Ellen goofs again

Ellen Brown in the USA and the “Positive Money” people in the UK falsely think that all money is created by banks as loans. They falsely think there is only government borrowing, not government spending. They falsely think the U.S. and U.K. governments have a “debt crisis.”

Since I have often discussed Ellen Brown, I intended to ignore her latest blog post, but I see that it has been reprinted in blogs like Counterpunch, Common Dreams, and so on. So here we go again, correcting her flubs.

 “Print the money” has been called crazy talk, but it may be the only sane solution to a $19 trillion federal debt that has doubled in the last 10 years. The solution of Abraham Lincoln and the American colonists can still work today.

Ellen Brown and her disciples believe in the “national debt crisis” hoax. They also believe that the only time the U.S. government ever created money was during the U.S. Civil War. (Before that, there was colonial scrip, but the USA did not exist at that time.) They say it would be great if the U.S. government created money without borrowing it from banks (which the U.S. government already does).

Ellen Brown believes these falsehoods even though (in this same blog post) she quotes former Federal Reserve Chairman Alan Greenspan, who said in 2011:

“The United States can pay any debt it has, because we can always print money to do that. So there is zero probability of default.”

Ellen was quoting CNBC, which was quoting Greenspan…

For Ellen Brown this does not mean the U.S. government creates its spending money. No, she thinks it means that banks could “pay off” the national debt by increasing the debt (i.e. issuing loans).

A contradiction? Yes of course, but that’s Ellen for you.

In an article titled “Why Donald Trump’s Debt Proposal Is Reckless,” CNNMoney said: The federal government doesn’t have any money to buy debt back with. The U.S. already has $19 trillion in debt. Trump’s plan would require the U.S. Treasury to issue new debt to buy old debt. Trump, however, was not talking about borrowing the money. He was talking about printing the money.

CNN thinks the U.S. government has no money, and Ellen Brown thinks the U.S. government does not “print” money. Both are absurdities. Ellen thinks the “national debt” means that the U.S. government borrows its spending money from banks, and that this borrowed money (plus interest) must be paid back to banks.

Someone once remarked to Warren Mosler that no company wanted to publish Ellen Brown’s book Web of Debt. Mosler responded, “I wouldn’t publish it either. It is full of too many errors.”

Paying the government’s debts by just issuing the money is as American as apple pie – if you go back far enough. Benjamin Franklin attributed the remarkable growth of the American colonies to this innovative funding solution. Abraham Lincoln revived the colonial system of government-issued money when he endorsed the printing of $450 million in US Notes or “greenbacks” during the Civil War. The greenbacks not only helped the Union win the war but triggered a period of robust national growth and saved the taxpayers about $14 billion in interest payments. 

Monetarily sovereign governments create their own spending money, but Ellen Brown thinks they do not. Ellen thinks it would be an “innovative funding solution” if they did.

Ellen quotes the CNN Money idiots who falsely think that

[1] The “national debt” must be “paid off.”

[2] Creating money to “pay it off” would cause hyper-inflation.

Ellen Brown believes the first lie, but not the second.

The reality is that if the U.S. government suddenly spent $19 trillion into the economy, it might indeed cause inflation. Ellen thinks this is not so, as evidenced by the Fed’s “quantitative easing” program. However QE is not the same as pumping money into the economy. QE creates reserves, which is not quite the same as creating money.

Reserves can be spent into the economy if necessary, but reserves usually do not circulate like money does. Reserves are a kind of back-up scoreboard for the money scoreboard. QE adds reserves to banks, thereby giving banks the confidence to gamble in the markets. Indeed, the purpose of QE is to stimulate the financial economy at the expense of the real economy. QE is a stimulus for Wall Street, but not for Main Street. That’s why Wall Street is booming, while Main Street is dying.

CNBC says, “Central banks have been pumping money into the global economy without a whole lot to show for it other than sharply higher stock prices, and even that has been on the downturn for the past year.”

Yes, because the money has been pumped into the financial economy, not the real economy.

CNBC: “Growth remains anemic, and worries are escalating that the U.S. and the rest of the world are on the brink of a recession, despite bargain-basement interest rates and trillions in liquidity.”

