Richard Clark
September 26, 2010
All of our money comes from debt to private banks — banks that try to make it look like governments are at fault for their countries falling so heavily into debt. The truth is that banks take the profits that could have been used to better maintain the society if only the people’s money was issued by governments through state-owned banks, as was the case, for a time, in both Australia and the US.
What private banks have set up is actually the world’s largest pyramid scheme, in which new people must always be going into debt in order that others obtain the currency they need to function within the economy. Within such a system, total indebtedness must continue to increase in order to provide the money that people need in an ever more productive society.
Solution to this problem
We need a grass-roots money-reform movement to take banking away from private interests and put it back in the hands of government — initially at the state level and eventually at the federal level too. Indeed, North Dakota has very profitably run a state-owned bank for nearly a century, and not coincidentally is the only state in the union that has survived the recent recession unscathed, with the lowest unemployment rate in the country. And now there are five other states that are in the process of passing legislation that will pave the way for state-owned and state-managed banks. Quite naturally, however, banksters are spending big bucks to try and stop this movement — they don’t want to lose all those billions of dollars of easy profits that would suddenly be transferred over to the citizenry as a whole, were it no longer siphoned off by banksters.
During the Civil War, Abraham Lincoln had his government issue a new currency called Greenbacks, but after he was assassinated the banksters saw to it that this practice, so very costly to them, was stopped.
Sometime later, farmers and factory workers banded together and formed a movement of monetary reform. Thousands joined it and in 1894 they marched from Ohio to Washington, D.C., to popularize their cause and to petition Congress to go back to Lincoln’s greenback system of federally issued currency, which they thought should replace the private bank-issued currency to which the country had regrettably returned after Lincoln’s tragic death.
This struggle, between whether the private banks would continue to issue all money, or whether the government would once again take over this responsibility (thereby greatly increasing the money supply while also capturing all the profits to be made from interest on bank loans), was a major issue of the day and was even represented in a fable originating at that time — the Wizard of Oz, in which the Tin Man represented the factory workers of the country, and the Scarecrow represented the farmers. And so it was that in the fable the two of them marched off together to the capitol to seek redress for their grievances from a little man — the wizard — who operated behind a curtain, twisting knobs on secret machines that almost no one understood or even knew existed — a metaphor for the mysteries of fractional reserve banking and the various scams and pyramid schemes that bankers have long used to separate the rest of us from huge sums of our hard-earned money. (And then they have the gall to claim that it’s the government’s fault for being so heavily in debt — when, if the government were the one to issue our currency, it could never be in debt.
Governments have the sovereign right to issue currency, but the world’s bankers have for so long paid for and manipulated the members of government, that few governments ever do issue their own currency. And if they do, they are often not allowed to do so for very long. So why does the citizenry tolerate this? It’s because the banksters have done such a superb job of conning them into believing that it would be wildly inflationary for governments to issue the currency society needs.
In reality, the banksters simply don’t want to lose the extraordinary profits that follow from their ability to create money themselves, simply by providing loans by writing a certain amount of credit into the account of whatever company or government they are dealing with. Banks never loan out their own cash or even the cash of their depositors; all they do is write a certain amount of credit into the account of anyone taking out a loan. And when that company or government somehow acquires the money with which to pay them back (with interest of course), the bank is that much richer with the new money that has been magically created out of indebtedness.
Note: The actual cash is printed up as required by the Bureau of Engraving and Printing. If a bank’s demand for cash rises, they go the Fed and ask for more of these paper notes (cash), and the amount is deducted from the bank’s “cash reserves.” All banks are required to carry a certain minimum amount of “cash” on their books — called reserves — to meet demand from depositors who want to withdraw funds. Those withdrawals can be paid with a check, electronic transfer or with paper currency. And when banks have more paper money than they need, they send it back to the Fed. That amount is then added to the banks’ “cash reserves.” (In effect, the pieces of paper are replaced with electronic bits in the bank’s computer system.) The Fed also controls the size of the nation’s money supply.
Hence the web of (bank-generated) debt that binds us all, from which some people (the banksters and those whose political campaigns they fund) say there is no escape.
Last January, when Obama sided with Paul Volcker’s plan re-impose the Glass-Steagall Act, which would have led to a kind of breaking up of the big banks — they would have had to separate their investment/gambling operations from their traditional banking operations — the stock market began to fall apart, almost as if it had been prompted to do so by powerful actors operating behind the scenes who wanted to send a message to Obama and the nation: “Don’t bring back Glass Steagall, or else!”
