The “Jobs” Illusion(s) and the Work We Must Do

Politicians love to talk about “job creation.” They wallow in social illusion in order to appear to care about the economic future of the people and the nation. At the same time, they pander to the interests of job destruction, whether through automation, international outsourcing, or simply unlivable wages. At the same time, they facilitate the financialization of an empty uber-economy, producing vast sums of phantom wealth for their benefactors on Wall Street.

Political Economy of Job Loss

Many of the jobs lost in recent decades in the U.S. are due to mobile corporate capital seeking to exploit immobile pools of desperate labor in any country where wages are cheapest. The international trade agreements the pandering politicians promote, enable the mobility of corporate capital seeking to exploit cheap labor abroad. They override worker protections as well as restrictions on environmental pollution. Above all, they nullify national sovereignty over such matters of domestic policy by ceding authority to international corporate tribunals. As with other job losses due to automated production, we often hear that “those jobs are never coming back.”

One of the core values held by corporations has always been to reduce the costs of labor and materials in order to increase profits. Nobody should be surprised at that. It is an almost natural part of doing business. However, achieving business success does not require a corporation to refuse its employees a livable wage. Consider Walmart and Costco. Walmart grew to be one of the largest most profitable corporations in the world by squeezing the wages of its employees to the point where many are on food stamps. (Its purchasing power allows it to squeeze its suppliers with similar ruthlessness.) In effect, the American taxpayer is subsidizing Walmart’s profits. Costco, on the other hand, pays its employees a living wage with benefits. The difference in energy and cheerfulness between Walmart and Costco employees is obvious to anyone who visits both stores.

What Infrastructure?

Politicians also like to trumpet our need to “rebuild the nation’s infrastructure,” primarily its decaying roads and bridges. Trump emphasizes the need to modernize U.S. airports. I suppose he wants executive lounges at our international airports to emulate the decadent opulence of Trump Towers.

old-bridge

Old Infrastructure,  Paradigm Lost.

The hard-to-imagine “president elect” offers programs that would subsidize the construction industry work already ongoing, rather than directly fund new public infrastructure and infrastructure repair.

Rarely mentioned are dilapidated schools or poor teacher pay. Politicians love to characterize teachers as overpaid, lazy, and arrogant. Nevertheless, the education of America’s youth is one of the most important forms of infrastructure I can imagine. In other industrialized nations, especially in northern Europe, teachers are highly respected and well paid. Their focus is on the well being of students. Student learning consequently rises far above that common in the U.S. Should we be surprised? Education, if the heavy administrative overburden were eliminated, could be a relatively carbon neutral investment in the future.

Enter climate change. The heating of the earth’s atmosphere due to ever-growing emissions from two hundred years of burning fossil fuels continues producing now obvious catastrophic consequences. Yet political resistance and denial prevail. We ignore much of our own participation in the production of carbon emissions due to a number of complex social psychological forces.[1] The politics of short-term economic interests encourage denial and ignorance in attempting to continue on the path of fossil-fueled affluence. It follows from facing the hard facts of climate disruption that a new great transformation of the entire global economy is necessary. That is the most massive transformation of infrastructure imaginable. It is a leap into the relatively unknown. By comparison, the current talk of “rebuilding America’s infrastructure” seems as trivial as it is misguided. It seriously misses the mark when it comes to the infrastructure work that we must do.

The Climate Crisis and the Work We Must Do

Right off the bat, we might ask why such a benign sounding term as “climate change” has dominated any discussion. First, it was global warming. Then Senator Inhofe held up a snowball in Washington, D.C., as if that proved that global warming was a hoax. Gradually climate change became the dominant term. When I had used the term “climate disruption” a couple of years ago, a Sierra Club activist told that they too preferred “disruption” because “change” did not convey well the reality of climate impacts. I now prefer “climate destabilization,” which seems an even more accurate way to describe the effects of industrial civilization on climate systems. The new world of unstable climate systems requires a new paradigm. “Rebuilding the nation’s infrastructure” merely affirms the old paradigm.

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Wind Turbines in Holland, 2016

The science is undeniable, yet politicians routinely deny it in favor of providing political cover for the economic interests of their biggest donors. Those donors, of course, are the very corporations that extract and emit the carbon that warms the atmosphere and destabilizes global climate systems. The same politicians favor reducing corporate taxes and the taxes on the highest incomes, as if the income tax system were somehow abusing those powerful special interests.