Yes, because there is only growth in the financial economy, which sucks all the money and energy from the real economy. The parasite grows at the expense of the host.

Back to Ellen Brown

European economists and central bankers are wringing their hands over what to do about a flagging economy despite radical austerity measures and increasingly unrepayable debt.

Nonsense. European economists and central bankers know exactly what they are doing. They are promoting neoliberalism, which involves austerity, QE, privatization, “free trade” treaties, and so on in order to widen the gap between the rich and the rest.

One suggestion gaining traction is “helicopter money” – just issue money and drop it directly into the economy in some way. In QE as done today, the newly issued money makes it no further than the balance sheets of banks. It does not get into the producing economy or the pockets of consumers, where it would need to go in order to create the demand necessary to stimulate productivity. Helicopter money would create that demand. Proposed alternatives include a universal national dividend; zero or low interest loans to local governments; and “people’s QE” for infrastructure, job creation, student debt relief, etc.

Theoretically the U.S. government could help the real economy by spending more money, but as things are now, the added money would simply be vacuumed up by the Wall Street parasite. The parasite would raise interest rates on mortgages and student loans in order to get the added money. In other words, we need more government spending plus special laws to keep Wall Street from stealing all the money.

While the Fed has stopped its QE program for the time being, the European Central Bank and the Bank of Japan have jumped in, buying back massive amounts of their own governments’ debts by simply issuing the money.

WRONG.

[1] The Bank of Japan cannot be compared with the European Central Bank, since Japan is monetarily sovereign, while the euro-zone nations are not. The Japanese government creates its spending money out of thin air. Euro-zone governments cannot.

[2] The Bank of Japan is not “buying back the government’s debt.” There is no need to. The Japanese government’s “debts” are simply deposits in savings accounts at the Bank of Japan.  When you buy a Japanese Treasury security, your money is essentially held in a savings account at the Bank of Japan. When your Treasury security matures, the Bank of Japan gives you back your money, plus interest. There is no need for the Bank of Japan to “pay off” your deposits. The bank simply gives your money back to you. Or you can leave your money with the Bank of Japan and roll it over for more interest by purchasing more Treasury securities.

[3] The European Central Bank does not issue money to euro-zone governments. What happens is that European banks lend to euro-zone nations. Some euro-zone nations cannot pay back their loans (Greece, for example) because they have trade deficits, and therefore have no money coming in, except for loans. The European Central Bank (ECB) pays off the banks that lent to Greece, and then becomes the creditor. Greece remains in debt, and the ECB demands payment from Greece in the form of privatization and austerity.

One suggestion to jump start the economy is “helicopter money.” Just issue money and drop it directly into the economy in some way. In QE as done today, the newly issued money makes it no further than the balance sheets of banks. It does not get into the producing economy, or the pockets of consumers, where it would need to go in order to create the demand necessary to stimulate productivity. Helicopter money would create that demand. Proposed alternatives include a universal national dividend; zero or low interest loans to local governments; and “people’s QE” for infrastructure, job creation, student debt relief, etc.

True, but again, we would need laws to prevent Wall Street from stealing all the “helicopter money.”

Simply buying back federal securities with money issued by the central bank (or the U.S. Treasury) would also get money into the real economy, if Congress were allowed to increase its budget in tandem.

Again there is no need to “buy back federal securities.” The “national debt” money is given back to depositors when Treasury securities mature.

Instead, we could get money into the real economy via programs like those of the 1930s “New Deal.”

As Dean Baker, co-director of the Center for Economic and Policy Research in Washington, wrote in response to the debt ceiling crisis in November 2010:

“There is no reason that the Fed can’t just buy this debt (as it is largely doing) and hold it indefinitely. If the Fed holds the debt, there is no interest burden for future taxpayers. The Fed refunds its interest earnings to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country’s net interest burden. And the Fed has other tools to ensure that the expansion of the monetary base required to purchase the debt does not lead to inflation.”

Dean Baker, like Ellen Brown, thinks the U.S. government borrows all its dollars from banks, China, and taxpayers.