Also consider the day of May 6th, earlier this year, when the audit-the-Fed bill got the guts cut out of it. What might have prompted Congress to lose its nerve? Answer: There was a sudden, thousand-point drop in the Dow, which no one could explain, which once again begs this question: Are there persons unknown, operating behind the scenes, who can cause such things to happen when they want to deliver a message regarding pending legislation that might ‘rob’ the rich of the proceeds from their favorite scams? Then too, also on that day, there was the proposed Brown-Kaufmann Amendment that would have broken up our nation’s six largest banks. It was rescinded after the mysterious thousand-point drop. Coincidence? Perhaps not. Perhaps a message was being delivered: “Don’t mess with us; this is what we can do to you.”
Do we finally have legislation in place that will prevent another economic meltdown?
No, there will be no such prevention until the big banks are no longer “too big to fail.” This means they need be broken up one way or another. They either have to be nationalized the way the Swedes nationalized their banks when those banks got into similar trouble, or they have to be taken into receivership, re-staffed with government-appointed executives, reorganized, repaired, with their books cleaned up (i.e. toxic assets sold for whatever price can be gotten), and then, eventually, the banks would be sold back into the private sector.
Goldman Sachs is an investment bank that became a bank holding company overnight, which gave it the privileges of commercial banks, which means that it was suddenly able to borrow money at almost zero percent interest, and use that money to speculate (i.e. gamble with) in the stock and derivatives markets. And given the fact that 80% of Goldman’s fantastic profits come from such speculation (with the use of high-frequency trading programs that give them a decidedly unfair advantage over other traders), this privilege they were granted (by “our” government) is essentially a license to steal from the rest of us!
How can we possibly cope with this?
First of all we need what is called a Tobin Tax, which is a tiny tax on every trade that is made in the markets of stocks and derivatives. Secondly, we need to find a way to somehow deal with the use of high frequency trading programs, operated by companies like Goldman Sachs, which allow their traders to jump in ahead of the big trades that are coming in and thereby cheat other traders who lack this powerful advantage. Why hasn’t Congress acted on this yet? Why hasn’t our president commented on the need for such legislation? The terrible truth, which few people want to face, is that companies like Goldman Sachs have long ago bought every politician who might object to the practice.
In Germany it doesn’t require congressional approval to pass laws to stop this sort of thing. Example: Chancellor Angela Merkel recently banned what is called “naked short selling” which is selling something (a stock, bond or other equity) that you don’t really own, in the course of a complex operation in which profits are illegally taken at the expense of other traders — often with the additional goal of manipulating markets to achieve a certain effect. Such operations are technically illegal in the US as well as in Europe, but regulation in the US is so lax that the law is never enforced. It is simply something that is tolerated.
Chancellor Merkel also banned naked credit default swaps, which refers to another way that markets have been fraudulently manipulated . . and continue to be manipulated here in the US, due to the fact that our Congress and president do not wish to bite the hand that feeds them.
Explanatory note: Credit default swaps (CDSs) are a form of insurance that protects the buyer of a bond from the possibility that the bond might go into default. But then markets developed, around these CDSs, and eventually these CDSs were bought and sold by speculators who didn’t even own the bond that was being insured, and this is what is known as a ‘naked’ credit default swap. The problem was that such speculation and gambling, with derivatives like these, produces lots of market volatility and eventually comes to occupy ever more money and time that could have been put to real productive use elsewhere in the economy. And for that reason Merkel banned it. Meanwhile, in the US, it is allowed to continue at the expense of, and at risk to, the rest of the US economy. (In the US, such derivatives trading now constitutes a multi-trillion dollar market, which means that it is becoming a huge drag on the economy as a whole.)
One solution to this problem
Everyone thinks we need to have a system of private banks in order to have credit and loans. But that’s not true. Instead we need to set up our own system of publicly owned banks, which as a matter of well-proven fact would be perfectly able to issue credit and loans just as well as privately owned banks now do. The difference is that the gargantuan profits that are currently being skimmed off by the banksters would then, with the publicly owned banks, become capital that can be used to the benefit of society as a whole.
Naturally our politically powerful banksters will do everything in their power to stop any such movement, so it is a victory that will not come without major struggle. Such a movement will have to begin at the state or local level since the US Congress is already bought and paid for by the banksters and their partners in crime. Our federal government has been going ever further into indebtedness (to private banks) for the better part of 200 years and there is very little chance that it will ever be able to take the initiative to break the grip of the banksters who have been so profitably bleeding it (and us) for all these many years.
