Blog 27 Ten Economic Myths to be Junked

Blog 27  Ten Economic Myths - A Series  


What makes the garden grow? 
Water. 
Yes, smart answer. How did you figure that out? 

So what makes the economy grow? 
Austerity, and Debt Reduction.  
Sorry, dead WRONG! Even the International Monetary Fund has changed its tune on that one.

Think "water" and "flowers."

                                                              MONEY
 NATIONAL ECONOMY

Substitute "Money" and "National Economy" for water and flowers.

Footnote:  It would be best to use government-created non-debt money,  rather than borrowed money, of course.

The next three or four blogs will be devoted to "The Big Story" in the December 2015 issue of New Internationalist.  NI is a British journal, established in the 1970's, The journal's title has a renewed relevance in these days when globalizers are getting closer to supplanting the national states with a really, really big government, bigger than any nation, and too big to be democratically responsible.

The cover title of the article is 10 EconomicMyths that we need to junk.

Some Background

The greatest war in the world, as we write, is not the war between men and women, not the war between Russia (or China) and America, nor the war between Muslims and Christians*, but the war between global corporations and national states
However, safely bunkered between the productive corporations (the manufacturing, mining, agricultural and other "real-economy" corporations), on the one hand, and, on the other hand, the public economies of national states (taxing and spending mainly for societal necessities), there is a third always smiling but mighty player. Like a colossus, with one foot on either side of the battleground, supporting, for a price, both sides, stands the almost non-productive financial corporations, the banks.

Why are they able to do this? Because of their power of CREATING money to lend - to all parties. Ever noticed that it is not just national states that have large debilitating debts, but that most corporations have big debts on their books, too? And money goes where money is - from borrowers to lenders. Banks are the happy creators and lenders of almost all f the world's money,

So in this global war, it is important to distinguish THREE parties, each with a separate agenda: global corporations, national states, and banks.
Of course, behind the scenes - in a bunker built of corporate stock certificates,  are the real rulers of the world, who own the corporations, including the banks.  In the shorter term it matters not to them who wins or loses. They know that, no matter what, it is better to be a lender than a borrower, and that when times are tough, cash is king - and very useful for buying up fire sale assets.  

Small print disclosure. Your CogsBlogger is a minor member of that class: does no useful work; lives on his rents. But maybe can see the way to a better construction of the world's economy.
So next blog will continue to look at New Internationalist's Myths to be junked.

*Footnote:  Christians should read the Koran. They will be amazed to see how much they have in common with Muslims. Both were, remember, derived from Judaism - with just a dash of paganism.

Blog 26 Some Random Thots on the Law of Money

Some Random Thots on the Law of Money


The law of money (Money goes where money is,) works at global, national, state, even municipal, levels.

The two most obvious mechanisms are interest-bearing loans (the basic step) and capital gains on assets (a little more chancy, but sometimes very effective). 

1. Interest-bearing loans.

It must be understood that there are two classes of people: (net) lenders and (net) borrowers. Net lenders lend more than they borrow. Net borrowers borrow more than they lend. Simple distinction?

Charles Dickens, whose father spent some time in debtors' prison, put it this way: "The different between a happy man and an unhappy man is two shillings. The happy man lives one shilling below his income. The unhappy man lives one shilling above his income."

So how to work the law of money? Take the next dollar you earn. Put ten cents of it in a box and leave it there. You can spend the rest. Do that for every dollar eyou ever acquire for the rest of your life. Whenever your box gets full, take the money out and lend it to a bank by depositing it in an interest-bearing account. Never borrow.

You have now become a happy net lender on the way to becoming an owner of slaves - because over time the borrowers become slaves of the lenders (The bank will be your "courteous enforcer").



Be wary, though, that you, or your bank, are not too harsh on your borrowers, because at certain times in the history of nations and economies, it becomes dangerous or even fatal to be a too-successful lender.

I trust that you see, nevertheless, that the law of money makes it better to be a lender than a borrower.

2. Capital Gains on Assets

This means buying assets at low prices and selling them at higher prices. The assets can be property, or stocks, or commodities, or currencies, or works of art, or...  Now, Hold it right there. Don't get over-excited at all those opportunities. Just a caution. Whenever you are a buyer, there is a seller, who may be smarter than you. Whenever you are a seller, there is a buyer, who may be smarter than you. Maybe you might just stick to lending money at interest for a while.

Buying corporate stock for dividends is a hybrid sort of process. Approach with caution also.

So lend money at interest. The more income you can make by lending your money at interest, the more money you will have to lend at interest. and the more money you have to lend at interest, the more money you have to lend at interest, the more to lend at interest, to lend at interest, at interest. It''s what lenders call "the miracle of compound interest." Borrowers have other names for it.

