Rodger Mitchell’s blog:
Which group of people are the most closed-minded regarding the facts of Monetary Sovereignty?
Is it politicians, professors, and deficit hawks? No, they are not necessarily closed-minded. They are simply paid to lie. Gold bugs and Tea Party types are blockheads, but some of them have the potential to mature a bit, if they are given enough time and experience. Middle class people’s insecurities make them cling to the Big Lie as a means to widen the Gap below them — but they can be taught if they are willing to look past their own hatreds.
No, there is a crowd of people who are truly unreachable. Nothing can snap them out of their trance. NOTHING. If you have not encountered these people, then you will think I am exaggerating. But trust me when I say they are impervious to logic, facts, and evidence.
I refer to people who insist that every dollar in the economy is lent into existence by banks. Because of this fundamental error, they spout countless other errors.
These people are numerous. One group is the “positive money” crowd in England http://positivemoney.org/.
Another group is Ellen Brown and her disciples. http://webofdebt.wordpress.com/
Another group is the “American Freedom Alliance.” http://www.americanfreedomalliance.org/
Because these people think that all money is loans, they support the “national debt” hoax, and thereby support austerity and the Big Lie. Their belief is so fanatical that they become angry if you try to reason with them.
Their delusion has four components…
1. They learn that banks create loan money out of thin air, and they think this gives banks unlimited power over the universe. They deny that Monetarily Sovereign governments also create money out of thin air, and not as loans.
2. They hear someone complain that “the Fed controls everything,” and they cling to this belief, using the Fed as a convenient bogeyman on which to blame all social ills. Get rid of the Fed and the banks, they imagine, and all will be well.
3. They believe the lies about the fake “national debt crisis,” and they assume that all governments (and therefore all of mankind) owe this “national debt” to banks.
4. They hear half-truths and distortions from central banks themselves. Here is a half-truth from the Bank of England (quoting)… “The majority of money in the modern economy is created by commercial banks making loans.”
Okay, so where does the rest of the money come from? (The Bank of England does not explain this. I will explain it farther below.)
Here is another half-truth from the Bank of England (quoting): “The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. Monetary policy acts as the ultimate limit on money creation.”
Oh? What about fiscal policy? What about money created by government spending? What about money coming in from a foreign trade surplus? The words “fiscal” and “government spending” do not appear anywhere in the entire fourteen-page document from the Bank of England.
Here is a distortion (quoting): “One of the Bank of England’s primary objectives is to ensure monetary stability by keeping consumer price inflation on track to meet the 2% target set by the Government.”
The word “government” can lead people to falsely believe that Parliament sets the inflation target, when in fact the Bank of England sets it.
The four errors (above) reinforce each other, and cause people to falsely insist that all money is created by banks as loans. This delusion adds to the public’s resistance to the facts of Monetary Sovereignty.
Let’s look at the “positive money” people in England, who insist that every dollar in the economy is lent into existence by banks. I quote them…
POSITIVE MONEY: More than 97% of all the money in the economy exists as bank deposits – and banks create these deposits simply by making loans.
COMMENT: It is true that more than 97% of the money supply consists of various forms of bank deposits. (Less than three percent of money exists as coins and bills.) However it is not true that banks create all this money as loans. There is also money from federal spending, for example.
POSITIVE MONEY: Most of the money is not created by central banks or governments, but by commercial banks, which create money in the form of loans.
COMMENT: It is true that most of the money is created by banks money in the form of loans, but the “positive money” people jump from most money to ALL money. The U.S. federal government created 3.6 trillion dollars in FY 2015, and not as loans. That money was not borrowed from anyone, nor lent to anyone. It was created out of thin air the same way that banks create loan money out of thin air: by crediting accounts. Federal money and loan money are both created in banks, but federal money is not loan money.
The “positive money” people think that all money is “debt-based” in the sense that all money is loans from banks. They call this “negative money.” Instead of this, they want “positive money” issued directly by the federal government, loan-free. They refuse to accept that the federal government already issues trillions of dollars a year, loan-free.
As Rodger Mitchell has explained, there are three ways that money enters into any economy.
 A foreign trade surplus (or “positive current account”)
 Government spending
 Bank lending
Number 1 does not apply to nations that have trade deficits (like the UK or USA).
Number 2 does not apply to nations that surrendered their Monetary Sovereignty, and can no longer create their own spending money (like the euro-zone countries).
Number 3 (bank lending) occurs in all nations, but the “positive money” crowd falsely thinks that Number 3 is the only way that money enters ANY economy ANYWHERE, ANYTIME.
Their error contributes to the Big Lie. Absolutely nothing can make a dent in their delusion. (If you doubt this, then click the web links above and try reasoning with them.)
