The author has received an overwhelming response to his recent Global Research report entitled, "An Emergency Program of Monetary Reform for the United States." The
introduction to that report stated that, "the U.S. financial system
headed by the Federal Reserve System has failed, and…only an emergency
program of monetary reform can address conditions which may be leading
to a catastrophe like the Great Depression or worse."
This new report on "Monetary Reform and How a
National Monetary System Should Work" continues the dialogue by
outlining the principles and mechanisms available to help guide the
creation of a monetary system for any nation that wishes to enjoy
economic democracy with prosperity. This would be in contrast to the
collapsing debt-based monetary system overseen by the Federal Reserve
and the other central banks of the world, coordinated at the top by
such institutions as the International Monetary Fund, the European
Central Bank, and the Bank of International Settlements.
Note that all the banks of the Western world are
ultimately private institutions owned by the world's super-rich. The
international banking structure is operated by and on behalf of the
world's monetary elite primarily for their own profit.
Just below the banking system are the giant
corporations of the global economy which derive capital from and funnel
profits into the financiers' empire. Bringing up the rear are the
populations and debt-serfs of the no-longer-sovereign nation states,
including those of the United States, whose participation in the system
as consumers is essential, but whose jobs continue to disappear as
manufacturing is increasingly automated.
The author had realized as early as 1970 that
the central problem with the world's economy lay on the side of
distribution, not production. He came to Washington, D.C., that year
and spent most of the next thirty-six years working within sight of the
Washington Monument, learning how things really work, and pondering the
methods that might be more in concord with such founding documents of
American democracy as the Declaration of Independence and the U.S.
Constitution. Twenty-one of these years were with the U.S. Treasury
Department.
Now, for the first time, this report builds on
the findings of many of the world's monetary reformers past and present
by offering a complete prescription for a new and better world. This
prescription is radically different from most progressive reform
agendas that address only symptoms of the underlying systemic failures.
WHERE MONEY COMES FROM
When setting out to study monetary principles, we
must realize how little we know of the real facts of monetary history.
Economics is an extremely limited discipline rife with untested
assumptions and unchallengeable dogmas. Its most pernicious doctrine is
the assertion that there is something called "the market," where there
is an "invisible hand" that makes everything work out the way it is
supposed to.
Actually, an economy functions according to the
principles according to which it is designed and regulated. If it is
designed to funnel wealth into the hands of the monetary controllers,
then that is what the "market" and the "invisible hand" will do. If it
is designed to foster "the general welfare," as it should according to
the preamble to the U.S. Constitution, then the "market" and the
"invisible hand" will tend in that direction.
Unfortunately, we march today to the tune of the
monetary elite, so they are the ones who reap the profits and the
benefits. They are the ones on whom the "invisible hand" lavishes the
wealth of the world.
It is done through the process of bank-created
credit. While during the nineteenth century other forms of money
circulated, such as large quantities of coinage, silver certificates,
and government-issued greenbacks, almost all the money that exists
today originates through a loan by a financial institution to an
individual or a business.
When a loan is made it is issued as a liability on
the bank's ledger. When it is repaid, the liability is canceled. With
today's computer systems, all transactions are digitized, of course.
The bank keeps the interest on the loan as its combined administrative
fee and profit. The money that is lent had no prior existence.
Once money is created as credit, it takes many forms
according to how the loan recipient spends it. Some credit is used by
businesses or individuals as investment in order to generate profits
over and above the amount they must repay to the bank with interest. If
the money is used simply for consumer purchases, the individual
consumer must pay back the loan through future earnings. In those cases
where the borrower defaults on the loan or goes bankrupt, the money
simply remains in circulation however it was spent.
Unfortunately, large amounts of credit are used
mainly for speculation, not for any benefit to the producing economy.
This includes securities bought on margin and borrowing by hedge funds
where the fund may make a profit even if the value of its investments
goes down. Bank-created credit in this case is little more than chips
in a casino.
Other borrowing takes place by equity funds and
other types of investors for leveraged mergers or buyouts of entire
companies, where the predators wreck a company's infrastructure by
reducing costs and selling its assets, then pay back their bank loans
before unloading the business on someone else.
The most important thing to realize about the
banking system is that the money which enters into circulation as
purchasing power must eventually be returned in the repayment of loans.