Let me finish with another caution. You will also be happier if you keep the value of money in perspective - as a means, not an end.

Pursuing money can become like feeding a food addict until he/she looks like an explosion about to happen...
Let me say it again: money, like food, is a means to an end, a means to something else, not an end in itself. Keep your eye on the something else, whatever it may be.

Now, that's a lean thot to meditate on.

Son, what do you want to be when you grow up?

I want to be the 1%.

Well, that would give you only 99 slaves.

.

Debt, Deficit, What's the Difference?

debt-deficit-debt-deficit-debt-deficit-

Blog 25
The  "Balanced Budget." Does Nobody Know the Difference Between Debt and Deficit?






First, let me introduce what has exuberantly been called "the miracle of compound interest." Here is a true story to illustrate it.

In 1974 a nation-state, which we will not name but call Nation X, had accumulated a national debt of about $20 billion. Debt means money you owe. On money you owe, you have to pay interest. So one item in their budget that year was "Interest on Debt".

Over the next 20 years, they had a small number of annual deficits that rang up another $30 billion in debt. That is, in those years the government spent $30 billion more than it took in. That is the definition of deficit; spending more than you take in. To pay the bills in the deficit years, the government borrowed enough to balance the books for the year.

So in the year 1994 the total national debt of Nation X was roughly $600 billion.

Let's look at that.

Debt at start, 1974............................20 billion
Deficits added 1974-1994................30 billion
        Total Debt 1994.....................600 billion

How's that? Did I get it right? You say 20 plus 30 does not equal 600? But it did. And by what is called "the miracle of compound interest."
I should note that only lenders call it the miracle of compound interest. Borrowers, like the government of Nation X, are entitled to call it the curse of compound interest.

The circumstances in the 1980's were, admittedly, unusual. Interest rates rose to over 18%. So the compounding of interest - that is, interest on the non-payment of interest on accumulated interest, on accumulated interest, on accumulated interest, year after year, made a small addition to the national debt for Nation X of $550 billion.

In short, for 50 billion borrowed, Nation X is on the hook for about 12 times that amount. How was that made to happen?

Well, in they mid-1970's, unbeknown to most people, the lending class had become unhappy with "negative interest rates". (Negative interest rate means that the rate of inflation is higher than the rate of interest of, say, government bonds.) Thus inflation eats up a lender's profits. So a concerted effort was made, starting in the US, but engaging major lenders everywhere, to teach the national states a lesson. Interest rates were ramped up. Lenders loved it. (That includes lenders in Nation X.)

The point of looking at these figures now in late 2015 is that conditions today are eerily similar. Inflation and interest rates are close to equal and have been for some time.

To calculate what a new twenty years of deficits, high interest rates and debt-building would do for Nation X's little $600 billion debt -- well, let's just say that it's beyond your poor blogger's computing skills. But $600 billion times 12, I think, is a mere $7,200,000,000,000. Boggles the intellect, doesn't it?

Poor Greece. Poor Nation X. Who's next?

We can't move in there, Dad.It's going to collapse.

Afraid so, son.

So why do "democratic" politicians only talk about deficit-vs-balanced budget, and never mention the accumulated gross debt? Because it is too complicated for the people to understand, they say.

Bah, humbug! We are smarter than they think.

Maybe it's just too difficult for some politicians to understand. Some certainly do. But I think they may be quietly muzzled- "because it is too complicated for the people to understand." 

 Feel free to copy this blog and send it to your local representative.

Blog 24 One More Poke at the Canada Election

 Blog 24  One More Poke at the Canada Election

Some observations which, I promise, will quote you no percentages, give you no stats, mention no numbers of any kind. Well, grant me just one. At the end. If you persist in reading that far.


The Canada election was a considerable triumph for democracy, "the rule of the people."
Seniors are still the most faithful voters. They have lived long; some do not like change. Political cartoonists might want to call that the gerontological factor in elections. Young people, especially those burdened with college debt, or "thriving" on two or three part-time jobs, are more likely to welcome, or demand change. This election seems to have brought them to the polls, and we all got change.

By a large majority the youngest of four candidates was elected Prime Minister.

The defeated PM, whose fascist credentials you can review in Blog 8, "Canadians are using the "f-word", was decidedly defeated by the demos - the people - who rejected his anti-democratic,anti-government policies, and were probable put off, too, by what they perceived as his ill-concealed, haughty contempt for them.