The share of taxes paid by the largest corporations and the super-rich has steadily declined ever since the 1950s. Back then, taxes on corporations and the very rich were much higher, the economy was robust, and the national debt was small. In fact, the power elites get away with not paying anything near their “fair share,” as the nation’s infrastructure crumbles and the national debt grows.

Meanwhile, as politicians cling to their old paradigm and its corruption, the nation’s most urgent infrastructure need goes almost entirely unnoticed, rarely mentioned, and routinely denied. Yet, the facts require us to take action now to re-stabilize the climate systems upon which human life depends. We cannot afford not to take drastic action now. We must redirect the nation’s wealth to transform the economy from carbon excess to carbon neutral and to recapture carbon. We must be rapidly reduce net carbon emissions to less than zero by re-establishing ecological systems of carbon storage – tropical forests, for example – not by industrial illusions of “geo-engineering” symptom suppression while denying the root problem.

Deniers distort the uncertainty about the exact location of particular individual effects of global warming. They falsely claim that scientists do not really know whether climate change is real and/or “man-made.” The science of CO2 is long standing, never challenged until it became politically expedient to do so. The global climate system is extremely complex, making it far more difficult to predict an individual weather event than to document the overall trend of increasingly extreme weather, rising seas, and melting glaciers. They use variations in weather to deny the overall trend of increasingly severe droughts, floods, and storms that already disrupt climate cycles and agricultural production.

The short-term economic interests of the most powerful institutions and individuals in the nation prevail. In fact, we need institutional support to build out carbon neutral infrastructure rapidly. It has become extremely urgent, yet political decision makers largely ignore the issue. If ever a massive “jobs program” were possible, we could easily create it by executing a national economic policy of replacing all fossil-fuel based energy systems with new carbon-neutral systems of energy production and use.

Think of it. Stop production of all fossil-fuel burning cars. Build out a national network of electric vehicle charging stations while ramping up electric car production. Require all consumer products to be carbon-neutral, with temporary exceptions where life and health require them. Replace all coal and natural gas burning plants with solar and wind electricity generating systems, which are already more cost effective. Stop all natural gas and oil fracking operations; their total carbon pollution rivals that of coal.

Job losses? Well, they would be trivial in the oil industry compared to the job creation involved in the transformation to carbon neutral energy production and use. Yes, many people would have to change occupations, move to another location, and re-tool some skills. But that has always accompanied economic change. Are we not that resilient?

Continuing on our current path of carbon emissions will lead to a 4-degree Centigrade increase in average global temperatures above pre-industrial levels in the next several decades. That will be extremely catastrophic, resulting in societal collapse and may well also lead to human extinction. The UN agreements set a 2-degree limit, while acknowledging that 1.5 degrees is probably necessary. The actual “commitments” of the signing nations did not even reach the 2-degree Celsius target. The only conclusion I can reach from all this is that the people, where we live, must mobilize ourselves and begin the work that we must do. We must also pressure the institutions that are now obstacles to redirect their destructive policies toward the well being of people and planet. This is beginning to happen at places like Standing Rock, where the destructive forces of extractive capital directly threaten people. We must all find our own Standing Rock. Social movements create their own jobs. So little time, so much to do.

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[1] George, Marshall, Don’t Even Think About It: why our Brains are Wired to Ignore Climate Change (London: Bloomsbury, 2014) provides a wealth of information on the scientific basis for understanding the tendency to ignore or deny the overwhelming facts of climate disruption and its catastrophic consequences for the future of humanity.

The Upside-Down Economy

The idea that the financial markets are the essential force that drives economic growth and progress, has dominated political thinking for too long. The financial markets and their agents have dominated politics and the Congress over recent decades more than ever before. After all, it took several decades for the financial elite to accomplish the complete abandonment of the controls instituted to prohibit the financial market excesses that caused the Great Depression. We are at greater risk today of an even bigger crash than 1929.

The U.S. and world economies are stumbling on the precipice of part II of the “Great Recession” of 2008. The global integration of financial markets and institutions put the entire world at risk and none of it has any democratic foundation. It is all happening against the will of the people and in opposition to the public interest. The massive contraction of the middle class and the swelling of the ranks of the poor are now undeniable. The so called “recovery” has been all about the financial elites and the stock market. Corporations are awash in cash. Those who lost jobs that had a livable wage can now only find minimal-wage jobs and must work at least two to pay rent. The real economy falters and the financial markets are built on quicksand.

