I don’t trust politicians more than I trust bankers
There are certain people who are obsessed with the way money is created in the U.S. – I call them “money creationists”. Some of these people are friends of mine from Occupy, and I really enjoy and like them.
But I don’t agree with them, and here’s why. Because I don’t trust politicians more than I trust bankers. I mean, don’t get me wrong, I don’t trust bankers. But I really don’t trust politicians.
The reason this comparison comes up is this. The way money is created through the Fed lending window is described here, in an article that could have been written by my friends, although I don’t think I’ve met Gar. Pay attention to the following concept which the writer is proposing:
Why, you might ask, doesn’t the Federal Reserve Board simply “create” money (as it does all the time) and lend it at 0.75 percent to the government (rather than let the banks do it) to pay for important public goods and to settle its debts? (Our bridges are falling down; not a bad thing in which to invest.)
As soon as I hear this I think, holy fuck let’s not even go there! The image of unlimited cash machines directly bankrolling the whims of Congress is just too much. But wait, here’s where the money-creationists get really confused – they give themselves away in fact:
… if a “public bank” were set up that operates just the way private banks are run today, including making profits for the owners – who in this case would obviously be the public – i.e. the government.
What? When was the last time the public is the same thing as the government? In this universe, for whatever reason, politicians have been wished away and all we have left are well-meaning would-be bridge builders facing off against evil venal bankers. But that’s not the world I live in.
To my money-creationist friends: there are stewards of the government, and they’re called politicians, and they love money. They are just as corrupt as bankers. It’s not a good idea to give them a printing press. Let’s instead think of a way to persuade them to require reasonable capital requirements of the banks so they don’t get to do crazy shit, if they can get their hands off of financial lobbyist money for more than fifteen minutes.
mathbabe 
Hello, Math Babe,
I’ve enjoyed reading your blog. I even understand some of it! Good work, Cath!
Vaag
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While I understand your sentiment, I think you are not really addressing the problem in your post. The issue is that central bank actions are highly political, like it or not, yet outside democratic control.
For example, this post has some apposite quotes from the ECB: http://slackwire.blogspot.it/2012/06/pain-is-agenda-method-in-ecbs-madness.html
The various brokennesses of the political system don’t really work as an argument for making government even less accountable on the margin, or only accountable to a narrow “selectorate” (which is what happens in practice for technocratic institutions such as central banks).
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(Just to to be clear, of course I agree with your specific point about money creation!)
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It’s not undemocratic or completely outside political control. Congress delegated monetary policy to the Fed with a dual mandate for maximum employment and stable prices. The Fed is obligated to send a report twice a year to Congress on how it is fulfilling its mandate. The Fed chairman testifies on it each time before Congress (Humphrey-Hawkins).
Be careful what you wish for…direct political control over monetary policy has not worked very well in many countries, and Fed independence was established for a reason.
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I don’t think direct political control is the answer here either. But there is an issue regarding whose concerns the central bank is responsive to. (The most obvious example as regards the Fed would be that inflation and unemployment don’t in practice carry the same weight.)
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I don’t know, mathbabe. If elected officials are too corrupt to be trusted with easy credit, why aren’t they too corrupt ever to be persuaded to impose legislative or administrative reforms? It seems like whatever forces you think can make them responsive to the public’s desire to implement reforms (electoral pressure? sense of civic duty? fear of violent overthrow?) would act equally to constrain their use of Fed money in the hypothetical.
Unfortunately, I think there’s a good chance that they in fact are too corrupt for either of these proposals to work. But I also think that, even if that’s true, we should behave like it isn’t; we should proceed under the most likely set of assumptions that admits of the possibility of positive change.
I guess I’m agnostic with respect to “money creationism,” but I agree with you that this Fed-direct-lending idea isn’t really the way to go. My primary reason for thinking so is just that it seems like too exotic of an idea – too hard to get much rhetorical traction, and too high of an inertia barrier. Pressuring Congress and government agencies to shorten the leash with legislation and regulation seems like a more realistic approach.