Moreover, to “buy back the debt” would be to give all depositors’ money back, plus interest. There is no need to do this, and it might even be inflationary.

And let me repeat this part, since it warrants an explanation…

The Fed refunds its interest earnings to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country’s net interest burden. And the Fed has other tools to ensure that the expansion of the monetary base required to purchase the debt does not lead to inflation.

This is irrelevant. Throughout a given fiscal year, the Fed creates $240 billion out of thin air, as interest paid on saving deposits at the Fed. Savings deposits are created when someone buys Treasury securities. About forty percent of T-securities are purchased by various branches of the U. S. government. Therefore the Fed pays the U.S. government about $96 billion a year.

What does this have to do with Ellen Brown’s blog post? Nothing. The Fed creates $96 billion out of thin air and gives it to the Treasury, which has no need or use for the $96 billion, since the Treasury also creates money out of thin air (about $4 trillion per year).

An even cleaner solution would be to simply void out the debt held by the Fed. That was the 2011 proposal of then-presidential candidate Ron Paul for dealing with the debt ceiling crisis. As his proposal was explained in Time Magazine, today the Treasury pays interest on its securities to the Fed, which returns 90% of these payments to the Treasury. Despite this shell game of payments, the $1.7 trillion in US bonds owned by the Fed is still counted toward the debt ceiling.

Huh? What do you mean “void out the debt held by the Fed”? Simply erase the $19 trillion that various parties (including the U.S. government) have deposited at the Fed? That’s absurd.

Today the Treasury pays interest on its securities to the Fed, which returns 90% of these payments to the Treasury. Despite this shell game of payments, the $1.7 trillion in US bonds owned by the Fed is still counted toward the debt ceiling.

WRONG. The Fed (not the Treasury) pays interest on T-securities. And what is this “the $1.7 trillion in US bonds owned by the Fed”? The Fed doesn’t “own” any T-securities at all. The Treasury creates T-securities, and the Fed auctions them off. The Fed collects the sale money, leaves that money on deposit at the Fed, and then, at an agreed-to time, gives the money (plus interest) back to whoever bought the T-securities.

Ellen is confusing herself more and more.

Get the Fed and the Treasury to rip up that debt. It’s fake debt anyway. And the Fed is legally allowed to return the debt to the Treasury to be destroyed.

Huh? Rip up depositors’ money? Destroy it? What for? How would you like to open a Fed savings account by purchasing a T-security, only to have your deposited money destroyed, or given to someone else?

Incidentally the national debt (i.e. depositors’ money) is not fake. What’s fake is the “national debt crisis.” There is a “national debt,” but there is no “crisis.”

The U.S. government has no crisis, since the government creates its spending money out of thin air. The Fed has no crisis, since the Fed creates money out of thin air to pay interest in T-securities, and also since the Fed is simply holding deposits for people who buy T-securities.

The right of government to issue its own money was one of the principles for which the American Revolution was fought.

It’s called monetary sovereignty, which the U.S. government still has. Ellen Brown thinks that only banks have monetary sovereignty. That is true in the euro-zone nations, but not in the USA.

In the USA, banks lend money, and they collect interest, but they do not do what monetarily sovereign governments do. Banks do not police counterfeiters, or levy taxes, or influence the federal budget, or make laws regarding money.

Americans are increasingly waking up to the fact that the vast majority of the money supply is no longer issued by the government but is created by private banks when they make loans; and that with that power goes enormous power over the economy itself.

Most of the money in the U.S. economy is indeed created by banks as loans, but the U.S. government also creates $4 trillion a year, and not as loans. Ellen Brown falsely thinks the U.S. government borrows that $4 trillion from banks. She thinks that banks create all the money except for coins and currency notes (which are not money, but can be used as money; coins and notes only represent money).

Ellen Brown has these false ideas because she believes the lies told by the Bank of England.

Bank of England: The amount of money created in the economy ultimately depends on the monetary policy of the central bank.

No. The money supply is also affected by the fiscal policy of the federal government. That is, the money supply is also affected by government spending.

