An Emergency Program of Monetary Reform for the United States - Part 1 of 2
Economics / US Economy Jun 18, 2007 - 06:14 PM GMTBy: Richard_C_Cook
The mass media show attractive images of the comfortable lifestyles of the upper income earners who benefit from the cash-rich global economy. Which luxury car to drive, which championship golf course to frequent, which hedge funds to invest in, which stock brokers to consult—good questions if you've got the money! But behind this attractive scenery, debt, bankruptcy, and poverty are a tsunami that is overwhelming much of the world's population, including growing numbers in the U.S.
Following close on the heels of these calamities is a worldwide breakdown in law and order. Drug dealing, money laundering, gangsterism, white collar crime, political corruption, weapons trafficking, human slavery, terrorism, and endemic warfare are the dark side of a global financial system where everything has a price, the rich seem above the law, and individual security is almost impossible to attain.
Behind the fences of our gated communities, we fancy ourselves the “good guys” in this scenario. We've learned to blame the victim, failing to see that it's a world the U.S. and the other Western powers have fashioned through our centuries-long march to own or control everything that can have a price tag attached to it.
Meanwhile, “dollar hegemony” has flooded the world with U.S. currency, loans, or debt instruments to support our fiscal and trade deficits, pay for our extraordinary level of resource utilization, induce foreign governments to purchase our armaments, ensure the allegiance of their governing elites, and maintain their economies in subservience through World Trade Organization and International Monetary Fund trade and lending policies.
Today we are engaged in the outright military conquest of the Middle East. Our political leaders tell us that if we don't fight the “terrorists” in Bagdad we will have to fight them on our own shores. But India, which has become our largest armaments customer, has seen a soaring number of suicides among bankrupt farmers left out of that nation's economy. The illegal immigrants who have flooded the U.S. from Mexico have watched NAFTA destroy their own family farms, where 600 Mexican farmers a day are forced off the land.
But now our pigeons are coming home to roost. The CEO of one of our leading brokerage houses received over $53 million in bonuses in 2006. Not far from his plush Wall Street office, veterans of two Iraq wars sleep in homeless shelters.
While U.S. corporations, including the financial industry, are reaping enormous profits, our domestic economic problems are growing, including an enormous load of cumulative societal debt, a continuing decline of real family income, and increasing wealth and income gaps between the rich and the rest. Despite the reports in the mainstream press about the economy's “soft landing” and the continued record-setting performance of the stock market, the financial markets have been shaken by the bursting of the housing bubble and soaring home foreclosures. Meanwhile, the relentless decline of our domestic manufacturing sector continues.
But one thing is connected to another. A good investigator always asks, “Who benefits?” The most salient feature of our financial system is that the creation of new purchasing power through credit—loans, mortgages, credit cards, etc.—is controlled by private financial institutions and, though regulated, works principally for their profit. Because we are never taught about alternative economic structures, we take this system for granted, though earlier generations had profound fears of becoming what President Martin Van Buren prophetically called a “bank-ridden society.”
The private control of credit has given vast wealth and ironclad political dominance to what Van Buren and his 19 th century contemporaries warned about—the Money Power, even though our Constitution gave Congress authority over our monetary system. This authority had been compromised through the system of state-chartered banks before the Civil War. But with the National Banking Acts of 1863-4 and the Federal Reserve Act of 1913, Congress largely ceded its powers over money to the private banking industry.
Today, high finance rules our economy and most of the violence-wracked world. The system came into existence in order to provide the capital for economic growth during the industrial revolution, but those who ran it figured out how to do so in ways that vastly increased their own wealth and power. They rule the world today.
But the system is man-made, with functions and effects that can be measured and analyzed. The system was created by historical forces, but if we want to, we can identify these forces and change the system. What we have lacked is the understanding of our possible choices, along with the discernment and moral courage to act on our understanding.
The direction in which change must be sought is that of greater economic democracy; that is, a higher degree of sharing of the bounty of the earth by more people. Though our economics textbooks don't mention it, a reform movement began in Great Britain in the 1920s called Social Credit, which showed how a financial system in a modern economy can be so structured as to serve democracy and freedom, not erode them. This knowledge has had a profound influence in parts of the British Commonwealth but has rarely been discussed in the U.S. This report explains how the Social Credit system could apply to the U.S. economy, along with other monetary proposals that have been put forth by U.S. reformers from the 19 th century until today.