This is why the Federal Reserve's monetary measures-M1, M2, and M3-are
meaningless, because so much of it has liens against it.
We are taught that paying it back is the way things
should be-obviously, if we borrow something, we should pay back what we
owe.
But the peculiar thing is that because the borrowed
money pays for labor, commodities, rent, etc., it becomes part of the
prices that are eventually charged for goods and services. However,
when the money goes back to the bank to cancel a loan, that purchasing
power disappears. Neither the banks nor economists ever make note of
the fact that this process creates a chronic shortage of purchasing
power which must be filled by more loans and more bank profits. The
economy is thus a treadmill that borrowers must constantly trudge along
in order to have enough money for survival.
So a system which is seemingly grounded in the
simple adage that if you borrow you should repay is all wrong. The
reason it is all wrong is that in most cases, individual consumers
should never have to borrow in the first place. And we never ask
ourselves why, with the abundance that is possible from modern science
and technology, should people have to borrow money at interest for the
necessities of life-a house, a car, household expenses, an education,
etc.
Thus we realize that the financial system works
against what should be the real purpose of money, which is to serve as
a ticket for the purchase by people of articles they need to survive or
otherwise desire to utilize once the demand for survival has been met.
People have needs and desires. The economy is fully
capable of producing all the goods and services needed to fulfill those
needs and desires. But the system is broken, because, despite the
abundance of credit available for financial speculation, there is not
sufficient money available at the consumer level to mediate between
prices and consumption, even when most people have a job. We still must
borrow, and that is wrong. There should be a better way for society to
generate the money for what people need.
So what is really going on here?
One of the things that is going on is that money is
being mis-defined as a commodity. People who believe money is a
commodity think it has value in-and-of-itself. But one of the hardest
things to grasp about money is that not even gold or silver money, or
paper money supposedly backed by gold or silver, has or could have
intrinsic value.
Actually, money is anything that a willing buyer and
a willing seller agree to exchange for something else. Money could be
and has been such things as gold, silver, paper, wampum, cows, stones,
shells, sticks with notches, or, today, electronic blips. What may
appear to give gold or silver value is its scarcity and durability. But
unless there are goods and services available and for sale, gold and
silver are totally useless. You can't eat gold or silver, live in them,
or wear them. In and of themselves they have no value. What gives any
money value is the producing economy and nothing else.
So by this definition, bank-created credit, while it
may generate money which a willing buyer and seller agree to exchange,
is money with strings attached, in that at some point, it must travel
back to the bank in cancellation of a debt. Thus a buyer who offers it
to a seller is, in reality, deceiving himself about his actual ability
to pay. He is not a free man. Always lurking in the back of his mind is
that with every article he has purchased he has shackled himself ever
more firmly to future indentured servitude.
The seller, on the other hand, may breathe a little
more freely having just acquired some of the monetary medium necessary
to repay his own debts. And so it goes, ad infinitum. Even if the money
were backed by gold and silver, the system would work in exactly the
same way.
So by what right do the bankers bind the economy in
such a straightjacket of debt? Again, the underlying logic is that
money is a commodity. A group of men have money. It is their money, we
believe, rightfully earned. Therefore, because these individuals have
money, they have a further right to lend it to others.
But under existing laws, the banking system then
makes the leap of assuming that because they have money which can be
lent, they have a right to lend much more than they actually possess.
Somehow they have become fit practitioners of the fractional reserve
banking system whereby, as described above, they can lend simply by
creating debits in their computers, based on some ratio between their
capital stock and their lending ceiling.
But if bankers can do this, why can't you or I? If I
have $1,000, why can't I then lend $10,000 and collect the
corresponding interest? The answer is that a bank has a government
charter and supposedly can guarantee through various safeguards that
the people to whom it lends can repay. But even this isn't required of
a bank any more if it can package its loans and sell them to some other
business entity, such as an investment company.
But the fact is that banks can only be created by
people who are already rich, can put up some initial capital, build a
functioning business, and obtain the government charter mentioned
above. Once they do this, they are the masters of the world.