Bank of England: In the modern economy, most money takes the form of bank deposits. The principal way that deposits are created is through commercial banks making loans.

Deposits are also created by government spending. For instance, Social Security benefits are directly credited to recipients’ bank accounts. The benefits create deposits.

Bank of England: Monetary policy acts as the ultimate limit on money creation.

Wrong. There is no limit on U.S. government money creation.

This nonsense appears in a quarterly bulletin from the Bank of England that is fourteen pages long. Nowhere does the bulletin mention government spending or fiscal policy.

For Ellen Brown, such garbage is gospel.

The issue that should be debated is one that dominated political discussion in the 19th century but that few candidates are even aware of today: should creation and control of the money supply be public or private?

At present it is both public and private. Government money creation is public. The creation of loans by banks is private.

Ideally all money creation should be public. There should be no privately owned banks, since they are necessarily obsessed with profits. Money should be treated like a public utility. It should be treated as necessary for modern life, but should not be the goal, purpose, and meaning of life.

Anyway the whole point of Ellen Brown’s post is that we should let the U.S. government create money, which of course, it already does.

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12 thoughts on “Ellen goofs again

  1. “Monetarily sovereign governments create their own spending money, but Ellen Brown thinks they do not. Ellen thinks it would be an “innovative funding solution” if they did.”
    Does your reply mean, “Elizabeth Harris thinks ‘Monetarily sovereign governments create their own spending money”?
    May you be judged by this one simple question.
    A simple answer, please if you dare.

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    1. Yes.

      Monetarily sovereign governments create their own spending money for things that they buy with their own currency. They do not borrow their own currency, nor do they rely on taxes in their own currency. They create their own currency out of thin air.

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      1. Elizabeth – – –

        Please post some links to your posts which explain the process by which monetarily sovereign governments create their own currency out of thin air. (I don’t think there is a process that supports your statement. My understanding is that the U.S. government has “subcontracted” that money creation to the banking sector coordinated by the Federal Reserve.)

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        1. Consider what happens when a person receives Social Security benefits, for example. The Social Security Administration sends electronic instructions to the recipient’s bank, telling the bank to credit the recipient’s account — i.e. to change the numbers in the account. Nothing physical moves. As soon as the bank changes the numbers, new money is created out of thin air. It’s exactly like creating points on a sports scoreboard. As soon as the numbers are changed, points are created or destroyed.

          Points, like money, are not physical. Points, like money, are a mental construct. The numbers on the board are not points. They represent points. They represent mental units of account that players and spectators agree to abide by. So it is with numbers in a bank account.

          We create points by crediting a scoreboard. The U.S. government creates its spending money by crediting bank accounts.

          Regarding the claim that the Fed creates all the money, I have written numerous posts explaining why this is not true, and I shall do so again if you wish.

          There are three ways that money enters into any economy…

          [1] Bank lending
          [2] Government spending. (This does not apply to euro-zone nations, since they surrendered their monetary sovereignty, i.e. surrendered their ability to create money out of thin air).
          [3] A trade surplus, in which money case comes in from abroad. (This does not apply to the UK, USA, Canada, or Australia, since they all have huge trade deficits.)

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          1. I agree with all you said. I think my question may have implied a disagreement in some fundamental way with your position – that is not the case. I think we are quibbling on a level equivalent to arguing about whether or not a coin is as shiny as it could be.

            With respect to your example of the creation by the banks of credit based on instructions from the Treasury, that is done under the umbrella of Federal Reserve management. And, under current practice, the credits to private accounts are only issued with the offset of tax receipts collected or Treasury securities issued (increased deficit). I don’t see anything you have said that would disagree with this. That is why I asked the question about the government creating money out of thin air which I do not think is technically correct – as you say the banks create it and the government issues an offsetting obligation.

            Now the question of whether the government should create money out of thin air itself and not use the private banks is another question, and well worth discussing.

            But, as far as whether Ellen Brown is or is not technically correct (or you or myself, for that matter), that question is far less important than trying to identify the many areas in which we agree without question and proceeding on that basis.

            A favorite saying: “Do not sacrifice the good in pursuit of the perfect.”

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  2. