in turn was an inspiration to Congressman Dennis Kucinich, who has championed numerous taboo issues, earning popular support and the predictable contempt of the corporate media.

www.communitycurrency.org/chicagoreport.html