It is possible that people of all ages deplored the personal attack ads, which are relatively new in Canadian elections. The approach certainly did not work for the governing Conservatives, who started their banner TV ad early in the long election period, and ran it madly until the last week. Maybe they just chose a bad angle of attack, with the slogan, "He just isn't ready." Rather clever if you look at it closely: the target was the Liberal leader, whose first name was Justin (Justin, just isn't. Get it?) I didn't get it either until I began writing this blog. But by the end of a very long campaign, a majority of voters, perhaps encouraged by the ad itself to think about it, voted that Justin, ready or not was better than the other guy, Steve Harper. So Justin Trudeau was duly voted in as PM.

  Is he ready?
  Ready for what?

For what is perceived as a declining economy, he offers deficit budgets in the short term - and stimulation through government spending on infrastructure, etc.

If he gets good advice and transfers government debt to the Bank of Canada to cover those deficits (instead of borrowing from foreign private bankers), then a deficit or two, well spent, is a very good move at this time in world history.

Can he act against the will of the big lenders - the safely-established upper level of the economic pyramid? A government can't afford to run deficits, goes their mantra: it must reduce taxes (theirs) and cut expenditures (on everybody else). In oner words the rich lenders say, take less taxes from, and pay more interest to, us. And, somehow balance the budget. Then leave it to us. That's what we elected you for.

Austerity, that is. It remains the buzzword around the world. Readers of this blog probably know by now why it is absolutely the wrong policy, that what national governments should do in times when money is needed in the economy is put money, debt-free money, into it. Then, in boom times, manage the national finances to reduce debt.

Speaking of the debt, and nobody does, the interest on the national debt is now the third-largest item in any Canadian government's budget. Think about that. The debt has soared since the mid-1970's* when the governments of much of the developed world were persuaded to turn over their borrowing to private lenders instead of taxing and creating money to fuel their own national economies. Poor Greece.

*Justin Trudeau's father, Pierre Elliott Trudeau was Prime Minister at the time.

But Canada has an almost unique power to buck that wrong-headed policy, since its Central Bank is actually owned by the government. That's right. the Bank of Canada pays all its dividends to the Finance Minister. No, not to his personal account. (That's happens only in more advanced dictatorships.)

But that's the topic for the next blog, which may have a few figures  Tentative Title: The Balanced Budget. Doesn't anybody know the difference between the words deficit and debt?

Blog 23  Canada Votes. What For?


What's the name of that political party? The NDP?

Oh yes, the New Democratic Party. Incidentally, the party is not that new. It was founded in 1961, when its current leader, Tom Mulcair was about age seven. Its predecessor was  the Cooperative Commonwealth Federation - the CCF.

Now there is a name to capture a political following.
"Cooperative." Yes, that's the Canadian way. Just the opposite of "Competitive," the quintessential American way.

And "Commonwealth," now there is a term worth longing for in these days when the 1% own most of the world's wealth. The word gained currency in England in the 17th century after King Charles I,  executed in 1649, was unable to continue his full duties as a monarch.  From 1649 to 1660 they called Britain a Commonwealth.

And "Federation." From the Latin word,  foedus, - a treaty or an ally - the word might be defined as a treaty or union agreement. We could do with a little more unity in the world in 2015.

Then there's the neo-fascist Conservative Party of Prime Minister Harper (See Blog 8, "Canadians are Using the F-word.)  Personally, Harper is a smooth ideologue whose worst crime historians will probably identify as his 31-year investors' protection treaty with China. It is a treaty that may just change the face of Canada during its term. China's biggest export is, arguably, people. The Chinese, I learned on a recent visit, call westerners "Big Noses". I hope that when they are a  dominant majority in western countries they will treat their visible minority better than the Big Noses have treated some of their own indigenous visible minorities.

I also hope the election does not confirm the view that Canada is a hotbed of bigots and cowards. But that is what "The Harper" is betting on.
Still, in a nominal democracy - government by popular vote - people do get the kind of government they deserve.

So, whom would I vote for ? Undoubtably the Green Party. Now be careful. Don't say, "That a would be a wasted vote. They can't possibly win," because I would have to reply to you personally, 

"Oh, you must be a horse-race voter. You don't have any idea of what the issues are or what the parties represent, or promise. You vote just so that you can have the warm fuzzy feeling of being on the winning side. How pathetic! Did your mother not love you, dear?"

I might add that if I voted for anyone other than the one I perceived to be the best candidate, I would be wasting my vote. And, if I was having a bad day, I might further add, "If you smartened up a bit and voted for the best candidate, too, you might see better governments elected."

Well, back to the law of money next week, with a more temperate tone, I trust.