The report provides a unique diagnosis of the underlying financial issues by applying new concepts to familiar data. It criticizes finance capitalism but without going to the other extreme of proposing a collectivist solution. It affirms the value of “democratic capitalism,” combined with a shift to more public control of credit, and it offers a new approach to achieving worldwide prosperity, starting with economic recovery in the U.S. This can be done through measures that could be implemented today by inspired political leadership.
Most economic reform programs nibble around the edges. Many proposals address symptoms, not causes, such as suggestions to use tax or trade policy to bring exports and imports back into balance. Other observers would destroy society—or, more accurately, watch it destroy itself—before building something new. Another line of reasoning says we can only look forward to decades of a lower standard of living before we work our way out of the present crisis.
Monetary reform accepts none of these scenarios. It takes life as we live it on the individual level in a technological age as basically positive. It embraces the enormous productivity of modern industrial methods with approval and hope. But it identifies factors in the nature of industrial production at the level of the corporation as creating a chronic state of instability. These factors, which are explained later in this report, create an economy in a state of continuous crisis and disintegration to which governments react in all the wrong ways
One way is to permit the misuse of debt-financing to bridge an ongoing gap between the value of production and the purchasing power available to the community to absorb it. Another is to attempt to overcome instability by fostering continuous economic growth merely through inflationary bubbles where financial transactions can be taxed as though they produced real, tangible, value. Another is through an aggressive foreign policy based on trade and monetary dominance. Obviously, if all developed nations pursue such policies—as they inevitably do—wars must result. It is thus no coincidence that the last 100 years of incredible progress in science and technology have witnessed almost constant warfare.
The most surprising thing that monetary reformers declare is that our problems stem not from a failure to manage fairly the limited resources found in a world of scarcity but from our inability to manage a world of almost unlimited abundance and prosperity. The first thing monetary reform would do would be to change the underlying financial structure from one that confines this abundance to the privileged few—whether nations or individuals—to one that would provide it to everyone on earth. The measures which are available have been discussed among reformers for many years and could begin to have a positive effect within weeks of implementation. This is the direction in which economic stability can and should be sought, rather than the terminal out-of-control configuration of global corporatism, finance capitalism, and military aggression that has brought us to the brink of catastrophe.
For the glory of God and the love of man, we now owe it to humanity to make these epochal changes. In the meantime, it would be foolish for people to wait and do nothing while the system continues to crumble. The report closes with suggestions for immediate action by concerned people.
LEISURE DIVIDEND?
Ever since mankind began to invent machines to do our work, we began to look forward to a “leisure dividend.” Products could now be manufactured with far less human effort. Every new wave of mechanization, from the harnessing of steam power in the late 1700s to the cybernetic revolution of today, has held out the promise of less work and more enjoyment of the good things of life.
We've seen tremendous gains for the workforce. We enjoy a forty-hour workweek, a cornucopia of new consumer products, universal public education, longer life spans, revolutions in communications, medicine, entertainment, and transportation, a whole new world of interesting things to do, to know, to accomplish.
The world is so much happier and better off than in the days when our ancestors worked all day and half the night just to survive, right?
Well, wrong.
Today, the quality of life in the U.S. seems to be moving backwards. While the shelves of the big-box stores are crammed with products, most of them are made overseas by low-paid laborers from countries like China and Indonesia. The people who work in the stores earn wages that hover around the poverty level.
Not long ago, in the 1950s, a single wage-earner, usually the husband, could support a family while the wife stayed home and looked after the children. Yet they could buy a house, a car, and household appliances, go away on vacation, and send the kids to college.
Today both husband and wife must work, often at more than one job, to make ends meet. Inflation has been rampant in big ticket items such as the cost of a home, health care, utilities, insurance, and higher education, and is now affecting the cost of food.
The costs of petroleum products are soaring again. Over forty-seven million people don't have health insurance, poverty is on the rise after a generational decline, and thirty-five million don't have enough food to eat. Good jobs are scarce, and stress-related illness has become an epidemic.