The Disappearing Real Economy

The economy is upside down because real economic activity – the production and exchange of goods and services needed by the people in their everyday lives – no longer drives the global economic system. The most powerful economic force in the world today consists of the actions of multinational corporations attempting to continually grow consumption by reducing the costs of growing production. International “free trade” is in effect the removal of production from the nation – outsourcing.

To minimize cost and maximize output, capital is moved to poor nations with the least labor costs and environmental controls. Economic “globalization” allows U.S. corporations to import cheap goods for our increasingly poor workers to buy at Wal-Mart with credit cards. That, of course, reduces the availability of production jobs here by exploiting the destitute elsewhere. While capital is easily mobile globally, labor is relatively immobile. The globalization of capital drives wages down so that U.S. citizens can only buy cheap imported goods.

Continuing down the ruinous path of the Wall Street financial elite is supported by a lot of political rationalization. The fact that work, pay, production, and consumption are what any real human economy is actually about, is simply ignored. On the one hand, we are told that capital must be free to find its “highest and best use.” That will enable the capitalists – falsely characterized as “the job creators” – to invest in new technology and production, thereby improving employment. Well, how has that worked out? The new technologies have mostly reduced the need for skilled labor in the U.S. The free international movement of capital – they call it “free trade” – has increased demand for unskilled cheap labor abroad. Who benefits? The wealthy investors in “globalization.” Who suffers? Workers everywhere suffer the loss of control over their lives and the inability to earn a living wage.

Feed the Rich, Starve the Poor

The myth that the super rich somehow need a tax break pervades the political discourse even though wealthy corporations and individuals pay less in taxes than ever. The delusion is that such public largess economically favoring the already rich would allow them to invest in the real economy. The “news” media – owned by the same mega-corporations that feed the super-rich – go along with that fiction even in the face of several decades of decline of American work, pay, production, and consumption.

All the while, the rich continue to get richer, paying less and less taxes, by controlling politics and indebting the nation. Both the U.S. Congress and the President are elected by having access to massive political funding by so-called “political action committees” (PACs). Legislation is actually written by the biggest financial lobbyists in the Congress – the lobbyists for the financial elite that is enriched by the “globalized” economy. Worldwide corporate theft, subsidized by the U.S. government, is a scam of unparalleled proportion.

Simply put, in a real economy it is income from employment that drives economic health. Employment provides individuals and families with incomes to buy the necessities and niceties of life. It is employment that produces goods and services people need. The income from employment allows consumption to drive production. Financial speculation among the super-rich has distorted the real economy by “financializing” it and ruined all that.

That is why the economy is so upside-down today. Financial speculation drives investment in cheap overseas production, leading to domestic poverty and declining ability to buy what is produced elsewhere. It is all driven by the greed of the financial elite, not by any national economic policy. Big investment banks’ speculating in abstract financial instruments – derivatives and the like – are allowed to create phantom money by depleting the real economy in the form of consumer and government debt.

In a real economy the Big Banks would be invested in actual productive activity. But because of outsourcing, underemployment, and low wages, workers cannot afford goods produced domestically as cheap goods from abroad flood the shelves of the big-box stores. At the same time, the propaganda of marketing and advertising encourage more and more consumption of less and less meaningful products. Low wages force reliance on consumer credit, increasing indebtedness to the corporations controlled by the financial elite. It is an upside-down economy.

Growing suppression of public education and critical thinking facilitates the manipulation of consumer behavior. People keep trying to buy whatever represents the imagery of the consumer culture that dominates their experience. “Affluenza” afflicts some of the few who experience new wealth. But the pervasive desire for the trappings of affluence – driven by pervasive marketing propaganda – drives consumer behavior, leaving little room for “free will” in economic behavior. Mass media images dominate consumer as well as political thought. Cultural images of “the good life” all involve increased unthinking consumption of corporate products.