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Today’s campaign finance regime is nothing to compare to. Neither is today’s Media regime, which doesn’t report what we need to know as citizens to hold any Pol or Banker accountable. They don’t even report the opensecrets.org campaign donor data on Pols when they recite their endless Dem/Rep ping pong match antics! They let the donors set the debate all the time, by never outing them in these litanies. All of that has been carefully rigged over the last century to prevent any real remedies to any problems. Mathbabe’s critique doesn’t address any of these variables. She holds all of them constant.
While Mathbabe has lots of opinions about Pols which she does tell us, she doesn’t examine the evidence of Canada from 1938 to 1974, nor North Dakota. Nor, any of the other examples Gar cites. There are also books that cite other examples of public or decentralized money systems, like Doug Rushkoff’s “Life, Inc.”. These examples all include Politicians in their Systems. She instead takes a very visceral and reactive approach to the article on the very day she read it. This is a typical avoidance tactic instead choosing to use a standard anti-govt/anti-politician meme well seeded in public life by the likes of the Koch Brothers. Since Pols are controlled by the likes of the Koch Brothers, I don’t trust them either. But, at least I acknowledge the system they operate in that was in fact designed to corrupt them. This was a desperate move carefully outlined in the Lewis Powell Manifesto.
Vocabulary about this whole-system is what we need to develop in order to construct a new solution that works for more of us. And, vocabulary about all these issues has been carefully withheld from us. This article at least begins to lay out what these moving parts are.
I actually think I would trust politicians more than bankers because I know that it is the bankers who pay the politicians in the first instance to do their bidding. And, the money creation cartel they have enjoyed for a century is in no small part the source of their tremendous riches to pay off Politicians. The two things go together. They both need to go. Politicians don’t have original ideas. They execute for who gives them orders and then threatens their jobs or their lives! And, anyway, they should be executing the wishes of their many voters, not a few donors. The Citigroup Plutonomy report got that right. Only when “one man one vote” is implemented here again will anything change. The belief that nothing can change is also exactly where the Koch Bros want us! Brava Mathbabe!
One thing is certain, we are being setup for an inflationary period that will wipe out the savings of the Middle Class. That condition has social and political implications. Some say that it is the US Military around the world that protects the value of the USD and its reserve currency status, not anything to do with any market fundamentals of real economic value. Efforts around the world to ditch the USD as reserve currency are visible everywhere there is still an economy with any bright future to speak of. So are the efforts to setup currency trading funds in London to have some fun playing the Yuan off the USD and Euro. Letting the system solely in privatized hands when it so heavily weighs upon the conditions in which we all find ourselves, with no transparency, and no media or academia with guts to question it, is very dangerous. That private prerogative has been used before. 1923 springs to mind. Perhaps readers could look up that inauspicious date as I don’t want to go into those details here now. That private prerogative profits the investors in (and hired managers of) Private Equity funds who are also themselves the owners of the corporations or banks in the whole-system that is based on the privatized money creation cartel at its core. They are the last profiteers in tremendous asset price swings and bankruptcy waves in the first instance. They also profit from austerity measures and a hobbled Middle Class. And, that prerogative goes completely undetected by any Media. Or, many PHD graduates from anywhere!
There are remedies for the corruption in politics we have today, and have had through most of our history. These remedies were only ever half-heartedly applied in this country. Other countries were forced to take bigger strides because they lived through the hell of private prerogatives unchecked at all. That half-hearted approach has served its purpose. The 1% don’t want us to even know any remedies exist. They certainly want us to keep the meme in our heads about trusting politicians less than bankers, despite what we can see in our own world, and in other places. They invested heavily in implanting that meme!
Meanwhile, bankers and international currency speculators will have their way with us just like they have had in so many places around the world once debt-crisis conditions could be engineered by these unaccountable systems. The natural resource deals arranged here by IMF (or some equivalent) for the world’s corporate family offices will be the prize! North Dakota seems to have avoided public debts. And, what is it about their politicians that make that work? Aren’t all politicians the same? Are all state campaign laws the same? We have some more variables to add to the model.