Meanwhile, public assets like electricity have been privatized at an alarming rate. Public infrastructure such as roads, bridges, school buildings, levees, and water systems are often crumbling, with state and local governments unable to make improvements without budget cuts elsewhere or stiff tax increases to pay the costs of borrowing.
While the recent weakening of the dollar has improved the U.S. export position slightly and created a few more jobs, the official unemployment rate of less than five percent does not include people no longer looking for work, nor does it take into account the huge number of jobs that are low-paying and without benefits.
In fact the real purchasing power of the American workforce is on a steady downward trajectory, while the average pay of employees at Wall Street brokerage firms is more than $250,000 a year, and the CEOs of some U.S. companies earn thousands of dollars an hour.
But is the problem really that those at the top of the heap earn so much more than the rest of us? If so, the solution would be simple. We should do some of the things many reformers advocate, such as restore a truly progressive income tax, close corporate tax loopholes, implement universal health insurance, and make borrowing for college a little less expensive.
But while economic policies that are fairer may be desirable, they would fail to address major underlying structural issues, especially financial ones. The main problem with the U.S. economy today has to do with earnings and prices. People simply do not earn anywhere near enough to buy what the economy produces.
GAP BETWEEN GDP AND PURCHASING POWER
In 2006, our Gross Domestic Product was about $12.98 trillion, with the enormous trade deficit of $726 billion figured in. Our total national income was $10.23 trillion, including wages, salaries, interest, dividends, personal business earnings, and capital gains. Of this amount, at least 10 percent, or $1.02 trillion, would have been reinvested either at home or abroad, including retirement savings, leaving total available purchasing power of $9.21 trillion.
The $12.98 trillion GDP minus $9.21 trillion of purchasing power equals $3.77 trillion. That's what the figures indicate was the shortfall that would have been needed to consume the entire GDP.
Thus we do not earn enough to buy what we produce. What does this mean, and who, or what, is to blame?
Despite the high CEO compensation, the huge Wall Street salaries and bonuses, and the wealth and income disparities between high and low earners, we should not blame the “capitalists”; i.e., the business owners, for the entire problem. Business profit taken as dividends is only about 7 percent of GDP.
Besides, the “capitalists” are us! Forty-five million Americans have some measure of stock ownership, including a multitude of tax-deferred retirement plans and mutual funds. This is one of the strengths of our economy—the “ownership society”—for which we deserve a pat on the back. Also, the dividends we earn are mostly spent, so most of it finds its way back into the economy.
Let's look at the situation from a slightly different standpoint, starting with the $12.98 trillion GDP. It's said that the U.S. economy is the most powerful and productive in the history of the world. This is true, even with our trade deficit and our decline in manufacturing due to relocating so much of our factory production abroad. So we should be dancing in the streets. There should be festivals, celebrations! Obviously that's not happening. Why not?
It's not happening because of how we define the $3.77 trillion gap between GDP and earnings. Since we produce the value of our entire GDP with such low labor costs, the $3.77 trillion differential really should be viewed as the total societal dividend, right?
But it's not defined as a dividend. Rather it's defined as a shortfall. This is because it still appears in prices. And with the stagnation of wages and salaries, combined with the current slowdown in appreciation of housing values which is resulting in lower capital gains, the shortfall is growing.
Obviously, those goods and services still have to be paid for—the entire $12.98 trillion. The way they are paid for is through debt. You, the consumer must go out and borrow to cover the $3.77 trillion gap between GDP and purchasing power. This is how much our debt increased in 2006—the amount of new debt less what we paid off. This new debt was 29 percent of GDP last year.
Note that this analysis deals with gross numbers, so does not dwell on the major social problem that income disparities are growing within the U.S., with a higher proportion of income each year going to the wealthiest segments of society. Conversely, the debt burden which fills the gap between GDP and income falls disproportionately on the lower income brackets.
But the point is undeniable. Our ability to produce our incredible GDP with relatively little labor means that, under the existing system, we have to borrow money from financial institutions and pay with interest to enjoy what really should be the leisure dividend mentioned at the start of this report. Remember this point, because we'll be coming back to it.