Converging Crises and Catastrophic Collapse

In the present context, certain fundamental factors are at work. The vast accumulation of “phantom wealth” by the Big Banks via the “bailout” has encouraged further speculation and facilitated more economic concentration. The easy availability of cheap loans to corporations already awash in cash has not resulted in their investing in the domestic economy. All that cash and cheap credit is used for mergers and acquisitions, which further concentrate corporate wealth. A stock market booms while the main-street economy remains stagnant with vast numbers of workers unemployed or underemployed. Stock market growth is without foundation in the real economy. It has little basis in actual economic value, its growth is speculative, and is at increasing risk of collapse.

After the greatest financial heist of the public treasury ever, we must ask why such vast accumulated wealth has no benefit to the real economy. Overextended consumers can no longer rely on home equity and credit cards to make up for those decades of stagnant to regressive wages. It becomes clear that another few hundred million more dollars in the coffers of billionaires will not be invested in domestic production for the suppressed consumer demand for necessities that results from stagnant domestic employment and over-indebtedness.

It is not as if this is all happening in the abstract. Real world allocation of capital has planetary consequences. The distortions of mass production induced by extractive capital are global in scope. With a world population of over seven billion people and the drive to emulate Western patterns of consumption, the carrying capacity of the planet’s ecologies is already exceeded. Whatever one’s interpretation of the world’s economic system and imagined alternatives, the convergence of overproduction, consumer culture, overpopulation, looming crises of food production, resource wars, and climate chaos, all foreshadow a catastrophic collapse of existing economic and social systems. Only a massive human effort to reorganize the way we live on this planet can avoid human tragedy on a scale as yet mostly unimagined.

Borrowing Nothing from Nowhere: Phantom Money and Phantom Debt

Borrowing money is a tricky thing to talk about, even trickier than talking about money itself. We all seem to have a love-hate relationship with the stuff. Well, maybe ‘stuff’ is not the right word. People disagree about what money actually is. Some, who I’ll call “money realists,” believe that the essence of money is that it is a physical thing that has intrinsic value. For the money realist, only a fixed commodity – usually gold – is “real” money. So called “fiat money,” valued because a government declares it as “legal tender,” is not seen as “real.” Some others, the “money representationalists,” believe that money is an object that has value because it represents something else that is valued, also usually gold. That is what the “gold standard” was about, but money also represents the value of anything we value. Borrowing is a major reason money is so troubling.

Money represents the value of a credit or debt, enabling the exchange of anything of measurable value (in monetary units of quantity) for that thing. Finally, for most people money is an abstract symbol of value based on some metric or quantity that measures the value of anything. That is why money can be transferred, borrowed, and lent electronically – it is a symbol, whether represented in paper or binary code, of a measurable value. Despite that abstraction, we usually treat money as a real object to be exchanged for other real objects, or for real services, or even for promises to provide such things later. Most money today is “fiat” money, because it is declared by a sovereign government to have a relatively stable measurable value for any exchange. But what is value? Is value real or do we just imagine it so?

You can read Wikipedia’s entries on money to get an overview of the conventional definitions of money, currency, credit, and debt. But something is missing. What is increasingly important today is how money is being transformed. Critics complain that the government is “printing too much money.” However, most money today is brought into being by electronically “posting” it to a computerized accounting system in a bank. An electronic bookkeeping entry creates money as a debt to a bank, not as printed currency.

Borrowing Nothing

A bank that is a member of the Federal Reserve, lends money into existence electronically when a customer borrows it. That’s right; it didn’t exist before it was lent, but it creates debt for the borrower and an “asset” (credit) for the lending bank in the form of a note or bond. The note or bond held by the bank obligates the borrower to pay back the amount borrowed plus interest. That means that more money is always owed (to the banks) than is ever borrowed, which is a peculiar problem in itself with deep implications for the entire economy. Think Greece; same basic deal.

The Federal Reserve oversees this process, called the fractional reserve banking system. “Fractional reserve” means that the bank gets to loan out a certain percentage more than it holds “in reserve” as deposits. This whole process must be carefully regulated or things can get way out of hand. Just before the financial crisis of 2008, banks were allowed to loan many more multiples of their reserves than ever. Leverage always entails risk.

Banks may lend some of the money they create to mortgage lenders and “payday” lenders, as well as to corporations and individuals. Mortgage lenders – savings and loan institutions, regional banks, etc. – will borrow from the national bank, make a home loan, and then sell the mortgage to another bank. Without vigilant regulation of the conditions of loans, things can get quite messy. If enough bad loans are written and if enough loans default, the whole system becomes unstable. This is especially true when loans are bundled into “derivatives” and sold to unsuspecting investors looking for a steady income stream.

