Stupid comets

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When it comes to U.S. government finances, public stupidity is so extreme that it seems as though the earth continually passes through the tails of Stupid Comets.  That is, our planet is apparently plagued by weird celestial objects that are invisible and undetectable – and which keep most of humanity in permanent mental retardation.  As a result, when average people talk about fiscal policy, their conversations go like this…

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I mention this because today I saw a blog post by Ellen Brown, who absurdly insists that all dollars are created by banks as loans, except for coins and printed currency notes.

In reality there are three ways that money enters any economy…

[1] Bank lending
[2] Government spending
[3] A foreign trade surplus (which does not apply to the USA, since the USA has a trade deficit)

For Ellen Brown, there is only #1. She thinks that only banks can create money out of thin air. Governments cannot.

Okay, she’s wrong. Big deal. Who cares?

I bring up Ellen (again) because she has legions of followers, and her posts get reprinted in many different blogs. Her nonsense keeps everyone confused and therefore submissive to austerity, poverty, and inequality. If you try to courteously correct her, your comments will be deleted.

Ellen’s latest lunacy discusses the federal financing of the USA’s national infrastructure. Remember the scoreboard nonsense above? Keep that in mind…

“Both houses and both political parties agree that something must be done, but they have been unable to agree on where to find the funds. Republicans aren’t willing to raise taxes on the rich, and Democrats aren’t willing to cut social services for the poor. But on December 4, 2015 the last day the Department of Transportation was authorized to cut checks for highway and transit projects, Obama signed a 1,300-page $305-billion transportation infrastructure bill that renewed existing highway and transit programs. According to America’s civil engineers, the sum was not nearly enough for all the work that needs to be done. The money will come from the Federal Reserve and Wall Street megabanks.”

Ellen gets this nonsense from an idiotic Bloomberg article that refers to non-existent things like the “highway trust fund,” which is not a fund, and which has no money.

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From Bloomberg…

“The legislation would provide $281 billion in contracting authority over five years for the Highway Trust Fund for roads, bridges, mass transit and other programs.

The highway measure would be financed in part by a one-time use of Federal Reserve surplus funds, and by a reduction in the 6 percent dividend that national banks receive from the Fed. The dividend would be reduced by an amount tied to yields on 10-year U.S. Treasuries, currently about 2.2 percent. If Treasury yields rose higher than 6 percent, the Fed wouldn’t pay the banks more. Banks with $10 billion or less in assets would be exempt from the cut.”

Wow. That sounds complex, but it’s bullshit. Federal financing is a shell game designed to make you think that money is physical and limited, so that you will grovel before bankers and politicians.

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Anyway Ellen Brown interprets Bloomberg to mean that the U.S. government is borrowing more of its spending money from the Fed – when in reality the U.S. government borrows none of its spending money from anyone.

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What’s frustrating is that Ellen Brown apparently means well. She hates poverty, inequality, banker thieves, and financial fraud — but she refuses to break out of her rut. She and her disciples want the U.S. government to issue “greenbacks,” which means they want the U.S. government to create money out of thin air like banks do. What they refuse to accept is that Monetary Sovereign governments already do this.

“For over a century, populists and money reformers have petitioned Congress to solve its funding problems by exercising the sovereign power of government to issue money directly, through either the Federal Reserve or the Treasury. In the 1860s, Abraham Lincoln issued debt-free US Notes or “greenbacks” to finance much of the Civil War, as well as the transcontinental railroad and the land-grant college system.”

First of all, the U.S. Congress has no “funding problems.” Second, there is no such thing as “debt free money,” since all money is both a debt and a credit. However not all money is created as loans, or exists as loans. “Credit” does not necessarily mean “loan.” If I leave my overcoat with a receptionist, and the receptionist gives me a ticket so I can later reclaim my overcoat, then the ticket is a credit — i.e. a claim to ownership. The ticket is not a monetary loan, and it is not issued by any bank.

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But if not all money consists of loans, then why are U.S. dollars called “Federal Reserve Notes”? Ellen Brown and her disciples think the words mean that all money is lent into existence by the Fed, which is a bank. They are wrong.

Actual money only exists in banks, and only as digital notations, but not all money in banks consists of loans from banks. Coins and bills are not money. They are currency notes. They represent bank money, the way a mortgage note represents a claim to a house as collateral. And they can be used as money, but they are not true money. Likewise a note to a house is not the house, and a car title is not the car. Instead, the bits of paper affirm claims to something.

In the USA, the Fed stands behind all American banks. Thus, “Federal Reserve Note” means that a dollar bill is part of the overall U.S. money and banking system. It does not mean that all dollars are lent into existence by the Fed.

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I suppose I shouldn’t be too annoyed with Ellen Brown. After all, Wikipedia also claims (falsely) that all dollars are created by banks as loans. As for the U.S. government creating money, Wikipedia calls this an “alternative theory.” But if it is truly a theory, then it is based in fact, not opinion, guesses, or hypotheses.

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2 Responses to Stupid comets

  1. Pingback: Stupid viruses – monetarysov

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