Paper money is, of course, NOT authorized by the United States Constitution, in fact, arguably, it is specifically forbidden by Article I, Section 10 that ” No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts….” The purpose of paper money is and has always been to create easy and quick credit for the government. Banks can do the same thing by “emitting credit” or “approving credit”—and all promissory notes accepted by National Banking Institutions under the definitions of 12 U.S.C. §1813(l) MUST treat approved promissory notes as “the equivalent of cash.” In effect, any person who can approve credit formally can create money from thin air. National Banking Associations do that, but a former associate of mine, the well-known Orange County Dentist Dr. Orly Taitz, was able to approve credit through her Dental Office, and upon accepting notes, was able to issue herself money. She actually DID this in the case of my friend the late (died tragically and very prematurely last December) Major Stefan Frederick Cook….. who never came anywhere near Orly’s dental office….but sought Orly’s “legal” services…. and she had him apply for credit through her dental office. She never, however, got him into a dental chair so far as I am aware….although he may have felt his teeth had all been extracted by the time his little whirlwind tour with her was over…. I have the greatest respect and regard for Major Stefan Frederick Cook, and I am sorry that Orly’s impetuosity (and my assistance to her in acting impetuously) may have injured his amazing military career unnecessarily, but that is a different story for a different day: the point is that issuing credit under the national system, whether you are a Bank or a retailer or a retail provider of dental services or anything else: IS the creation of money from thin air. Creating money from thin air facilitates instant gratification of the kinds and types of which both Henry Ford and Sigmund Freud definitely and enthusiastically approved, albeit for radically different reasons. Aldous Huxley made the connexion between Ford and Freud’s attitude towards instant gratification in his masterpiece “Sci Fi Horror” book: Brave New World.
“The Money Multiplier” effect is something that ever student of Freshman economics learns about and then forgets in later life as s/he goes through a normal American life-style creating money by signing credit card notes, mortgages, car loans, EACH of which is multiplied several times within a month or two at the maximum, thereby creating the oversupply of money which that same student of Freshman economics will doubtless hear of on the news, possibly during his middle age, as “inflation” measured by the “consumer price index.” Gold and silver are not immune from inflation: during historical gold and silver rushes the value of these commodities has shrunk to unbelievably low levels in mining communities and areas where they are super-abundant. Spain of the “Golden Age” (16th-17th centuries) is often said to have been crippled in comparison with Holland, Germany, and Great Britain by the inflationary effect of vast surplus gold derived from the post-Columbian conquests of Mexico, Peru, Colombia, and Bolivia. Why develop? Why produce anything at all when you can stay drunk on easy gold and never have to work?
Why develop just and fair economic and political systems when you can decorate your churches with oceans of gold and then leave them in charge of regulating society and culture through well-funded courts of inquisition who are responsible to no one? Money = power, power corrupts, and abundant money = absolute power which can corrupt absolutely. These truisms are too well known to bear much discussion.
“Formal” market economies have always depended upon an exchange rate based on some form of central commodities. Before gold and silver the Ancient Romans and Germans used horses and cattle as currency (the word “pecuniary”, meaning, “of or relating to money” is derived from Latin “pecus”—preserved in Spanish words and phrases such as “Agropecuario”—which means “relating to commercial farms and ranches and similar products and services”).
Among the ancient Aztec and Maya of Mexico, Cacao beans and cotton cloth were used as currency, (this was the sweetest economy in history, where money literally did “grow on trees” and could be made into chocolate at any time). And in fact the Southern Americans of the Confederate States of America effectively tried (but failed) to use cotton as currency again in the 1860s, but were rebuffed by and ultimately lost their bid for independence as a result of the scorn heaped on them by gold-loving British and French bankers of the middle part of the 19th century. Thus “Dixie” fell in large part because of its dependence on paper money such as the “Dix Dollars” (Ten Dollar–French language) bill issued by the antebellum Banque de Nouvelle Orleans which had given the region its nickname in the time leading up to secession in 1860-61. Cowerie shells were famously used by certain pre-modern tribes in the Western Pacific. The honest advantage of commodity based currencies—and their fatal flaw, from the standpoint of modern social-welfare economics—is that they are inevitably finite.
No matter how easy it is to pan for gold, grow cotton, raise cattle, or cacao beans, or collect cowerie shells, it cannot be done instantaneously. And for governments (like the U.S.) which want to build sophisticated nuclear missiles, launch satellites, sponsor vast educational programs which seem to lower the overall national levels of literacy and awareness, try through redistribution of the wealth to make “every man a king”, and generally realize Rumpelstiltskin’s dream of spinning straw into gold without actually doing the work of spinning even, paper money is the only “commodity” sufficiently malleable and manipulable to work.
Ellen Brown’s article below focuses on how some independence could be achieved if the States were to challenge the Federal Reserve Banking system, but even so, the result would still be just more inflation and even greater currency instability. If such instability could ultimately destroy the Federal Reserve system, of course, we should all be in favor of it.
BUT GOVERNOR, YOU CAN CREATE MONEY!