Making Phantom Money

The gradual deregulation of banking and finance, starting with Bill Clinton, Alan Greenspan, and Larry Summers, has released the most powerful financial elites from societal controls. The 2008 financial crisis resulted from several factors, including the lowering of reserve requirements for the Big Banks. Mortgage brokers and other primary retail lenders loosened the lending requirements for borrowers. Regulators looked the other way. The resulting risky mortgages were then purchase and packaging into “derivative” financial instruments by the Big Banks on Wall Street. They were then resold to pension funds and other institutional investors, putting many people at risk. Lots of money was “made” in the form of fees and profits. In the process the entire world economy was endangered. After all, the banking system of the U.S. and other major industrial nations had already been integrated and these financial manipulations had spread world-wide.

The advent of high-speed electronic data processing and communications has allowed the creation of new forms of financial manipulation of the money system. High-speed computers can skim “value” from stock markets by engaging in electronic “trading” so fast that tiny differences in bid-ask pricing can be exploited in the interim between offers by ordinary traders. So-called “derivatives,” financial instruments comprised of abstracted fragments of mortgages or other debts, can be marketed to the point of risking collapse of markets. The largest financial institutions have transformed money from a public medium of economic exchange into a method of economic plunder and political control of society. But these financial absurdities only exist because of the greatest absurdity of all. We are all forced to borrow nothing from nowhere and it is costing (almost) everyone dearly.

Phantom Federal Debt: Who Needs It?

It has been generally taken for granted that “fiat” money is issued by sovereign governments for the benefit of their national economies. Not exactly. Most currencies are valued on the basis of the solvency of the government, its international balance of payments, and the stability of its economy. International exchange rates are based on such factors. But since the early 20th century, for the most part such assumptions have been a fiction. In the U.S., despite the Constitution, which authorizes the Congress “To coin money, regulate the Value thereof, and of foreign Coin,” the government does not create money. Yes, it still stamps out pennies and quarters, but the private banks, which own the Federal reserve, create most money. In 1910, the major private banking interests conspired at their infamous meeting on Jekyll Island to control the national monetary system. In 1913, Congress passed the Federal Reserve Act, empowering the cartel of private investment banks to control the money and banking system and “loan” money created out of nothing and from nowhere to the U.S. Treasure. Hence, the national debt. What a windfall for the banks – and a permanent indebtedness for the nation – unless we reassert our national sovereignty.

It has worked out much better – for the mega-banks – having the government borrow money from the private banking cartel called The Fed so that the banks can control everything and the rest of us can take on all the resulting debt! If our government were actually sovereign (instead of subservient to the mega-banks), it could ISSUE money rather than borrow fake money from corrupt banks. What a different economy that would produce.

Making Money and Losing It

Ever wonder why you just can’t “get ahead”? Well, it’s all part of the larger scheme of things. Oh, I know, some folks do get ahead in one way or another and to one extent or another. But only the very few – the less than one percent – really make money and keep it or even accumulate enough wealth to leave a sizable inheritance to their children. The number of Americans literally living from hand to mouth has grown astoundingly high, especially since the ascendancy of the new financial elites with the deregulation of financial markets. To understand it all we have to step outside of our ordinary ways of thinking about money, value, and our lives.

In a moral economy, things would be different. But that’s not where we live. Our economic system has devolved from open competition of individual entrepreneurs in wide open environments, to a closed system of centralized economic growth in denial of limits. The perpetual-growth economy is controlled by giant investment banks and hedge funds and runs on debt-based money. That means money is created by debt itself.

On first thought that doesn’t make much sense; money is supposed to represent value, not debt. But that is not how it has been set up ever since the private central banks were given control, indeed ownership, of the creation of money. Instead, money is a product of the strange relationship between the nation and its private bankers. The Federal Reserve System was established as the “lender of last resort.” in 1913. This was meant in part to respond to fiscal crises such as the financial panic of 1907. The other part was a quiet takeover of the money system by the big private investment banks.

Making Money by Indebting a Nation
Some argue that the creation of the Fed as an independent agency was in fact a takeover of the function of a national central bank by the private bankers of the time. That view has significant historical validity. Though chartered by the U.S. Congress, the Federal Reserve System consists of twelve tax-exempt regional Federal Reserve Banks organized and operated as private corporations. Most importantly, the Fed was given control over the creation and lending of money.