Also note that under today's highly unstable
financial conditions, it is not only banks which create credit through
lending. Since the deregulation of the 1980s, Wall Street brokerage
firms greatly expanded the system whereby speculative loans are floated
for purchase of securities. This has resulted in a current ratio of
debt to equity of 22:1 in the U.S. securities markets, where debt far
outweighs value.
WHAT IS CREDIT?
The word "credit" is one of the most widely-used and
important in the English language. Dictionary.com lists twenty-one
definitions. All these definitions have some connotation of the concept
of "value" and the exchange of that value across the dimensions of time
and space between one person and another. Obviously, the ideas of
"credit" and "money" are closely related.
The idea of credit when viewed from a macroeconomic
perspective refers to the ability of an economy to produce goods and
services of value to the members of that community. It refers to the
potential value of that economy to support life. What it does not and
cannot refer to is money in and of itself, because money, as we have
seen, has no intrinsic value. Without the credit-potential of a
producing economy, money has no meaning.
On the other hand, money can be a convenient
yardstick to measure credit, as when we state that the 2006 GDP of the
United States was $12.98 trillion. But actually, the "real" credit of
the U.S. economy was much higher, because our economy is not running at
anywhere near its full capacity. The automobile industry, for instance,
is running at about fifty percent of its physical potential. So the
real credit of the U.S. is actually higher than the GDP.
"Credit" in an economic sense confers a legal right
to draw on the goods and services that make up the potential GDP of the
nation. It is the way the society agrees to hand out the monetary
tickets by which the GDP may be acquired.
Obviously, the issuance of either too many or too
few tickets will cause problems. The issuance of too few tickets will
result in underproduction, poverty, even death. The issuance of too
many tickets will result in inflation. When the Federal Reserve
creates, then deflates, asset bubbles, like the currently collapsing
housing bubble, these effects alternate, resulting in the kind of
ongoing economic chaos we have seen for decades.
It can readily be seen that credit is a cultural
phenomenon. It is the sum total of the entire productive capacity of
the nation. It has grown from the past, exists in the present, and can
be projected into the future. It is the result of the work of untold
millions of people, dead and gone, alive today, and yet unborn. Many of
its results may be proprietary, in terms of businesses, property, and
patents owned, etc., but every person who has ever lived, lives today,
or who will live in the future is a participant in that culture.
Therefore, credit can and should be viewed as a
communal endowment, a public phenomenon, a part of what is called "the
commons," even with the normal and natural fact of the existence of
private property. So the use of credit and its distribution should be
treated as a public utility, like water or electricity. Everyone should
have a right to its use, according to some rational, lawful, and humane
criteria of need or contribution to creating it.
As with the use of other utilities, it is the
responsibility of the community to see that credit is used wisely and
for positive and constructive purposes. But no one should be denied it
altogether, because it is a necessity of life.
Money, as a measure of credit, should therefore be
available to the entire community. The government, as the
representative of the community, has the responsibility of overseeing,
coordinating, and regulating its availability, keeping in mind the
fairest and most socially beneficial ways for it to be utilized.
Monetary reformers would argue that extensive availability of credit to
the working population should be part of the "general welfare"
guaranteed by the preamble to the U.S. Constitution. This should not be
confused with the virtually unlimited availability of credit to
speculators and stock predators as is presently the case with our Wall
Street-based economy.
But these principles are poorly recognized. Money,
and therefore credit, is viewed as private property, even though most
of it, as stated previously, is made by banks "out of thin air." It is
no exaggeration to say that the existing system is one whereby the
financial elite has confiscated and privatized the most important
public resource of all, more important than water, land, electric
power, etc. This has resulted in much of the world's wars, poverty, and
crime.
Let us again examine the ways money enters into the
economic system, this time looking at the total credit picture of the
U.S. economy. We said that the 2006 GDP was $12.98 trillion. This takes
into account a trade deficit of $726 billion. The question is, where
did the credit come from to purchase the GDP, because, by definition,
it all had to be paid for in prices.
According to official data, the available national
income in 2006 was $10.23 trillion, including wages, salaries,
interest, dividends, personal business earnings, and capital gains. Of
this amount, approximately one-third was taken through taxes by
government at the federal, state, and local levels.
Churning through the economy was borrowing of all
kinds-for consumption, commerce, investment, speculation, new
government debt, and to finance business transactions. In fact it was
the net increase in debt-$3.77 trillion-that paid for the difference
between GDP and national income.
