- This article previews the author's new six-part video
series scheduled for release April 2: "Credit as a Public Utility:
The Solution to the Economic Crisis."
- The Obama administration is spending hundreds of billions
of dollars trying to persuade the banking system to restart lending. Federal
Reserve Chairman Ben Bernanke plans to create hundreds of billions more
of new bank reserves by purchasing mortgage-related debt. With Bernanke
and Treasury Secretary Timothy Geithner working together, "the initiative
will seek to entice private investors, including big hedge funds, to participate
by offering billions of dollars in low-interest loans to finance the purchases.
The government will share the risks if the assets fall further in price."
(Martin Crutsinger, AP) Finally, President Obama is taking over the
distinction of being the biggest Keynesian in history with a fiscal year
2009 deficit of $1.75 trillion.
- The cancer of debt grows by the day. According to Michael
Hodges' famed "Grandfather Economic Report": "America has
become more a debt 'junkie' than ever before,
- with total debt of $57 trillion, and the highest debt
ratio in history. That's $186, 717 per man, woman and child."
- With the federal bailouts of the financial system and
the recession, the debt load has increased by $4 trillion in the last six
months. What are we going to do with even more debt coming?
- The growth in debt will be impossible for households
to deal with when more then half a million jobs are still being lost per
month. Impossible too for U.S. businesses when the drop-off of consumer
spending reflects not only job loss but also a new propensity to actually
save a portion of our earnings after the mortgage-based spending spree
of the last decade.
- The debt will be more possible to bear perhaps for the
Treasury Department, which has benefited from investors searching for a
safe haven so still being willing to buy Treasury bonds. This includes
Treasury's biggest current customer, the Bank of China.
- Yet what does it say when the government can open its
doors in the morning only if the Chinese give us permission? Secretary
of State Hillary Clinton traveled to Beijing in February to be sure they
still looked on us with favor and returned home to assure the president
they did. But is this any way to run a country? Why can't the most productive
nation on earth afford to pay for its own government?
- The Obama economic program, which so-called progressives
call "revolutionary," will take us further away from, not closer
to, real solutions. The massive new debt it creates can only be enforced
by the courts, the police, and ultimately military power. Within the U.S.,
the authorities are preparing for civil unrest. Overseas, "dollar
hegemony," the system by which nations like China continue to enable
our massive debt, is increasingly unstable as the world bails on the dollar
as its reserve currency.
- When is anyone in authority going to utter the unutterable,
which is that our financial collapse ultimately goes back to the fact that
every dollar in circulation derives from a loan made by a bank to a producer,
consumer, or the government, and that all these loans have attached to
them a rental charge known as interest which is paid to the bankers' monopoly?
When will someone admit that the government's economic recovery plan is
a welfare program for Wall Street billionaires?
- We live and work under a debt-based monetary system that
has been in force since Congress passed the Federal Reserve Act of 1913.
It's how the system works. The government goes into debt, and the banking
system then uses it as a reserve base for lending to the public.
- It wasn't always this way. In the 19th century,
until the Civil War, the government lived within its means. President Thomas
Jefferson balanced the federal budget for eight consecutive years, and
President Andrew Jackson paid off the national debt.
- Back then the government issued currency based on gold
and silver, and the U.S. mint stamped precious metals into coinage for
anyone who brought it through the door. Local commerce was fueled by a
system of state and local banks operating on the "real bills"
doctrine. Inflation was virtually unknown, and unpaid debt led swiftly
to bankruptcy and a sheriff's sale.
- When the Civil War began, President Lincoln needed money
fast. The New York bankers offered outrageous terms: interest at 24-34
percent. So Lincoln was authorized by Congress to print and spend Greenback
money directly into circulation. Contrary to later propaganda, the Greenbacks
were not inflationary. They were upheld by the Supreme Court as constitutional
and remained in circulation until the early 20th century. They
even spawned the Greenback Party that elected members of Congress and ran
candidates for president.
- But the bankers, by now centered on Wall Street, gained
a foothold with the National Banking Acts of 1863 and 1864, where the banks
were allowed to purchase Treasury bonds as a lending reserve. Currency
issued by the state and local banks with their hard money reserves were
taxed out of existence.
- In 1913 the bankers' trap snapped shut when the Federal
Reserve System came into existence. After World War I, the currency inflated
so much that the value of both the Greenbacks and coinage were destroyed.
- A monetary system based on bank lending means constant
cycles of inflation and deflation. The banks create these financial bubbles
then destroy them, always to their profit. In the 19thcentury, the deflations
were called "panics." The Great Depression was a bank-created
panic on an unprecedented scale. The collapse of 2008-2009 is the panic
we're in now, but with plenty of assets on the market at fire-sale prices
for those rich enough to cash in. For instance, there was a lot of hand-wringing
when Citigroup's stock dropped to $1 a share. But those who could still
buy-in saw their holdings triple in value when the stock rose to $3 a share
a few days later.
- The solution is not to restart huge amounts of bank lending
in order to create new bubbles. Unfortunately, the Obama budget is an attempt
to create such a bubble based on Treasury securities. But this bubble too
will likely collapse, because there is no economic engine on the horizon
strong enough to pay the debt that will be used to inflate it. The next
collapse could even lead to a world war if China and other creditor nations,
possibly including those of Europe, decide to enforce their claims against
- But economists, politicians, and others who say there
is no immediate solution lie. They just don't want to tell us what the
- It's to get rid of the debt-based monetary system altogether
and return to one controlled by our representative government where a substantial
amount of money is spent directly without borrowing or taxation. A Greenback
system for the 21st Century is contained in the draft American Monetary
Act developed by the American Monetary Institute and briefed to a number
of members of Congress and congressional staffers.
- A Greenback-type currency would be regulated to support
the needs of the real producing economy, not bank speculation, and could
be used to pay off the national debt, supplement taxes to pay federal expenses,
capitalize a new federal infrastructure bank, or fund alternative energy
- A currency based on real U.S. money would replace debt-derived
Federal Reserve Notes. It doesn't matter whether that currency is paper,
gold, or electronic entries. What is important is that it exists in the
right amount to conduct the business of the nation, is non-counterfeitable,
is not misused for speculation, and does not have debt or interest attached
to it. The Federal Reserve would remain as a processor and clearinghouse,
but not a bank of issue.
- Greenbacks could also be used for a basic income guarantee
for citizens that would restart the economy at the grassroots level much
more effectively than government top-down job creation based on more Treasury
deficits. The need for consumers to borrow from banks or use credit cards
even for necessities like groceries and health care would sharply decrease. I
have proposed such a program through the Cook Plan that would provide citizens
with a dividend in the form of vouchers in the amount of $1,000 a month.
The vouchers could be used to capitalize a new network of community savings
banks that would lend at the local level.
- There is a good chance that the American Monetary Act
will be introduced during the current session of Congress. It should be
supported by anyone who cares about the future of our nation more than
- © 2009 by Richard C. Cook
- Richard C. Cook is a former U.S Treasury analyst who
also worked in the Carter White House and for NASA and writes on public
policy issues. His new book is We Hold These Truths: The Hope of Monetary
Reform (Tendril Press 2009). His website is <http://www.richardccook.com>http://www.richardccook.com He
is a member of the U.S. Basic Income Guarantee Network and has been an
adviser to Congressman Dennis Kucinich and the American Monetary Institute <http://www.monetary.org>http://www.monetary.org