Finally, these numbers shouldn't surprise anyone. Every responsible analyst has made the point that ours is a consumer-based economy and that consumer borrowing keeps it afloat. It's why economists and politicians keep such a close eye on the “consumer confidence” polls. It's why President George W. Bush, after the 9-11 tragedy, told us to “go shopping.”
THE GROWING DEBT BURDEN
Again, what should have been a total societal dividend from our fantastic producing economy somehow became a debt. How did that happen? Let's focus on the debt for now.
Obviously, the $3.77 trillion we borrowed—the debt we just discovered where a dividend might have been expected—included a little fun—vacations, entertainment, wide-screen TVs, etc. But there's not a lot of frivolous expenditure in the average family's budget. Most of what we buy we need just to live. Many families even charge groceries on their credit cards. At the end of 2006, total debt in the U.S., including households, businesses, and all levels of government, was $48.3 trillion. This is 50 percent higher than the sum of all personal wealth held by the entire U.S. population and 38 percent higher than the value of all publicly-traded U.S. companies!
That's $161,000 per U.S. resident, or $564,000 for a family of four, payable with interest. Again, it includes personal debt, business debt that is reflected in the prices we pay, and federal, state, and local debt for which we, the taxpayers, are accountable. And the debt has been building up from year to year. It's increasing, not going down.
During the year 2005-2006, debt grew five times faster than the GDP. The Federal Reserve has calculated that total debt today is 460 percent of the national income vs.186 percent in 1957. Credit card debt was $9,300 per household in 2004 and is more now, three years later. A typical family pays $1,200 a year in credit card interest charges alone. In 2004, students graduating from college had an average debt of $21,899. Many end up owing $80,000 or more, especially if they attend law or medical school. Under the 2005 bankruptcy “reform” legislation, student loan debt can never be written off.
One result of skyrocketing debt is that the financial industry, which today includes much more than just banks, is the fastest growing sector in the economy, with capitalization increasing from less than five percent of the Standard and Poor's total in 1980 to twenty-two percent today. The financial industry now generates thirty percent of all U.S. corporate profits. These profits result from account and transaction fees, commissions, interest charges, foreclosures, penalties, and late fees.
Much of the profits—which totaled about $545 billion in 2006—are the financial industry's windfall, resulting from an economy that substitutes debt for earned purchasing power. These profits would have paid the entire 2006 Department of Defense budget with $126 billion left over and were larger than the GDP of 92 percent of the world's nations. While some of the profits support consumption through payment of salaries, dividends, and bonuses to financial industry executives, employees, and shareholders, much is plowed back into new lending. This contributes to further erosion of total societal purchasing power.
The data on financial industry profits also call into question the national rollback of usury regulation which started in the 1980s. Few realize that interest rates in the range of 6.5-7.5 percent, which are viewed today as “low,” are actually higher than in times past. The average mortgage interest rate in 1960, for example, was 5.25 percent.
A working definition of “usury” has long been any interest rate higher than what can be justified by the lender's risk. This has been forgotten in the face of contentions by the Federal Reserve that raising interest rates is a monetary tool to control “inflation.” The contentions are disproved by the fact that inflation was low in the 1950s and 1960s, when interest rates were below today's levels, but much higher since the 1970s. Thus the data suggest that high interest rates are actually a cause of inflation rather than a result.
A large portion of society's debt is incurred by the federal government, with the taxpayer eventually having to pay. Currently the national debt is over $8.84 trillion.
James Turk wrote in an report titled “Economic Suicide” in The Freemarket Gold and Money Report, March 2006: “…The dire financial straits the federal government is facing, its financial position, is even worse than it appears….In the 2005 Financial Report of the U.S. Government, U.S. Comptroller General David Walker reported that, ‘The federal government's fiscal exposures now total more than $46 trillion, up from $20 trillion in 2000.' Yes, it's insane. But it's even more insane that people buy the U.S. government's T-Bonds and T-Bills, thinking that they are a safe, low-risk investment.”
In fiscal year 2000, 1.1 percent of the federal government's cash flow came from new debt. This soared to 20.4 percent in 2005. During that period, total federal debt grew 40.5 percent. Higher interest rates will produce a 9.3 percent increase in interest on the national debt in the 2008 federal budget that will lead to cuts in social services, education, and health care.