Debt also financed much of the trade deficit by our
borrowing to purchase what was imported from abroad. The need to borrow
has been greatly increased by the decline of the U.S. manufacturing
sector, where well-paying jobs that contributed to the national income
have disappeared or been outsourced overseas. The ratio of debt to
national income has reached historic proportions-460 percent of the
national income today vs.186 percent in 1957.
Orthodox economics, including the manipulation of
interest rates by the Federal Reserve, has no tools for resolving this
crisis. The main reason is that neither economists nor politicians
understand it, though bankers certainly do.
Orthodox economics is helpless because people do not
understand how the gap between production and purchasing power relates
to the way the microeconomics of the corporation translates into the
macroeconomics of nations. We observed earlier in this report that
prices of articles within the economy include the loans that are taken
out during the production process. But these loans are canceled as bank
liabilities when they are repaid. Therefore the purchasing power of the
economy always lags behind prices.
But this is not the only area where prices include
factors that are not paid out in wages, salaries, dividends, or other
sources of individual or business income. Other factors include
retained earnings, insurance, certain maintenance and overhead costs,
plus the cumulative effect of corporations buying from each other with
payments which never exit the production system.
As a result, only somewhere between a third and a
half of all costs are ever distributed to consumers. This analysis has
been documented at length by the Social Credit movement and has been
well-known to monetary reformers for decades.
This gap is what drives nations to seek overseas
markets for their products as the U.S. did so strenuously during the
post-World War II period. When the U.S. balance of payments later fell
into negative territory, we tried to compensate by the policy of
"dollar hegemony," whereby we foisted our currency on the rest of the
world as the principal means of oil trading, maintenance of currency
reserves, and paying for our trade deficit.
But as the U.S. internal and external debt grows and
our fiscal and trade deficits deepen, a total systemic breakdown is
starting to take place. The main recent prop of the U.S. economy, the
housing bubble, is deflating. And frantically, we are trying to escape
by a radical devaluation of the dollar combined with an aggressive
military policy based essentially on confiscating the resources of
other nations such as Iraq.
This, combined with action to prop up our fiscal
deficit by importing dollars spent abroad on manufactured products we
no longer make ourselves, has created a house of cards that must soon
come down. All that is lacking is a major shock, such as a widening war
in the Middle East or inability by foreign creditors to continue to
accept devalued dollars.
Neither devaluation nor aggression will solve the
problem which derives from the failure of debt financing to create real
purchasing power and thereby resolve the chaos through which a system
built for the profits of the financiers can never produce enough
unencumbered credit to maintain our desired level of production and the
standard of living that goes with it.
THE PRESCRIPTION
As with anyone facing bankruptcy, it is time for
those who wish to understand the current U.S. economic crisis to take a
deep breath, step back, and gather themselves in order to correctly
assess the situation.
Obviously the solution is not to risk blowing up the
world by continuing to resolve our domestic economic problems through
overseas conquests. This is what the Western nations have been trying
to do for centuries, and it appears that the rest of the world may
finally have had enough. This is especially the case today when the
main factor that is floating the U.S. economy is the huge U.S. trade
imbalance where foreign nations must use the dollars they take in to
their ultimate disadvantage by financing a federal budget deficit that
is measured in dollars whose value is dropping.
Nor does the solution lie on the production side of
the equation. The U.S. and other developed economies are capable of
producing everything their populations need, even accompanied by a
reasonable amount of foreign trade, especially if we can return our
industry to the level of productivity we enjoyed prior to the Federal
Reserve-induced recession of 1979-83 which gave us today's anemic
"service economy."
Rather the solution lies with the federal government
taking back its constitutionally-authorized control of the credit of
the nation from the financiers and managing it as previously stated-as
a public utility. There is no need to eliminate capitalism, change the
basis of property ownership, abolish corporations, etc., because the
organization and administration of the production process is
essentially irrelevant to the real problem.
Once again, the producing economy is not the
problem. It has performed with tremendous effectiveness in creating the
goods and services people need and want. It would be the basis for real
economic democracy if its bounty could be made available and
distributed in accordance with democratic principles.