Blog 22 Lettus Rejoice

           Blog 22  Lettus Rejoice

I have toured a greenhouse as big as a football field. It contained a table  which was almost as big as a football field.  You couldn’t see it all that clearly. It was covered with green growing things. They were growing Boston Pizzas.

Growing Boston Pizzas? No, that can’t be right. Not Boston Pizzas. It was Boston lettuce. Yes, lettuce.  Sorry, Boston.

And this is good old Boston,

The home of the bean and the cod.

Where the Lowells talk only to Cabots,

And the Cabots talk only to God.

Yes, sorry again, Boston. I know you have seen a lot of history since J. C. Bossidy spoke those lines in 1910. And thanks for the lettuce.

 Well,  back to the greenhouse. It really was growing Boston lettuce. Along one side of the giant table, workers, mostly friendly ladies, were planting little sprouts of lettuce in boxes. The boxes were moving slowly away from them - very slowly. The mechanism underneath the table took about 30 days for a line of lettuce to reach the other side. There another cadre of workers were lifting full grown lettuces off and putting them in crates. On the way across the moving table the plants had their feet in water scientifically laced with nutrients.

Now I would like to make one point about this before moving on.  Think of the number of heads of lettuce this factory could produce, working all year round, compared with an open farm field of the same size.

That is a fruitful thought in these days when farm land is disappearing because of drought, high speed cultivation, urban sprawl, and other contaminants. And us with eight billion mouths to feed.

It is true that part of our problem is in food distribution. (But that is a topic for another day).

My Boston pizza/lettuce interest has just been further galvanized by a TV news report which seemed to picture not just a horizontal concentration of growing plants, but a vertical concentration, too, as the plants also moved up and down. No, the factory was not floating in the clouds, but, with the set-up pictured, it might have grown 40, or 140, times as many lettuce heads as could be grown in a farm field of the same size!

Now this certainly sounds like good news for all of us, but particularly for climate-change-deniers, real or pretended, who can wash their hands of the whole problem of food shortage, and get on with the tired old routine of “growing the economy”, and “restoring prosperity.” (“What did you say was the name of that grow-op company. Is it listed on the stock market yet?”)

             Finally, our last blog promised to name the two advanced countries that could, if their governments chose, implement a Rowbotham-style program to reduce their national indebtedness to private banks, to cushion the gyrations of the economy, and to maintain a stable prosperous nation. 

Neither one of them is the US. The Fed is owned by a consortium of regional private banks and not by the government, as Woodrow Wilson so sadly lamented (Blog 20).

But Britain and Canada both OWN and control their central banks. Any profits are paid out as dividends.  So for nominal charges the governments could create money for infrastructure and for a basic income.

Will they do it? Probably not, until forced by an enlightened (or enraged) citizenry. But freedom from the power of the global banks has to start somewhere with some exercise of national sovereignty. The current fascist government in Canada, if re-elected, certainly won't do it. But in the British Parliament there have been recent debates sparked by monetary reformers, who now understand the principles of non-debt money creation.

Blog 21 Optimum Monetary Stability 2

Any commentator today on the Great Depression of the 1930's is bound to say that the stock market crash in October 1929 did not CAUSE the depression.

So thoughtful commentators have asked a more fruitful question: Why, when there were plenty of skilled workers, lots of industrial capacity, huge supplies of natural resources, and thousands of people in need of the products, why were there so many people unemployed?

The proposed answer at the time was "overproduction" - more goods being produced than people wanted. The correct diagnosis we now know is shortage of money to buy those goods.

So let's turn this apple upside down. Everything was available for prosperity - except money. But for ten years everybody seems to have stumbled blindly along doing the wrong things. The banks called in loans and governments were erroneously persuaded to cut spending, to lower taxes, to balance budgets. We now call that program "austerity'. What's important is that these measures just further reduced the money supply. They still don't work today

The outbreak of World War II loosened the purse strings. Governments taxed and borrowed and created money Banks returned to their preferred occupation - making loans. So the war and its costly resettling aftermath were financed with ease. Peacetime prosperity returned. and 1945 to 1975, in my view, were the best years of the 20th century.

So what have we learned? That in times of trouble, when private money dries up, governments should borrow, and go into debt (the sky will fall!) to keep their economy ticking? No. Not if there is a better plan. And that's what this blog is about.

Sorry for the long introduction. Why don't you get a coffee and leave the next part - the good stuff - till tomorrow.

Dad, why doesn't the government create its own credit money?.
Because the banks tell them it would be inflationary.

                                               Would it?

                                                        No.     

                                               Are banks that much smarter than the government?