Unlike the federal government, states are required to balance their budgets; they can’t forever go further into debt. Therefore the pressure is much more palpable to find some way to avoid chronic indebtedness to private banks. And quite luckily for the rest of the states in the US, there is one state that has already shown us the way, and that is North Dakota which has had a statewide, state-run bank for nearly a century. In fact there are now five states in the US with bills pending in preparation for state-owned banks.
In many states in the US, local governments are having to lay off teachers, policemen, and even firemen because of the budgetary shortfall. This could not happen in North Dakota (where no such workers are being laid off) or in any other state in which the “profits’ from a state-owned bank could be made available to the larger community instead of having to be funneled into the pockets of the banksters.
How else to explain why North Dakota has the lowest unemployment rate in the country and, unlike so many other states, actually has a budgetary surplus?!
Ninety years ago a populist movement formed in North Dakota and its members decided that they were tired of being defrauded and otherwise cheated out of their money by Wall Street banks, and didn’t want their money to any longer go out of state, so they moved to form their own bank right at home in their own state. And there is no reason why every state in the US couldn’t do the same thing today. There are still private banks in North Dakota and they get along well with that central bank of theirs, which acts as their ‘Fed.’
Also to consider: Ellen Brown’s eye opening article on the Commonwealth Bank of Australia operated successfully as a government-owned bank for most of the 20th century, until it was privatized by banksters in the 1990s.
Our financial crisis began in November of 2007 when most banks seized up, afraid to loan money to most anyone, especially to other banks, for fear they would never be repaid (owing to the toxic assets that the other bank might secretly be holding). In the previous month the Dow had hit a record high of 14,000, but in November all banks were required to revalue their capital according to what those assets could fetch in the market place rather than on the basis of their previously supposed value. Why was this requirement imposed on banks? It was because of the widespread discovery at that time that many of the assets held by banks (such as collateralized debt obligations), were composed of dodgey subprime bundles of loans that were in all probability worth nowhere near what they had been previously supposed to be worth. Suddenly, therefore, banks realized that the capital reserves they were holding were nowhere near enough to warrant all of the outstanding loans they had already made. Consequently they could not allow themselves to make any more loans without violating fractional reserve rules. As a result of that, credit dried up, even froze, and businesses across the country, which normally depend on short term bank loans to meet their payroll or buy supplies or equipment, were stuck. This then precipitated the mammoth recession that followed. Ultimately millions lost their jobs and much of our economy ground to a halt.
How we could avoid this in future
Newly formed publicly owned banks would have a clean set of books in which were hiding no toxic assets, and so could immediately offer loans to whatever qualified businesses in their state were in need of them. It would be a bit like someone with clogged coronary arteries getting bypass arteries (made out of segments of veins from one leg) sewed into place next to their heart, to bypass the old clogged-up arteries, so as to once again allow the free flow of blood to his lungs and to the rest of his body.
Plus, as already mentioned, the “profits’ from these publicly owned banks would be available for state use rather than being directed exclusively into the pockets of banksters. One more thing: these banks could not go bankrupt. Why? Because by law all the assets of the state are the assets of the bank, and all the money that the state receives from taxes etc. must by law be deposited in the state bank.
Note: Sen. Jeff Bingaman (D-N.M.), the chairman of the Senate Energy and Natural Resources Committee, recently penned an op-ed in Politico in which he called for passage of legislation
setting up a so-called “green bank” that would finance the development of clean energy technology. Provisions setting up the so-called Clean Energy Deployment Administration, or CEDA, were included in the broad energy legislation passed by Bingaman’s committee last summer. But, as Bingaman acknowledged in the op-ed, it is unlikely that the bill can pass this year, thanks to the “ConservaDems” and all the Republicans whose only goal in Congress is to prevent the Obama administration from accomplishing anything of significance, so that his party can be defeated in November and so that Obama himself can be defeated in 2012.
Public projects funded by low-cost loans from state banks or green banks, or even city owned banks, would cost only half of what they’d cost if funded through loans from private banks that charge much higher rates of interest. Thus, many green energy projects that are currently too expensive to be viable would suddenly become viable. Hence we in each state, county or large city must take back the sovereign power to issue our own credit and loans. No longer must we comply with the sick needs of our parasitic bankster class that has been feeding off of us for nearly 200 years.
Check out the eye opening articles at Ellen Brown’s web site.