Absurd as it sounds – and ever so costly –the national currency is not created by the Treasury. The Treasury only acts as a printing shop for the Fed. In effect, the Fed is a private banking cartel that lends to the government and to member banks the money it creates by generating public debt. So, to conduct its operations, the government has to “borrow” money from the Fed, which sells Federal Notes and Bonds to represent that debt. The U.S. Treasury can only offset that debt by collection of income taxes and other revenue. A lot of technicalities in this process obscure the basic fact that the right of the nation to produce its own money was high jacked by the biggest banks – “members” of the Fed – back in 1913. That has cost us all dearly ever since.

The Federal Reserve issues Federal Reserve Notes and Bonds. These draw interest for the buyer and charge the government, in whose name the Fed issues these debt instruments. So, the money the government ‘spends’ is owed to those institutions which ‘buy’ from the Fed the bonds and notes that signify the debt. One might say that the Fed is a “free rider” middleman. This process indebts the government – that is, the people – for all the currency, whether paper or electronic, that the Fed issues as part of its monetary policy.

Perpetuating Public and Personal Debt for Fun and Profit
The government becomes indebted in its turn to the ‘creditor’ institution or nation that bought the bond, for its face value plus any interest that accrues over time. The Fed is owned by its member private Big Banks, which have a sweet deal we’d all love to get a piece of but never will. The Fed issues credit to the Big Banks, say a billion dollars, and the Big Banks in turn loan out many multiples of the billions it ‘borrows’ from the Fed. Since the crash of 2008, the deal has been especially sweet, since the Fed charges a near zero interest rate. The Big Banks get to charge market rates for multiples of the funds borrowed for next to nothing. Huge profits beget huge bonuses for bank executives, not to reward some kind of executive performance, but for their just ‘being there.’

We should all be so lucky. But we are not. The average person, small business, or even not-so-well connected corporation has to borrow from the institutions run by the financial elite – the Big Banks – in order to initiate a major project of whatever kind. That borrowing had to be paid back with interest, so that whatever is done with the money has to “earn” more money than was borrowed in order to pay back the loan. That is often not easy. Just paying a mortgage seems to take forever. Even at a “reasonable” interest rate for a thirty year mortgage, most folks “pay back” more than double what we originally borrowed.

But in any case, what most people don’t understand is that the result of all this is that more money is always owed than is “out there.” If every loan requires repayment plus interest, where does the interest come from? Well, from “profit” or from wages, if the borrower is lucky. But that profit or wage comes from money already in circulation; that money in circulation was also created as debt. So, the only way for all money owed to be paid back is for more debt to be created, releasing more dollars into the money supply, paying off prior debt.

Reaching the End Game
Sound like a Ponzy scheme? If it does, that means you are paying attention. It is essentially no different than a Ponzy scheme. The whole house of cards stands on a perpetual expansion of debt that enables previous debt to be paid and the system to continue. That is only one of the reasons why the debt based economics of endless growth cannot ultimately be sustained. Debt cannot be expanded indefinitely.

There is another reason the debt-based growth economy cannot continue indefinitely. As with any exponential scheme of expansion, the limits of its environment eventually constrain it from continuing. That is where we are today with reference to “capitalism as we know it” and the material limits of the planet earth.

If you know anything about population growth, you recognize that a seemingly small percentage rate of growth after a few generations results in a very large number of people. From our current world population of around seven billion, growing at a moderate rate, we will soon have a population that by anyone’s measure cannot be sustained on one planet. One additional fact is important. A relatively small proportion of world population participates in the industrial growth economy but everyone else – of course – wants to. That is why more and more people everywhere find it increasingly difficult to “get ahead.” The game is almost over; it has reached its limits. Current world financial instabilities are symptoms. Economies with social purpose must replace mindless growth for the purpose of concentrating wealth in fewer and fewer hands.

Another way is possible and necessary. Money is inherently a public good. It is an inherent right of the nation itself to maintain sovereignty over its monetary system. The central banking system should be nationalized and subjected to public policy rather than be driven by private profit for financial elites in opposition to the public interest. Then, money could be based on credit, properly invested in the public interest, and thereby eliminate most of the false public debt it has caused by having been privatized.