Maybe the time has come for governments to make stability their real goal and to provide a larger proportion of the money supply. Enough to have a permanent compensating effect for the ups and downs of the money created by private banks' loans.

Imagine a fish tank. It has a leak at the bottom. Doubtful future for the fish. But give the tank a faucet to keep the water level stable. That seems like a no-brainer. Even your average politician should be able to understand it.

Now let's say the tank's leak represents interest payments on the money supply, and that the intake faucet is government-created  non-interest-demanding, permanent money. So turn on the faucet until a suitable stable balance between non-debt and debt money has been created. At present the ratio is 3% to 97%. History suggests a 25% to 75% ratio works better.

So how to get there? Michael Rowbotham's 1994 book The Grip of Death outlines a process.

I call it The Tidy Two-Step.

Step 1

Count the money in circulation.  (Government economists do it all the time; they call the total, M1, or M2.) Count it for two years in a row. For simplicity, let me start with hypothetical small figures.

2013        $1,000,000  (97% of which is debt-money)

2014        $1,200,000      "     "       "     "   "        "
Difference  $200,000

Step 2  In 2015 inject $200,000 of non-debt money into the money supply.

By the next count at the end of 2015, the percentage of debt-money will be down from 97%, because the government created non-debt money remains in circulation indefinitely, and some bank debt money will have been repaid to the banks during the year, and so taken out of circulation. Get the idea?

Two questions about Step 2

Question 1. How do you create the $200,000 in non-debt money? Same way the banks create debt money - out of thin air. It is a non-interest-bearing issue from the national central bank.

Note: it is not borrowed money and it is not tax money.

Question 2. How does Rowbotham propose to get this money into the economy?

In two ways:

1.  Infrastructure projects (road repair, park development, bridges, dams, railway tracks, sewage plants, seniors residences, etc., etc.) The construction employs workers, who get paid, and spend. Simple?

2, A direct payment to everyBritish citizen over 18 years of age. He calls it a "BASIC WAGE".

Now, hold on. Before you go into a rage and tell us what banks have been saying about such an idea since before Hector was a pup, let me say  that the amount needed for Britain in 1997 worked out to 1500 British pounds per citizen.

That is not enough to create "welfare dependence", and it is not big enough to have an inflationary or shock effect in any one year. Almost nobody is going to hide it under their mattress. It will be spent. Spent.


In Rowbotham's calculation for Britain, the equilibrium point - of bank-loaned debt-money and permanent non-debt money in M1 - will be reached in the eleventh year. The BASIC INCOME amount, decreased each year, will have reached zero.

Well, that's more than enough for one blog. Spare me till the next one to tell you the two countries with the best chance for success in implementing this stabilizing process.

Blog 20 Optimum Stability - a Compensating Money Supply

Blog 20
After that mind-clogging title, let me quote another American President, Woodrow Wilson, who in 1913 signed the Act which established the Federal Reserve Bank, the American counterpart to the Bank of England.

But first.

Most countries now have a central bank whose purpose is 

"to regulate credit and currency in the best interests of the economic life of the nation, to control and protect the external value of the national monetary unit, and to mitigate by its influence fluctuations in the general level of production, trade, prices and employment, and generally to promote the economic and financial welfare of the nation." (from the Bank of Canada Act 1938).

(Read that again. It's written in law-speak, but it is a very good three-point statement-of-purpose for a national agency. 
Never mind, I'll re-write it for you. 1. to regulate the money supply, 2. to maintain the value of the national currency, and 3. to promote the financial and economic welfare of the nation.)

Now to President Wilson, who later wrote:

I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit [money creation system]. Our system of credit is concentrated. The growth of the nation therefore and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by conviction and the vote of the majority but a government by the opinion and the duress of a small group of dominant men." 

Hmmmnn. I wonder what he would have said about the Supreme Court's recent Citizens United decisions, which have declared that "money talks in elections" is a principle enshrined in the Constitution?

Well, so much for introduction. On to the recipe for a balanced monetary system to replace the debt-based system we now suffer, and which accounts for about 98% of our money supply world-wide

That's right, about 98% of the money now used by people, businesses, corporations and governments is rented money. And the way they mainly pay the rent (interest) on that debt-based money is by borrowing more of it. Yep.

I'll leave you with a recollection of our friend, Arthur Banks, of Blog 16, who lent his neighbour 200 bucks to buy a poodle for his wife. The pet store took Arthur's little promise-to-pay note and passed it on to pay his own pet-food supplier. Remember? It was just like money. But Arthur did not ask for an interest payment.

Now that could be a real competitor for the rented money created by private banks. What if the governments of the world did that? They used to.