There is pressure from budget belt-tighteners to reduce the government's $46 trillion exposure by slashing future retirement benefits like Social Security or entitlement programs like Medicare, Medicaid, veterans' benefits, food stamps, etc. Thus the most vulnerable members of society are expected to pay for structural financial problems that have left the federal government, according to competent observers associated with the Federal Reserve, functionally bankrupt.
Federal debt is only one element of spending by all levels of government—federal, state, and local—which has become a major drag on the U.S. economy. Not only must U.S. wage and salary earners pay for the debt that supports their spending, they must also pay a cumulative tax burden equal to a third of their total income.
We pay as much in taxes as for housing, food, and transportation combined. Governments also take advantage of housing inflation by taxing newly assessed values to the point where people whose incomes don't keep up, and who may even own their homes outright, are forced to sell and move away.
Our inability to support our economy through earnings also results in the fact that the U.S. supports much of its enormous fiscal and trade deficits by selling securities to foreigners, who own 13 percent of U.S. stocks, 24 percent of corporate bonds, and 44 percent of Treasury bonds. It was estimated almost a decade ago that two-thirds of U.S. currency was in foreign hands. When foreigners bring their dollars into U.S. markets they drive up prices, especially of real estate.
As indicated earlier, another aspect of the problem is that the growing debt affects different economic classes in different ways.
According to the Congressional Budget Office, the top one percent of U.S. households owns 57 percent of all income, capital gains, dividends, interest, and rents. These super-rich, along with the upper middle class, are debt-free or are able to leverage debt profitably, and are often the owners and executives of the financial institutions to which the rest of us owe money.
The middle-class, declining as a proportion of the population, is under increasing pressure as debt eats up more of the family income. For them, debt is often a source of intense personal stress, the more so as family savings have plummeted, Many families have cashed in the equity in their homes for spending money, but the remaining equity is now at an all-time low proportionate to assessed value—55 percent in 2003 vs. 85 percent in 1950.
The working class or those in poverty or without jobs are being crushed. A low unemployment rate due to the creation of more “service economy” jobs may prevent mass starvation, but that's about all. According to The Nation , there is no longer any place in America where a person earning a minimum wage can afford even a one-bedroom apartment.
These people, living in the “fringe economy” and relying on payday loans, group housing, check cashing stores, and rent-to-own stores, are the prey of a growing industry of usurious lenders often backed by corporate financial giants. Perhaps a third of Americans, including tens of millions of the “working poor,” are in this category, with their ranks growing daily.
Finally, there are the homeless, abandoned by the most abundant economy in the world, approaching a million in number nationwide.
What is the Bush administration, Congress, or the Federal Reserve doing to address the potential for financial catastrophe due to skyrocketing debt? The answer is, “nothing,” unless you call making it more difficult for families to qualify for mortgages “doing something.”
WHAT CAN BE DONE?
The one thing that is certain is that they don't have an answer.
The answer is not tighter regulation and more restrictions on lending, which may protect financial institutions from exposure, but do little to help consumers. Nothing is solved for the economy at large by forcing consumers to pay high rents instead of mortgage payments, postpone buying needed cars or other major household items, or get a low-paying job instead of going to college.
The answer is not for the Federal Reserve to cut interest rates, though it might help consumers a little in the short run. But too much damage has been done in the past with interest rate cuts that ignored economic fundamentals, such as the 2001-3 cuts that led to the housing bubble which is now deflating with drastic consequences. Besides, cuts are likely to cause the foreign investors to pull out of our investment markets, leaving us unable to service our gigantic existing debt load.
The answer is not to cut the costs of production. Employee benefits would be further decimated, more jobs would be eliminated or outsourced overseas, tax revenues would fall, and “fiscal austerity” would lead to more reductions in government social services.
The answer is not harder work or productivity increases. This may lead to more or cheaper goods, but since wages and salaries never keep up with productivity growth, the gap between consumption and production also grows. In fact, the more we automate, the harder we work, and the more efficient we become, the worse off we are financially! Again, it's because purchasing power never keeps up with production.