The National Debt and Deficit Scam

Ever wonder why the richest nation in the world, the U.S., has become a “debtor nation”?  Oh, but they’ve already told you.  It’s those politicians, especially the ‘liberal’ ones who just spend too much.  You know, those “tax and spend” liberals.  Well, I’m no apologist for the liberals.  I agree with Chris Hedges that the liberal class of politicos is essentially dead.  They still talk some about their concerns for the “middle class” and “working people,” but their actions reflect the same servility to the rich and powerful as do the ‘conservative’ — the misuse of that term is a whole other story — Republicans who have been cutting taxes on the rich and shifting the costs of plutocracy to the poor for decades.  So, we sure have a clue as to why we are in so much debt.

The Banksters’ Coup

The history of money and banking is far more interesting than any economics course on the topic.  It is long and complicated, but the essence of how current economies have become debt-based can be condensed to some key elements in the struggle between the public purposes of money and credit, and money-lenders’ efforts to control the issuing of money and renting that money for profit.  A nice summary of the key historical events can be read in Ellen Brown’s latest book, The Public Bank Solution: From Austerity to Prosperity.  In that book she also explains effectively why we — both people and government — are all in such debt, but need not be.

The international private banking cartel was started with the Bank of England around the time of the American Revolution.  Ultimately, the Federal Reserve was formed in the U.S. as a private banking cartel, owned by its member private banks.  The Federal Reserve Act of 1913 was passed under great pressure from the major private banks in the U.S.  It ceded sovereign authority for creating money to the Big Banks we know so well today.  That raises important questions that are rarely discussed in public.  What is money if not a public utility for making the exchange of goods and services effective?  Why should a public utility be controlled by a private cartel?

Money, Sovereignty, and the Public Interest

Numerous examples of public banking throughout history demonstrate that for achieving public purposes, public banks are more effective than private banks.  But rather than argue the details of why — Ellen Brown’s book does that quite well — let’s look at purpose and principle.  Banks are a necessary part of any economy.  An economy is a crucial component of any operating society.  The public has an inherent interest in banks being operated to serve public purposes, primarily the management of the creation and circulation of money as the means for making economic exchange work and facilitating public projects.

Money is a public good; indeed, it is a public service.  Contrary to the mythology foisted on the people, the value of money exists in its movement.  Furthermore, it is a process, not a thing — its value is in what it represents, not what it is [paper, wooden tallies, gold, etc.].  And what it represents is credit.  Stored in a vault it means nothing… except in the illusions of whoever controls the vault.  Banking has become the epitome of the illusory game of acquisition of wealth.  From the perspective of the citizen, however, the circulation of money is the means by which the people are able to sustain themselves over time.  If “we the people” are sovereign, then why is not the monetary system owned by the public?  But on to the main point.

The Debt and Deficit Scam

Simply put, because it gave up its sovereignty over the creation of money to the private banking cartel, the government borrows money from the Federal Reserve (central bank), which it created and gave the power to create money.  Where does the Fed get the money it loans to the government?  Why, out of thin air of course!  An entry is made on an electronic ledger and money is created and loaned to the very entity — the government — that allowed that ledger [of the private banking cartel] to exist.  A federal debt is created.  How counter-productive — stupid — is that?  The only interest this proess serves is that of the concentration of wealth in the hands of the banksters.

Well, it’s very productive for the banksters.  After all, its free money to be lent out and for interest to be collected upon.  Wow!  We could all use some of that kind of deal.  Free money to loan out and make more money on.  Now, project that process into the whole economy and think of the result.

The underlying absurdity is that by structuring debt in that way, it can never be repaid.  Only by continuing to expand the economy to allow more loans can the principle and interest on existing loans continue to be paid.  With the recent financial collapse due to uncontrolled speculative manipulation of mortgage lending, the system was exposed for the Ponzi scheme that it is.

Is There a Way Out?

The Banksters are just too powerful to stop directly.  The financial elite virtually runs the federal government.  But, as they said in the 1960s, “What if they gave a war and nobody came?”  Several lines of action are possible.  The Bank of North Dakota — the only public bank in the nation — is a model of what states might accomplish.  But municipal and county owned banks can also be formed.  Local movements for local public banking are developing.  Meanwhile, take your money out of those Big Banks and put it into your local credit union.  Divestiture worked to stop apartheid in South Africa.  It is starting to work to turn around the carbon economy.  It can be a big part of the great transformation of banking from a private extractive industry to a set of public institutions serving the public interest.