Next blog I'll try to give a simple explanation of a method for governments to get back to it. I'll also name two governments which have the tools to succeed.

Dad, when the government bails out banks

where does it get the money from?

From the banks

!!??!!

Blog 19 Making Money: Making Change

Blog 19  Making Money: Making Change. Three Option

Option 1

Reorganizing some old files recently, I came on this argument for debt-free money (Italics mine.):

"Governments possessing the power to create and issue currency and credit as money and enjoying the right to withdraw both currency and credit from circulation by taxation and otherwise, need not and should not, borrow capital at interest as a means of financing governmental work and public enterprise. The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of government, but is the government's greatest opportunity.

"By the adoption of these principles, the long-felt want for a uniform medium will be satisfied The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power."

There has been a lot of scummy water under the bridge since these words from an essay on monetary policy were penned in 1865 by a not unknown American - by the name of Abraham Lincoln. 

I would note two things:  

First, Lincoln not only gave us what deserves to be called the clearest, simplest definition of democracy on record - "government of the people, by the people, for the people," but he left us also with this classic explanation of a critical truth:  that democracy depends on the government supplying non-debt money.

Second: we know, however, what happened on April 14, 1865. A President shot by a lone gunman who was soon shot down himself.  

Odd, that happened again on Nov 22, 1963!

But, on to 

Option 2 The Cashless Society, in which all transactions of any account are made using money created by and borrowed from private banks. We have almost reached this bankers'  dream in 2015.

Unsustainable, of course. Since banks do not create any money to pay the rent on the money they create as loans, the first source of rent money is more borrowing!  (Take another peek at Blog 5, on the growth imperative".)

Option 3

A calculated mixture of government money creation and bank money creation. 

Banks are great when the economy is booming. They fuel the boom with easy loans to keep it going.

But when the economy goes into a downturn, banks are counter-productive. 

They get edgy about making new loans in a slowing economy and they also call in doubtful loans. Both moves reduce the money supply available for the healthy operation of the economy. Anxious borrowers, too, pay back existing loans and borrow less. So everybody is geared up to gear down. The  result: a"credit crunch" (that means "shortage of money") which makes the economy slow further. You have heard of the vicious cycle.

 

                Dad, Why does the government bail out banks?

                   Because they ask.

                  That doesn't sound like a good reason.

                    No.  

So how to thwart a shrinking economy?. What is needed is new money - non-debt money - injected by government into projects or subsidies that maintain people's incomes. With an income, people are likely to keep spending, which keeps the economy active. Virtuous cycle, yes?)

Unfortunately, governments usually listen to the banks, who insist that the only solution is for government to borrow from them, pay them the interest, and wait for them to lend more money into the economy. 

How can governments be so stupid? There are several reasons. One is that governments are not as smart as banks when it comes to monetary policies. And, perhaps too, there might be some more specific means to bully, bribe or bamboozle politicians. 

A credible mechanism for governments to maintain the equilibrium between government-created and bank-created money is worked out in Michael Rowbotham’s The Grip of Death: A Study of Modern Money, Debt Slavery, and Destructive Economics, 1998. The mechanism is based on the British economy, but is applicable to any government which is not controlled by its private banks.

Perhaps more of that in the next blog.

                        

Blog 18 Crisis / Opportunity

In Blog 7, I introduced the four means of subverting the law of money within a nation.

1 Noblesse oblige (the charity of the rich);

2, Government redistribution; by taxing the richer and spending the tax receipts on the poorer.

3, Workers unions - with freedom to act collectively to level up the power balance between wage receivers and dividend receivers.

4 Finally, when 1 to 3 have failed to function sufficiently, revolution, which I symbolized with an image of a guillotine. That is a humane device for separating heads from bodies. It was used extensively on the French royalty in the 1790's,

I noted that 1. noblesse oblige, while laudable, is not a big contender for gold medals in wealth equalization.

And 2, government equalization gets strangled by the power of of the debt-based money system. The rent payment on the debt (national/state/municipal) don't leave much for public picnic baskets.

Ditto 3, collective bargaining, suppressed by debt-stressed governments on the insistence of their bankers and big-money supporters.

So,prepare for the guillotine.

The French Revolution was just one of many revolutions brought on by the operation of the law of money. A list of examples would include the Communist revolutions beginning in Russia in 1917, and, more recently, the Occupy Wall Street movement, and the current ISIL and other 21st century Arab revolutions. They were and are brought on by a recurring crisis point in the distribution of wealth, when too much money has been accumulated by too few people, leaving too little for the majority.