It is essential to realize that the central
government of a sovereign nation has the right, the ability, and the
responsibility to introduce ALL new credit into existence. This is
totally different from having the central bank "print money" by
relaxing lending policies, resulting in an infusion of cheap loans
which must still be repaid.
Sovereign creation of credit is not based on debt.
It is and should be based on direct spending of money into circulation
by the government itself. Obviously the government should do this in a
way that promotes the best interests of the members of society while
respecting the varying degrees of contribution by those of different
levels of skill and achievement. It is quite possible to enact such a
program with due regard to all established conventions of private
property and the private ownership and control of existing wealth.
To those who are concerned that the concept of
publicly-controlled credit postulates a monetary supply that can be
turned on and off like tap water, this is a misconception. There is
indeed a cornucopia of supply on the earth, but it is not of money. If
is of what human beings are capable of producing with the skill of
their hands and their heads and the knowledge of science and
technology.
Money is only a ticket to transfer this abundance
from producer to consumer, but it must be plentiful enough to allow the
transfer of all that is reasonably desired, it should not be misused
for financial speculation, and it is the job of government to bring
that money to the place of the economic activity where it is needed.
The key point is that such money should not be encumbered by debt to a
financial institution, including the banks of the Federal Reserve
System.
This should be done according the following principles:
-
The decisions of what goods and services should be
produced should represent a reasonable mix of what is needed and
desired by consumers with what is required for the public good by way
of regulation and infrastructure. Decisions should be made by a
combination of market forces, business governance, and oversight by
representative government. In other words, production should be
conducted as we imagine it is done at present, though in reality
neither the market, business, nor representative government can
function properly and responsibly today because they are under so much
pressure from a disastrously dysfunctional monetary system.
-
Purchasing power should be provided to all
individuals whether they work or not. This is increasingly important as
fewer workers are needed due to automation to produce an increasing
amount of goods. There is no way to avoid dislocation of workers due to
change in an advanced economy, but it is essentially that people be
protected from such change even if they decide to opt out of working
for a living at all. There are many productive things people can do
without having to draw an income from a paying job. The money provided
to people regardless of whether they work would constitute the National
Dividend envisioned by a Social Credit system. One way to manage such a
system would be to require everyone to work until the age of 40, when
optional retirement would be offered.
-
The idea of one nation being the world's policeman
with military bases everywhere and a right to conquer other nations at
will and take their resources must be abandoned once and for all. A
system where the nations of the world are financially independent and
self-sustaining as described in this report would lead to the
possibility of international stability and trade among nations and
regions of the world acting as equals. The history of the last century
proves that the drive to war is largely fueled by the need for
financial dominance as an offset to the failure to generate sufficient
internal purchasing power through democratic management of credit. This
syndrome would be eliminated by the monetary reforms described herein.
These are the principles-a functioning economy that
combines responsible free enterprise with government regulation and
infrastructure; democratic distribution of a National Dividend which
supplements earned income; and an international system of economic
relationships among sovereign nations acting as equals. None of these
principles is currently being met, and no one in a leadership position
has a plan to take us there, either now or when the crisis strikes.
The first measure in bringing about change, taking
the U.S. as an example, would be for the federal government to create a
Monetary Control Board as envisioned by model legislation proposed by
the American Monetary Institute. This board would oversee the entire
process of assuring that the money supply is sufficient to express the
real credit demands of the nation in paying for the GDP. This would be
followed by a combination of the following steps:
-
We should spend sufficient credit into existence
to supply the basic operating expenses of government at all levels
without recourse to either taxes or borrowing. In the past, this has
been done by the colonial American legislatures, the Continental
Congress at the time of the Revolutionary War, and the federal
government during the Civil War. Probably two-thirds of existing
federal government expenditures could be eliminated, because much of it
is to compensate for a failed monetary system, including much of the
military machine. Further, at least ninety percent of all taxes could
be eliminated under such a program. The only taxes that would be
retained would be those in the form of user fees for infrastructure
operations and maintenance or those levied as a control mechanism to
prevent inflation. Capital expenses for infrastructure construction at
the federal, state, and local levels could be financed through a
self-capitalized national infrastructure bank. Government expenditures
would continue to require legislative approval under our republican
form of government which would be enhanced, not threatened, by monetary
reform.