Making Money: The Ultimate Illusion of a Debt-Driven Economy

How is money made? Well, in conventional terms we work for it. But where does it come from? We know that the economy needs a sufficient “money supply” so we can exchange “goods and services” every day. Of course, it’s not that simple. After the “Great Recession” of 2008, the Federal Reserve injected hundreds of billions of dollars into the Big Banks. The purpose was to keep them from going under as a result of their gambling with depositors’ money. So, where is all that money now?

The conventional wisdom is that the “the government prints our money.” Technically but only partially true, this image of overworked treasury printing presses is increasingly irrelevant. Most money today is created electronically when banks lend up to some multiple of the money held in their accounts. A bank’s solvency depends on the money it holds “in reserve” – does not lend – in accordance with banking rules. If the ratio of loans to reserves is too high, the bank risks not being able to cover losses if loans go bad.

Reserve requirements were reduced significantly in the years before the 2008 crash. But the “too big to fail” banks took it a step further. They packaged many risky mortgages into highly leveraged “derivatives,” re-sold them to investment clients and each other, and took exorbitant “fees” at each step. It all blew up when mortgages failed and the Big Banks couldn’t cover their losses. So, the Fed stepped in and kept them solvent by “lending” them billions upon billions of dollars.

With the lowering of reserve requirements and the elimination of the firewall between commercial and speculative investment banking, all hell broke loose. Lending practices and the bundling of debt took on the logic of gambling in a casino, but with more hubris. Reliance on complex mathematical models of “risk management” to justify reckless behavior became the biggest illusion of all.

Most critics of the federal “fractional reserve” banking system worry that our “paper money” or “fiat currency” is not “backed” by gold. They consider gold to be “real money,” not arbitrarily “created” money. Gold is an effective standard of value because it is scarce, not reproducible or easily faked, and is universally valued by humans. That’s great, as long as everyone believes in gold’s value.  After all, value is what we make it.  But any economy needs its money to circulate. If paper money had to be backed by gold, there would not be enough to circulate and the economy would stagnate. Yet, if too much paper (or electronic) money is put into circulation, borrowed and invested, then inflation can get out of hand.

There is some validity to the concern of producing an oversupply of money leading to inflation, as has happened in several historical cases. But the biggest problem of money creation lies in our debt-based banking system, created under the influence of the big bankers in 1913. That was when the Big Banks convinced the government to create the Federal Reserve banking system. The Fed is essentially a private banking cartel that “lends” money to the federal government – the nation. Where does the Fed get the money it lends to the government? It simply creates it out of nothing – other than the government’s authorization for it to do so! That sounds crazy because it is, unless you own the Big Banks. But if national banks were owned by the nation, then money creation would not produce national debt.

So, you can see that fundamentally the “national debt” is an illusion created when the government gave up its sovereignty over our currency. Without the privatization of currency creation, indebting the government, there would be little need for an income tax.

A debt-based monetary system is inherently unstable and succeeds only as long as economic growth continues. But as long as conservative reserve requirements held sway and investment banking was separated from commercial banking after the Great Depression, another crash was averted. The Glass–Steagall Banking Act of 1933 kept commercial banking separate from investment (speculative) banking after the Great Depression. And relatively strict reserve requirements limited the Big Banks tendency to engage in excessive speculation – until deregulation beginning in 1999 unleashed the Hounds of Wall Street.

For a hundred years, the government has become increasingly indebted to the Federal Reserve and buyers of treasury notes and bonds.  These instruments are the means by which  the Fed sells our government’s debt worldwide. Despite the increasing debt and interest payments, the economy could be managed as long as it kept growing – adding new money from new debt to pay old debt and interest. The Federal Reserve – the private central bank owned by its member big private banks – partially controlled inflation by controlling interest rates, some of the time.

But the illusion of endless growth and the phantom money it creates are rapidly coming to an end on our finite planet. The debt-based monetary system will be unsustainable in a steady-state economy aligned with real-world limitations – it must be replaced. We must move to a stable ecologically grounded economy.  We can no longer support an ever-growing debt-based money system. In an ecological economy, money will simply circulate as the means for exchanging real value – that is, actual goods and services.