And how much is too much,  and too little? Number-crunchers, despair. That balance may be quantifiable only after the revolution has decided it. But give it a try. And then notify the 1%. It could just save us from a nasty revolution.

It deserves to be said on that point that revolutions are almost never initiated by the poor, who are too occupied just keeping breath in their bodies. Revolutions are birthed in a deprived or de-privileged middle class, but once launched, the middle class seldom retains control.of the outcome.

So we seem to be due for one, it it hasn't started already. It is hard to predict the outcome because this revolution, unlike those previous national uprisings, is going to be global. That makes the stakes huge, and the predictions dubious.

But they all start with a small beginning somewhere.

That could be Iceland, and Greece, or ISIL.  ISIL? A theocracy? With human beings assuming the "voice of God/Allah" and telling everyone else what to do/think/be?  That could be worse than the cancer stage of capitalism!

Well,let's leave that thought to another blog. How a bout an upbeat quotation from Robert Frost, who, when asked what he thought about the fate of man, said, roughly quoted, "Men are like cockroaches, ineradicable."

Yeah, and by the way, I'm not inventing this stuff. I'm just quoting history.

Interesting verbal note:  the word "crisis" came from the old Greek word for "decide". 
And the English word "decide" came from Latin. In Latin it meant, "cut, with a downward stroke".

Blog 17 LETS Hear It For Greece!

                  Could Greece escape the Law of Money?

To do so could be a critical poke in the eye to a world monetary system that is rigged to make the rich richer, and richer, and richer still, by keeping the rest of the human race in perpetual debt.

Let's go back to Arthur Banks (Blog 16). What would his community look like if Arthur continued to issue his generous little gift slips? Let's say they averaged 20 transactions before they got back to him, and that some of them never did come back to him. What would his neighbourhood look like?

I would say, very prosperous.

There would be more money to do more things with - like buy better food, see more movies, have more toys, repair more potholes. Now, wait a minute, you say. Repairing potholes is the town government's job. Yes, so suppose the town government accepted Arthurnotes for tax payments, and then used the Arthurnotes to pay its employees for repairing the potholes. Would that work?

 

In fact, there many such local currencies - hey are sometimes called L.E.T.S., Local Exchange Token Systems. Look up the "Hours" of Ithaca, New York, which has been a local currency operating since the early 1990's. An Ithaca "hour" was valued at ten American dollars. Or look into Argentine's monetary collapse, when the LETS carried the ball and kept the local economies functioning.

So lets cheer Greece on. When pushed to the wall, lets see it go it alone with its own internal currency. Without debt charges eating up the nation's sustenance, Greece has a lot going for it: tourism, agriculture, its strategic location between the oil of the east and the vehicles of the west. For a more exciting read on this point, check out the very compelling article by David Olive in the Toronto Star (July 10th. I think), "What does Greece need? The last thing it's getting."

Most great historic movements have started with a single impetus.

Which reminds me - am planning to visit Iceland soon. Will tell you about it.

Greece: Changing the  Channel   Blog 16   July 6 2015

What’s wrong with Greece? Depends on whose propaganda you believe. One answer (heard in the the locker room this morning): “Well, they’ve just been living beyond their means. Spending the money they don’t have.” 

Cogs Blog Comment: 

Well, Dan, that’s applying the basic, number one rule for household economics - you have to earn it in order to spend it. However, sadly, applying the basic rule for household economics to the global monetary system just ain’t relevant. IT JUST DOES NOT APPLY.  Repeat: IT DOES NOT APPLY.

Then there’s Rule Number Two for household economics (if you borrow it, you have to pay it back) That one does not apply to the global monetary system either. In fact, if everybody - folks, governments, corporations - tried to pay back their debts, there would be no money left to buy anyone’s daily bread, not even your favourite bank teller's.

Now with that introduction from the gym scene, let me address the big challenge I have set for this blog and the next one - to explain why what looks like common sense for the household does not apply to the global money system  as it now exists.

Let’s introduce a solid citizen, call him Arthur Banks. He dresses well, takes trips, pays his bills. His neighbour, Chuck Chaplin, wants to buy something, say, a poodle for his wife.  But he doesn’t have any money. Arthur, however, just over the back fence, asks “How much does the dog cost”

Chuck says, “$200 bucks.”

 Arthur says, "Just tell Peter the Pet Man that I will cover the cost of the poodle. Here, I’ll just give you a note that says I’ll pay him $200.”

Would that work? Would the wife get her pooch? The probable answer is yes. Right? And why?

Because Peter believes Arthur is good for the 200 bucks. He holds in his hand a piece of paper to prove it. 