-
The remainder of the total societal gap between
production and purchasing power would be filled by a non-taxable
National Dividend of two types. One would be a cash stipend paid to all
citizens which would also serve the purpose of eliminating poverty by
providing everyone with a basic income guarantee. The remainder of the
National Dividend would consist of an overall pricing subsidy, whereby
a designated proportion of all purchases, including home building
expenses, would be rebated to consumers. The total National Dividend
per person would probably exceed $12,000 per year under today's
economic conditions. It would be a calculated value charged against a
government ledger but would be off-budget, with no need to finance it
with taxation or borrowing.
-
A portion of the National Dividend would be made
available to all citizens reaching the age of eighteen, who would
receive a non-taxable lump-sum of $60,000 for higher education, trade
school, or business investment.
-
Bank financing would be much more limited than at
present. Private sector corporate investment would be funded entirely
out of retained earnings and capital markets without recourse to bank
lending. Bank lending for stock speculation would be abolished as would
leveraged buyouts.
-
Bank lending would be accomplished without
fractional reserve methods by requiring banks to supplement their
capital and deposits with credit borrowed at very low rates from the
federal government as publicly-created credit. While the banks would be
allowed to add administrative costs and a reasonable business profit
for lending used to finance commerce, mortgages, and small business
start-up, government guarantees and subsidies should result in net
interest rates to borrowers no greater than one percent.
-
International trade would be accommodated through
a regulated system of exchange rates based on real purchasing values of
respective national currencies.
RESULTS
This program would not create a Utopia or install a
Big Brother to watch over us. It would not relieve mankind of the need
to work, study, save, take care of our environment, make wise
decisions, use opportunities intelligently, participate in
representative government, care for those less fortunate, provide for
our posterity, practice self-restraint, obey moral strictures, worship
our creator, or love our neighbor as ourselves.
What this program would do would be to allow the
nation's monetary system to reach the same level of maturity,
functionality, and access presently found, at least potentially, in the
physical economy which utilizes science and technology so effectively
in producing abundant goods and services.
This means that the program would free mankind from
the control of the monetary elite which has unjustly usurped the fruits
of the labor of everyone else. The amount of money involved in this
control over time is immense. In his report on "An Emergency Program of
Monetary Reform of the United States," the author calculated that the
National Dividend for 2006 should have resulted in an average stipend
paid to each U.S. citizen of $12,600. For a person aged 60, this would
work out to $756,000 over a lifetime in current dollars.
This figure of $756,000 represents the amount of
money an individual has had to borrow from financial institutions to
make up what he should have received as his share of a National
Dividend if Congress had not ceded the public prerogatives of
credit-creation that exist in the Constitution to private financiers.
Extrapolated for the entire U.S. population, the amount of unnecessary
borrowing probably has exceeded $100 trillion since World War II. We
can gain confidence that this figure is in the ball-park by realizing
that total societal debt in the U.S. today has been reliably estimated
at over $48 trillion.
Thus it is easy to see that in time, the program of
monetary reform described in this report could eliminate poverty and
the main causes of war, reduce the size of government, and give
individuals a chance to prosper. It would replace the current system of
debt-serfdom caused by monetary strangulation at the consumer level
with true economic democracy.
Economic democracy may be defined as free access to
the bounty of God's earth, according to one's need, character, ability,
and work. The purpose of this access is for individuals to have the
liberty to work out responsibly their own occupation, lifestyle,
identity, and destiny without these being dictated by external
authorities or the threat of economic ruin. These are the freedoms that
are inherent in the ideals that created America and, though compromised
so much, have been America's gift to the rest of the world.
The reader might ask why, if these reforms could so
readily be made, weren't they thought of and implemented before? The
answer is that these reforms have been known and promoted by many
people in the past, both known and unknown, including such leaders in
America as Benjamin Franklin, Thomas Jefferson, Andrew Jackson, Thomas
Edison, Henry Ford, Herbert Hoover, Franklin D. Roosevelt, John F.
Kennedy, and many others. But working against such enlightened leaders
has been an international financier conspiracy with immense political
power.