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As an ignorant non-wizard of finance, am I wrong that with a fiat monetary system the government can and does print as much money as it wishes? That is – politicians already have a printing press – at least those in the US, unlike those in Spain or Italy, who are bound to use deutschmarks?
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It is the bankers who print the money. They are the ones who expand and contract money supply on a whim. They are the ones free to setup crash conditions through faulty underwriting practices. Their boys are on the Fed committees. The President gets elected by their PACs. He appoints who they say. And, by the way, the “politicians'” printing press is built into the system so that the 1% get interest compounding every year on outstanding Federal debts as long as they are never paid back with taxes! There is a closed loop here. The 1% earn compound interest on Federal debts, they earn commissions issuing Treasury Bills ad infinitum, and buying, selling, and trading the stuff in perpetuity. US Treasuries are the most liquid trading market in the whole world. That market is a huge source of profits for bank balance sheets. Remember in the quarters after the 2008 Collapse, Goldman reported its earnings were coming from “proprietary trading”. Trading Treasuries is the biggest part of “proprietary trading” for any bank. There is no incentive for the 1% to repay debts. And, the politicians are owned by them thanks to FECA which legalized PACs and ultimately political corruption. Nothing will change until “one man one vote” is re-enforced in this country! And, anyway. A little known fact: all money in circulation comes from debts, public and private! Without debts, there is no money in circulation. That is how the system was designed in the 1913 Federal Reserve Act.
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Dear Mathbabe,
You describe people who want to know how money is created as ‘obsessed’. Why denigrate us? You attack the messenger. What is the message you don’t want discussed?
Most of our money is created by private banks out of loans. Legal? Yes. Democratic? No.
The history of private banks taking control of our money creation needs to be publicly discussed. Ignorance is the capital of bankers.
Finally, if our government is bought off, what is the alternative? Remove the private creation of our money and you cut off the politicians’ pimp. Then we can work together at having a responsive government again.
A Creationist
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Not denigrate, Sue! I love people who are obsessed. It’s how things get done. I’m obsessed with financial stuff too, but with different financial stuff. I’m really just trying to start a conversation with you. I really like you and I want to talk about this stuff with you.
Cathy
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Sue is right. This kind of speech in practice is used to dismiss inquiry. We need to examine ourselves to ask why we think it is OK to speak this way. Dismissive speech is used widely on FCC licenses. It is used widely in discourse in this country. This kind of speech is a device to shut down confidence. It is used widely at OWS working group meetings. People routinely cast aspersions on anyone making inquiry into the workings of the Privatized Money Supply System. Some behave as if it is a sacred cow. We need to understand the structural causes of such beliefs in our heads!
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I meant no offense – I want to have the conversation. Tell me how we can overcome the obvious corruption of bankers and make a safer system. I need the details, though, because it’s not sufficient to say we can give it directly to the government. Somehow we have to develop a less corruptible system to decide how money is spent.
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Dear Mathbabe,
You have really opened up a can of “worms”, might I say “private users of money to make more money and their partners”.
But we must understand that “currency” is an absolute necessity in this world of ours.
It is a means of recording the value of property rights and a means of recording a transaction and change of ownership.
SOMEONE MUST DO THIS.
What then would be the ideal solution? With the full knowledge that a final solution is impossible since all future events are not predictable except for their ultimate termination we can only strive to impove.
Justaluckyfool believes that “With the best full transparency that can be achieved a central bank should be the sole creater of its sovereign nations currency.It is to issue this currency bearing a control they will guarantee its quality and quantity so as to prevent its own destruction (inflation,moral hazard)”
For the solution:”We cannot solve our problems with the same thinking we used when we created them”.Albert Einstein
PLEASE, READ, IMPROVE, and ANNOUNCE,
what you wish to use as your guide, any idea from :
http://www.justaluckyfool.wordpress.com or google…”JUSTALUCKYFOOL” “Don’t End The FED, Amend the Fed” ” Great News !! Zero Income Taxes…” Please, ***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC), Hindu Prince, founder of Buddhism
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