Peter believes. Do you know the Latin  word for “he believes”? It is the word “credit”. Yep. Credit, in Latin, means “He (or she) believes.” So when the world’s big banks stopped believing that two of their big friendly competitors could meet their obligations-to-pay, they dropped. them like a pair of tarantulas.

But to get back to Art, Chuck and Pete. Let’s follow the note. Suppose that Peter persuades the farmer who supplies his bird seed to take Arthur’s little note in exchange for a load of bird feed, and the farmer explains to his hired hand that Arthur is good for the payment and pays her with the note. She lives in a flat in the village, and pays her landlord the rent with the note. Imagine this going on indefinitely until somebody takes the tattered and torn piece of paper back to Arthur and gets the two hundred. 

So far, what has Arthur bought with his $200?

1 dog $200

1 load of bird seed    200

1 week’s farm labour   200

1 month’s rent   200______

            $800

Pretty good for a hand-written note. It’s almost like a miracle. That little note is almost like money. $800 dollars dropped into the local economy, just like that. It’s certainly better than trying to barter a poodle for a month’s rent, isn't it?. 

I’ll leave you with a question. Could the Greeks do that?

Blog 15 1 The money scene replayed 2 Democracy or Republic?

Blog 15  In two parts:

Part 1
   Replay of "The Money Scene" (from Blog 2), which explains how our money is created. All of the world's governments and economies are linked (and controlled) by this process. It deserves a review at this point

Part 2
  As promised, "America is not a democracy. It is a republic."  The originals of two concepts of government.

Part 1  The Money Scene (Replay of Blog 2)

In Blog 1 I hope I convinced you, dear reader, that there are two distinct kinds of Canadian (or American, or Chinese) money? 

There is cash, actually printed or minted by the governments, and there is what is known as credit money, created by the banks and rented to us.

You probably use the rented money for almost all of your transactions. As does General Motors or Exxon. It is not printed, except maybe as entries in your bank book. No printing press is needed for credit money. But if you want some, you have to rent it.

So, for the secret: how do the banks create our money supply? It has been said by wiser economists than me, “It is so simple, it’s hard to believe.”

You may have seen those TV ads where a young couple beams as a bank officer - often a well-groomed, well-spoken young lady with the couples’ best interests at heart - tells them what they want to hear. She will give them $25,000 for that new car, or for their daughter’s school fees, or whatever.

What follows (not shown in the ad) is a lot of document signing (and signing, and signing.) In real life one of them might want to read the documents. But he, or she, would have to be a super-fast, intelligent reader, like you, perhaps. At the critical moment, then, after you have signed the documents, the bank agent tells you that $25,000 has just been transferred to your account.

At that precise moment, $25,000 in new money pops into existence and enters the national economy.

It's certainly real money. You write the cheque, and you get your car. The process is so simple: a bank willing to lend makes an agreement with a client willing to borrow. And it is exactly the same process if General Motors or Imperial Oil wants to borrow a billion dollars. It's not cash, but it is real money, ready to be spent. 

And it is new money. The bank does not take it from a stack of cash nor shave it from an ingot of gold in the basement.

So when you repay that loan, $25,000 is taken out of existence. Really.

Of course, you have been paying the rent, the interest. Ah, interest, the wellspring of the banking business.

Part 2 DEMOCRACY or REPUBLIC?

The drafters of the American constitution were educated in the history and language of ancient Athens and ancient Rome. (Universities of the time did not carry courses in American literature or political economy.) So when the fathers of the constitution sat down to work, they had two models. one from Athens and one from Rome. They probably knew more Latin than they knew Greek. So when they came to defining a government, they tended, toward the Roman rather than the Athenian model .The Athenians had a democracy. The Romans had a republic. 

So what is the difference? According to Aristotle, who was an Athenian, democracy means ”the rule of the people”

The Romans, however, recognized two classes of citizens, They called their state “senatus populusque Romanus”,  which means “the Roman Senate and people” The idea survives to this day on ancient Roman buildings in the letters SPQR. and, perhaps we might say, in the American Senate

The Roman senatorial class were a kind of upper class, from which the chief magistrates were largely drawn. It is true that there were in addition three different popular assemblies, but the senators held all the real power.

Finally, to end this little historical rant, it must be admitted that the Athenian democracy came to a bad end by engaging in a distant, futile, foreign war. Something like Viet Nam or Afghanistan. 

The Roman republic, on the other hand, went on, to become a great empire, but no longer even remotely democratic.

How much of this history affected the constitutional congress, I can’t say. But American conservatives have often maintained that America is a republic, not a democracy. Abraham Lincoln, who was not educated in an Ivy League university, may have held different views.

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