POSITIVE MONEY: All of the money that we are using is created as debt. For every dollar in your bank account, someone else has a dollar of debt.
COMMENT: Wrong. All money is debt, but not all debts consist of loans. To understand why, we must first understand that a “debt” is a claim to ownership. If I lend you a dollar, then I have a claim to that dollar — plus interest if you have agreed to pay me interest. My claim is a “debt.” You owe me this “debt,” meaning you owe me a recognition of my claim. In this case, my claim is connected with a loan.
Now suppose that the U.S. government credits your account by one dollar in Social Security benefits, or suppose you have a dollar bill in your hand. Neither of these was borrowed by anyone, nor lent to anyone. In these latter two cases, you have a claim to one dollar’s worth of the “full faith and credit of the USA.” Your claim — again — is a “debt.” Who owes you this debt? Everyone who thinks that dollars are a viable currency. Everyone “owes” you a recognition of your claim to one dollar’s worth of full faith and credit. This is why the dollar in your hand is “legal tender for all debts public and private.” It is a debt that can be used to pay other debts, which may or may not be loan-debts. You can use money (debt) to buy other debts (i.e. other claims), as when you buy the title of a car. The title is a claim. When we say a prison inmate has “paid his debt to society,” we mean that society had a claim to the inmate’s liberty for the length of his prison sentence.
This is not simply a matter of semantics. Failure to correctly understand that a “debt” is a claim causes people to falsely believe that all debts are loan-based, and that the U.S. government borrows all its money, and therefore has a “debt crisis,” and therefore has no choice but to impose austerity.
Some “positive money” people concede that money is “backed by” people, but they think this means that money is “backed by” human labor and by taxes. But how can government money be “backed by” tax money? They don’t ask this.
Once in a great while, a guest commentator at the “positive money” blogs will have a clue, but he or she is ignored. Here’s an example I saw a minute ago: “Money is not a commodity; it’s a social construct, like the score in a ball game. We’re not running out. We never can.” (No I did not write that.)
POSITIVE MONEY: The entire money supply is on loan from the banking system.
COMMENT: Wrong! If a central government has Monetary Sovereignty, then some of the money in the nation’s economy exists as bank loans (i.e. as credit), but not “the entire money supply.” In the USA, trillions of dollars come into existence each year via U.S. government spending, and not as loans.
The “positive money” people falsely think that any credit to your bank account is a loan from your bank. If you explain to them that SS benefits are not loans (but they are subject to taxation) you make them angry, since you threaten their delusion.
POSITIVE MONEY: This means we must pay interest on all the money that has been created. In the UK this interest adds up to 200 billion pounds per year.
COMMENT: False. Nobody pays interest on Social Security benefits, for example. (In the U.K., Social security is called “welfare.”) And SS benefits have nothing to do with the so-called “national debt.” Nobody pays interest on the money created for Food Stamps, or Medicare, or military contractors, or highway maintenance.
The Federal Reserve (or Bank of England) pays interest on T-securities, but that is a separate matter, and it does not inhibit the U.S. or U.K. government’s ability to create money. The Fed creates that interest money out of thin air, just like the U.S. government creates its spending money out of thin air. All Americans “owe” this debt (they owe Fed investors a recognition of their claim to interest on T-securities) but no individual American must “pay it back” to anyone. Not ever.
POSITIVE MONEY: That 200 billion pounds per year is transferred from the public to the financial sector. The burden of servicing this interest means that businesses and families have an obligation to keep earning money to pay all this debt.
COMMENT: Wrong! If all money supposedly comes into existence as bank loans, then where do people get money to pay back the loans plus interest? The “positive money” people say that people cannot get the money, which is why the interest and the “national debt” keep growing. This is false. The “national debt” is simply the amount of money that people have deposited in their central bank savings accounts by purchasing T-securities (which in the U.K. are called “gilts,” and which are sold via the Bank of England’s “Asset Purchase Facility.”) This deposit / saving activity poses no limit to a Monetarily Sovereign government’s ability to create more money. And much of the money deposited at the central bank is from the government itself. (So much for the “national debt crisis.”)
The central government could halt the “national debt” by halting the sale of T-securities. And the central bank (the Fed or the Bank of England) could erase the “national debt” by moving depositors’ money from their savings accounts at the central bank to their checking accounts at their personal banks. Meanwhile the federal government would continue to create and spend money, and banks would continue to create and issue loans.
POSITIVE MONEY: If everyone in society paid off his debts, there would be no money left, since all money consists of loans.
