I just saw it again, the myth that all dollars are lent into existence by banks. According to this myth, the U.S. government borrows all its spending dollars. Likewise, dollars that are used to pay federal taxes are also borrowed from bankers. According to the myth, this is why we have a “national debt.”
Such nonsense sprouts from the “credit theory” of money. Proponents of the credit theory correctly note that all money is debt, meaning that all forms of money (including cash) are credit money. But some of them jump from this fact to the falsehood that all credit consists of bank loans. They think that when the U.S. government credits your bank account with money, the bank itself is doing the crediting.
Therefore, they claim, all money is created and issued by banks as loans. Therefore the USA has a “debt crisis.” Therefore we must have more austerity, which worsens our poverty and inequality.
Once people get this myth into their heads, they would rather die that give it up. They remain trapped forever.
An example is Ismael Hossein-zadeh Professor Emeritus of Economics at Drake University in Des Moines, Iowa.
“The Federal Reserve centralized the power of U.S. banks into a privately owned entity that controlled interest rate, money supply, credit creation, inflation, and (in roundabout ways) employment.”
Money supply? What about U.S. government spending? The professor claims that the U.S. government must borrow all its spending money from banks.
(The Federal Reserve system allowed) “banks to lend money to the government and earn interest, or a fee; money that the government could create free of charge. This ushered in the beginning of the gradual rise of national debt, as the government henceforth relied more on borrowing from banks than on self-financing, as it had done prior to granting the power of money-creation to the private banking system.”
The professor believes that the U.S. government has a “debt crisis.” In so doing, he supports the lie that we must have more poverty, austerity, and inequality.
But if the “national debt” is supposedly the money that we supposedly owe to bankers, then why have the bankers allowed the “national debt” to keep growing since 1917 when the U.S. Treasury began issuing “Liberty Bonds”?
According to the credit theory myth, one day the bankers will “call in their loans,” and we will have to pay them. When will that day come? No one knows. It’s been almost a century, and no one knows.
Since the professor (falsely) believes that banks create all the money, his solution is to make all banks public — i.e. owned by the Federal government or by local governments. I agree that we need public banks, but since the professor (falsely) believes that the U.S. government has a “debt crisis,” he supports the lie that we must have more poverty, austerity, and inequality.
Noted commentator Ellen Brown also believes the lie that the U.S. government has a “debt crisis,” and must borrow all its money from bankers. Thus she supports the credit theory lie:
“For centuries, a secret battle has raged over who should create the nation’s money supply — governments or banks. Today, all that is left of the U.S. Treasury’s money-creating power is the ability to mint coins.”
What is her proof of this? She never gives any. For her it is “common sense” and “self-evident” (just like the emperor’s new clothes).
“To bail out the banks, the Federal Reserve, as head of the private banking system, issued over $2 trillion as “quantitative easing,” simply by creating the money on a computer screen. Congress, the White House, and the Treasury all rolled over and acquiesced. When it was proposed that the government bail itself out of its budget woes by minting a $1 trillion coin, the Federal Reserve said it would not accept the Treasury’s legal tender. And the White House again acquiesced, evidently embarrassed to have entertained this “ludicrous” alternative.”
Banks do indeed create loan money “on a computer screen.” But so does the U.S. government.
“Somehow we have come to accept that it is less silly for the central bank to create money out of thin air and lend it at near zero interest to private commercial banks, to be re-lent to the public and the government at market interest rates, than for the government to simply create the money itself, debt- and interest-free.”
Ellen Brown believes that we’d be better off if the U.S. government created money out of thin air like the banks do. She refuses to acknowledge that the U.S. government already does this. For fiscal year 2016 the U.S. government will create just under four trillion dollars out of thin air. Unfortunately the U.S. government will tax back 3.525 trillion dollars (i.e. remove those dollars from circulation), leaving a deficit of only 474 billion added to the economy, which is not nearly enough to get us out of our current “recovery” recession.
“We have lost not only the power to create our own money but the memory that we once had that power. With the help of such campaigns as Occupy Wall Street, Strike Debt, and the Free University, however, we are starting to re-learn the great secret of money: that how it gets created determines who has the power in society — we the people, or they the bankers.”
For the USA, austerity means an ever-smaller federal deficit, which means that less new money is permanently put into the U.S. economy. This forces us to take loans (e.g. student loans), which makes us slaves of the creditors.
“We may rail against the banks and demand change, but nothing will change until we grasp their fundamental secret, the foundation of their power: that those who create the nation’s money control the nation.”
Yes, and that includes politicians and bureaucrats who create federal money.
Ellen Brown quotes MMT people, but she disagrees with the foundation of MMT, which is that banks and the federal government both create money. Nothing can snap her out of her trance. Nothing.