As indicated at the beginning of this report, higher taxation of the upper brackets and closing corporate loopholes would be more fair and would allow some degree of recovery of income derived from financial profiteering, but even this would not be nearly enough to cover the gap between GDP and purchasing power.
It is this gap, currently filled through debt, which is taken for granted and has never been properly investigated or explained by any official body. The debt taken out to fill the gap is the 600-pound gorilla in the room that the politicians and pundits have agreed to ignore.
It's a bleak picture, but not a new one.
President Franklin D. Roosevelt addressed the problem half-consciously with the massive spending programs of the New Deal. This was an attempt to overcome the shortage in purchasing power through a large federal deficit and a steeply progressive income tax, rather than placing the entire burden on middle and lower income citizens as the U.S. is doing today. The U.S. was finally able to work its way out of this crisis through spending on World War II and a large balance of payments surplus which continued into the 1960s. But with today's huge trade deficit, that solution is not available and, with monetary reform, would not be necessary.
But the situation still points to problems monetary reformers have been writing about for over a century. Unfortunately, for the last fifty years, since the New Deal faded into memory, our political leaders, the mainstream media, the establishment economists, and the financial and corporate vested interests, all of whom are free-market fundamentalists who believe government is helpless to remedy the situation, have ignored what the reformers have been saying.
For all of them, “growth” is the only answer to whatever problem may arise. But when growth in GDP falters, or is not matched by purchasing power, not only does it not improve conditions, it makes them worse. This is the underlying flaw in the system that cries out for an answer.
C.H. DOUGLAS AND SOCIAL CREDIT
In 1918, Scottish industrial engineer Major C.H. Douglas published a book titled “Economic Democracy,” where he wrote that several major factors associated with modern mechanized production resulted in a gap between the value of manufactured goods and purchasing power distributed through wages, salaries, and dividends. That is, he addressed the exact problem the U.S. and other developed economies were facing both then and now.
In a 1932 publication, The Old and the New Economics, Douglas listed several systemic causes “of a deficiency of purchasing power as compared with collective prices of goods for sale.” These included business profits not distributed as dividends (retained earnings); individual savings, i.e., “mere abstention from buying”; “investment of savings in new works, which create a new cost without fresh purchasing power”; accounting factors, where costs previously incurred are carried over into current prices; and “deflation”, i.e., “sale of securities by banks and recall of loans.”
Other elements not mentioned by Douglas include insurance, which is costly in the U.S., maintenance of unused plant capacity, which is extensive due to the decline of U.S. manufacturing output, employer retirement contributions, and the cumulative sum of retained earnings and other cost factors when businesses buy from each other.
These factors all show up in the prices of goods and services but are not paid as earnings to individuals. A simple way to understand what happens is that prices that a business charges must not only pay for labor costs but must also cover all non-labor costs, as well as equip the firm to perform in the future.
Also, while the financial and accounting systems force consumers to pay for the costs of capital depreciation, they do not give them credit for appreciation of the value of the business that will appear through future capital gains. This applies particularly to technology-intensive companies where high R&D costs must be recovered in prices but do not show up proportionately in employees' immediate take-home pay.
Taken together, the impact of all these factors is devastating to consumers and the economy at-large, because we never earn enough to compensate for what the tax and accounting systems label as costs.
Douglas's analysis had solved the main financial problem of the industrial age, one which puzzled most of his contemporaries, including Winston Churchill, who said in a 1930 speech at Oxford: “Who would have thought that it would be easier to produce by toil and skill all the most necessary or desirable commodities than it is to find consumers for them? Who would have thought that cheap and abundant supplies of all the basic commodities would find the science and civilization of the world unable to utilize them? Have all our triumphs of research and organization bequeathed us only a new punishment: the Curse of Plenty? Are we really to believe that no better adjustment can be made between supply and demand? Yet the fact remains that every attempt has failed. Many various attempts have been made, from the extremes of Communism in Russia to the extremes of Capitalism in the United States. They include every form of fiscal policy and currency policy. But all have failed, and we have advanced little further in this quest than in barbaric times.”