The modern era of financier control in the U.S.
started with the Federal Reserve Act of 1913. But during the 1920s, the
U.S. was still outstripping the rest of the world with rapid economic
growth. This was due to a favorable financial position with respect to
Europe after World War I, the wide availability of credit in the
domestic economy, rapid industrial progress, and the predilection of
American industrialists to pay their workers generous wages.
Note that President Herbert Hoover is on this list
of enlightened leaders. It is not generally known that Hoover, elected
in 1928, had become familiar with the Social Credit system which
originated in Great Britain with Major C. H. Douglas, who published the
seminal work "Economic Democracy" in 1918. Douglas, with intimate
knowledge of the events of the time, later related in his book "Warning
Democracy" that in order to counter Hoover's enlightened economic
ideas, the financiers decided to wreck the U.S. economy, starting with
the stock market crash of 1929.
There is an official version of history, then there
is the way things really happened. Thus Hoover is popularly, but
mistakenly, portrayed as a failed president. But Hoover, an engineer
and one of the most capable presidents in U.S. history, identified the
Federal Reserve, acting on its own, as having brought on the Great
Depression. He responded by creating the Reconstruction Finance
Corporation to revitalize the economy with a fresh infusion of credit,
but, having been blamed for the crash, was voted out of office in favor
of F.D.R. in 1932.
The RFC remained and was instrumental in rebuilding
the economy over the next two decades. Roosevelt himself understood
that the federal government had to maintain a decisive degree of
control over credit, though he was undermined by people in his own
administration favorable to the financiers. So he never completed a
program of real monetary reform.
During the 1930s, Douglas was forecasting another
world war due to monetary causes, but he was told during his visits to
the U.S. that the financiers would never allow Social Credit to be
implemented. According to monetary reform folklore, the financial elite
looked around for an economist to combat Douglas's ideas and settled on
John Maynard Keynes. The Keynesian system tried to deal with the
monetary problem through massive government deficits, high taxes, and
rapid economic growth.
This system worked through the World War II years
and beyond but ran out of steam after the 1963 assassination of JFK and
the loss by the U.S. of its trade advantages and fiscal solvency during
and after the Vietnam War. The financiers reasserted control throughout
the 1970s, leading to the devastating Federal Reserve-induced recession
of 1979-83 and the deregulation of the financial industry during the
Reagan years of 1981-9.
That left matters where they stand today. Since the
1980s, every U.S. economic expansion has been nothing more than a
Federal Reserve-created asset inflation. The latest has been the now
collapsing housing bubble, the largest bubble in history. The
financiers are trying to bring about an orderly decline-the so-called
"soft landing"-though at the likely cost of the wealth, health, jobs,
homes, and perhaps even some of the lives of tens of millions of
demoralized people.
Will we let them get away with it? Obviously, the
government has bail-outs on its mind, though now, with housing gone,
there may be nothing left for the financiers to inflate for the next
round of chaos. Still, they are trying. Analysts are now calling
attention to a new merger and acquisition bubble and a huge securities
lending boom that has driven the stock market to historic levels even
as consumer purchasing power in the U.S. crumbles.
If this bubbles bursts, much of the middle class
wealth that remained after the 1987 stock market crash, the 2000-2002
bursting of the dot.com bubble, and the ongoing decline of the housing
market will be gone for good.
Maybe the party is finally over. Maybe at the end of
their 300-year reign, starting roughly with the creation of the Bank of
England in 1694, the financiers have finally succeeded in doing enough
damage to the world economy that the rest of us are willing to take
action. Or maybe there will be a sufficient distraction by more war in
the Middle East and elsewhere. Maybe peak oil or global warming will
intervene with destruction on too large a scale to ignore. Or maybe
we'll just limp along into the sunset.
Only time will tell. But however the change may
happen, it remains the author's conviction that, one way or the other,
a fair and intelligent monetary system will someday exist on the planet
earth.
Richard C. Cook is the author of Challenger
Revealed: An Insider's Account of How the Reagan Administration Caused
the Greatest Tragedy of the Space Age. A retired federal analyst, his
career included stints with the U.S. Civil Service Commission, the Food
and Drug Administration, the Carter White House, and NASA, followed by
twenty-one years with the U.S. Treasury Department. He is now a
Washington, D.C.-based writer and consultant and will be speaking at
the AMI annual conference in Chicago in September 2007. His website is
at www.richardccook.com.