COMMENT: Wrong! All money is debt, but not all money is loans, and not all debts are connected with loans. If your county government has recorded you as the owner of a house, then the county owes you a “debt,” i.e. it owes you recognition of your claim to ownership of the house. And you owe the county a recognition of the county’s claim to property taxes. Moreover, if all bank loans were suddenly paid off, then we would still have money from government spending, and from foreign trade if we had a trade surplus.
POSITIVE MONEY: Therefore we must remove from the banks their power to create money. We want money to be created in the public interest and spent into the real economy, instead of being pumped into financial bubbles.
COMMENT: No. This would render banks extinct, which is not necessary. The problem is not banks, but federal governments. Banks create money as loans. Federal governments create money as non-loans. Bankers bribe politicians to surrender much of the federal government’s money-making power to the banks, forcing us to rely on loans. (I said much of the money-making power.) This is called gratuitous austerity; or deficit reduction. Its purpose is to reduce us to being debt-slaves of the banks, and to widen the gap between the rich and the rest. Therefore the solution is not to end banking, but to boost deficit spending, using money that is not borrowed from anyone.
POSITIVE MONEY: If we had a money system in which governments had sovereign control over the money supply, then it would be perfectly legitimate for governments to invest in things that create a good society.
COMMENT: No. Banks do not have Monetary Sovereignty over the pound or the dollar. Banks can use interest rates to influence the circulation and value of currency, but only central governments have true Monetary Sovereignty. (In the euro-zone, the “central government” is the European Commission, whose central bank is the ECB / IMF). Only central governments can decide what currency the nation shall use (that is, what unit of account) and how much money to create via spending, and destroy via taxing. Only central governments can dictate what currency its taxes shall be paid in. Only central governments have full Sovereignty, which (as Rodger Mitchell has explained) is ultimately the power to choose.
In the USA the central government includes the U.S. Treasury and the IRS. The Federal Reserve has no control over these. In the U.K. the central government includes the Ministry of Finance (which spends money) and the Exchequer (which taxes money). The Bank of England has no control over these.
Despite these facts, the “positive money” people falsely think that the Fed and the Bank of England are supreme.
What if we lived on an island, and I set up a bank that issued the island’s currency, called Eliza-bucks? In that case the bank would be the central government. And since a bank by definition can only create money as loans, the island would soon become crippled by debt like Puerto Rico (unless our island had a trade surplus). It would become like what the “positive money” people (falsely) think the U.K. is, with everyone depending on loans from banks.
The U.S. and U.K. don’t work that way. Both nations have central banks, plus central governments with treasury departments.
Central Banks determine monetary policy by controlling interest rates. Central governments determine fiscal policy by controlling spending and taxing. Both monetary and fiscal policy can be used to control inflation.
POSITIVE MONEY: We would still have banks, but they could only lend money that had been deposited with them. This would reduce inflation and give us a more stable financial system. We need an independent monetary authority under sovereign control, but regulated by an independent authority.
COMMENT: Whoa! Banks could only lend money that had been deposited with them? That would last about a week, at which time all the deposited money would be lent out, and all the banks would fold.
As for reducing inflation, this can be done through a variety of means that I won’t delve into here, unless someone challenges me. Rodger Mitchell has often discussed this.
As for having a more stable financial system, who let it become unstable? Politicians did, via deregulation. Politicians are the culprits. They caused the bankster crime wave.
True, the Fed is evil, since the Fed is mainly concerned with juicing Wall Street in order to widen the Gap between the rich and the rest. But the people we must hold accountable are Congressmen. They created the Fed, and they can modify it. They created austerity, and they can reverse austerity.
Of course it is easier to blame the Fed for everything, especially if you are an anti-Semite. (“Jews own the Fed, and the Fed lends us all our money!”)
In reality the Fed does not control government spending. Politicians do.
The “positive money” people refer to the U.S. civil war when Lincoln’s Treasury issued “greenbacks.” These dollars were created out of thin air, and were “backed” only by the “full faith and credit of the United states.” The “positive money” people think life would be better if we again had “greenbacks.”
Here is Ellen Brown: “The debt ceiling could be permanently eliminated by restoring to the government its constitutional authority to create money. Today, coins, along with about $25 million in US Notes or Greenbacks originally issued during the Civil War, are all that is left of the Treasury’s money-creating power.”
Wow. She does not understand what the “debt ceiling” antics are about. Worse, she refuses to understand that the U.S. government has never stopped issuing “greenbacks.” In fiscal year 2015 the U.S. Treasury created and issued 3.6 trillion “greenbacks” in the form of digital money and physical currency. Banks likewise created “greenbacks” in the form of loans.
The problem is not that “all money consists of bank loans.” (It does not.) No, the problem is that too much money in the U.S. economy consists of loans, and not enough consists of government spending.
Solution: end austerity by increasing the federal deficit.