Churchill was speaking at the start of the Great Depression, which, with unsold milk being poured in the farm fields, was the classic case of society's failure to distribute what industry and agriculture were perfectly capable of producing. “Poverty in the midst of plenty,” became the hallmark of the modern age and continues to roar down the world's highways with a murderous vengeance today.
But Douglas showed how to solve the problem by an analysis of the concept of “credit.” He pointed out that there are really two forms of credit. One is “real credit,” which equates to the total ability of a nation to produce goods and services through increasingly efficient use of science and technology. Another way to define “real credit” is to view it as “productive potential.” The second is “financial credit” issued as loans by the banks.
Douglas made it clear that in a system where the banks have a monopoly on the issuance of credit, as ours does, they are the most powerful entity in the economy and therefore will be the most powerful politically as well. They will enhance their power, and their profits, by keeping financial credit scarce, so the amount they issue will never approach the amount of “real credit” that ultimately should derive from the bounty of the producing economy.
Even in a country like the U.S., where claims are made that credit is cheap and abundant, there are strings attached, simply because the limited amount of credit that financial institutions choose to make available obviously must be repaid and repaid with interest. Also, today's “low” interest rates are still higher than in the 1950s and 60s. And when the inevitable credit contraction comes at the downside of every business cycle, the wealth of society gradually but remorselessly fall into the creditors' hands.
Further, people don't realize how much events on the national and international scale are connected in ways that are not evident on the surface. Monetary decisions, for example, have more to do with determining the course of a nation's economy than any other factor. Similarly, it is the state of its economy that determines a nation's foreign policy.
The usual recourse taken by a society whose economy is strapped for purchasing power, Douglas said, is to try to export more than it imports to make up for the credit shortfall through a positive balance of payments. Because this leads to tremendous competition among nations for foreign markets as a matter of sheer financial survival, wars must result.
We can see that because the U.S. today has such a large trade deficit, even more of the production/consumption gap must be filled by bank-issued credit or by the conquests of war. This seems to be the case with the war on Iraq, whose real cause appears to be the desire for corporate profits through control of oil.
Douglas and his followers pointed out that war or mobilization for war also has the “benefit” of destroying or idling large quantities of production (bombs, missiles, tanks, airplanes, etc.), which otherwise society is unable to consume.
The war economy also props up the employment numbers. It was World War II that finally pulled the U.S. out of the Depression, and it is the huge quantity of deficit spending on the military-industrial complex which continues to anchor the U.S. economy today. This has happened in accordance with the Douglas model of a debt-based economy where people do not earn enough to buy what industry must produce to create jobs.
Critics may ask why, if Douglas's analysis is correct, is it not generally recognized and accepted? The answer is that it IS recognized and accepted, but only by the monetary reformers on the one hand and the financiers on the other. But the financiers, who own the mass media, are not telling the rest of us, because it's what makes them so rich and powerful. This is why William Greider titled his 1987 book on the subject, Secrets of the Temple: How the Federal Reserve Runs the Country . We are dealing here with the deepest secrets of the financial control of the world.
One final point about Douglas is to observe that late in his career he made remarks that have been interpreted as anti-Semitic when he pointed out that, historically, certain Jewish customs allowed them to take advantage of non-Jews in business dealings. He also pointed out, as have others, that many of the financiers engaged in the banking business have been Jews. Douglas attributed their success to a high degree of organizational skill and their ability to excel and take control in business matters.
But the Social Credit movement itself is not and has never been anti-Semitic. Nor is the author of this report, and neither is the worldwide monetary reform movement. In calling for change, we are talking about a new system, a new philosophy, and new laws based on principles of justice and democracy that are accepted everywhere, though often embattled.
The Jewish people are not responsible for the present crisis and did not create it. It's simply the way the Western economic system evolved. Finance capitalism came out of the Italian city-states. At various times it furthered industrialization by making credit available, but any system can be abused. Any system outlives its usefulness and eventually has to be changed.
By Richard C. Cook
http:// www.richardccook.com
Copyright 2007 Richard C. Cook
Richard C. Cook is a former federal government analyst who was one of the key figures in the investigation of the space shuttle Challenger disaster. He is author of the book - Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age is Richard C. Cook's personal story of how he disrupted the cover-ups surrounding the Challenger disaster.
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