JUST FORM YOUR OWN BANK.
Ellen Brown, May 26th, 2009
“I understand that these cuts are very painful and they affect real lives. This is the harsh reality and the reality that we face.Sacramento is not Washington – we cannot print our own money. We can only spend what we have.”
– Governor Arnold Schwarzenegger quoted in Time, May 22, 2009
Christmas comes early, Governor. You CAN print your own money. Fiscally solvent North Dakota is doing it . . . and so can California. Now!!!
In a May 22 article in Time titled “Billions in the Red: Fiscal Reckoning in CA,” Juliet Williams reports that since California voters have now vetoed higher taxes and further state government borrowing, Gov. Arnold Schwarzenegger has indicated that he intends to close the budget gap almost entirely through drastic spending cuts. The cutbacks could include laying off thousands of state workers and teachers, ending the state’s main welfare program for the poor, eliminating health coverage for about 1.5 million poor children, halting cash grants for about 77,000 college students, slashing money for state parks, and releasing thousands of prisoners before their sentences are finished. Schwarzenegger bemoaned the fact that the state could not print its own money but said it could only spend what it had.
But the state can create its own money. After all, banks do this every day. Certified, card-carrying bankers are allowed to do something nobody else can do: they can create “credit” with accounting entries on their books. As the Federal Reserve Bank of Dallas explains on its website:
“Banks actually create money when they lend it. Here’s how it works: Most of a bank’s loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank . . . holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times.”
President Obama has also acknowledged that banks create money, through what he calls the “multiplier effect.” In a speech at Georgetown Universityon April 14, he said:
“[A]lthough there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks – ‘where’s our bailout?,’ they ask – the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth.”
Money in a government-owned bank could give us the best of both worlds. We could have all the credit-generating advantages of private banks, without the baggage cluttering up the books of the Wall Street giants, including bad derivatives bets, unmarketable collateralized debt obligations, mark to market accounting issues, oversized CEO salaries and bonuses, and shareholders expecting a sizeable cut of the profits. A state could deposit its vast revenues in its own state-owned bank and proceed to fan them into 8 to 10 times their face value in loans. Not only would it have its own credit machine, but it would control the loan terms. The state could lend at ½% interest to itself and to municipal governments, rolling the loans over as needed until the revenues had been generated to pay them off. According to Professor Margrit Kennedy in her 1995 book Interest and Inflation-free Money, interest composes, on average, fully half the cost of every public project. Cutting costs by 50% could make currently-unsustainable projects such as low-cost housing, alternative energy development, and infrastructure construction not only sustainable but actually profitable for the government.
If all this seems too radical and unprecedented to venture into, consider that one state has had its own bank for 90 years; and it has not only escaped the credit crunch but is doing remarkably well . . . .
THE INNOVATIVE BANK OF NORTH DAKOTA
Only three of fifty states are now solvent, meaning they have the revenues to meet their state budgets; and one of them is North Dakota. It is an unlikely candidate for the distinction. It is a sparsely populated state of less than 700,000 people, largely located in isolated farming communities afflicted with cold weather. Yet since 2000, the state’s GNP has grown 56%, personal income has grown 43%, and wages have grown 34%. The state not only has no funding issues, but this year it actually has a budget surplus of $1.2 billion, the largest it has ever had.
North Dakota boasts the only state-owned bank in the nation. The Bank of North Dakota (BND) was established by the state legislature in 1919 specifically to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. The bank’s stated mission is to deliver sound financial services that promote agriculture, commerce and industry in North Dakota. By law, the state must deposit all its funds in the bank, which pays a competitive interest rate to the state treasurer. The state rather than the FDIC guarantees the bank’s deposits, which are plowed back into the state in the form of loans. The bank’s return on equity is about 25%, and it pays a hefty dividend to the state, which is expected to exceed $60 million this year. In the last decade, the BND has turned back a third of a trillion dollars to the state’s general fund, offsetting taxes. The former president of the BND is now the state’s governor.
The BND avoids rivalry with private banks by partnering with them. Most lending is originated by a local bank. The BND then comes in to participate in the loan, share risk, and buy down the interest rate. The BND provides a secondary market for real estate loans, which it buys from local banks. Its residential loan portfolio is now $500 billion to $600 billion. Guarantees are also provided for entrepreneurial startups, and the BND has ample money to lend to students (over 184,000 outstanding loans). It purchases municipal bonds from public institutions, and it backs loans made to new farmers at 1% interest. The BND also has a well-funded disaster loan program, which helps explain how Fargo, when struck by a disastrous flood recently, managed to avoid the devastation suffered by New Orleans in similar circumstances.
North Dakota has also managed to avoid the credit freeze, through the simple expedient of creating its own credit. It has led the nation in establishing state economic sovereignty. In California and other states, workers and factories are sitting idle because the private credit system has failed. An injection of new money from a system of publicly-owned banks on the model of the Bank of North Dakota could thaw the credit freeze and bring spring to the markets once again.
Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health(co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com.
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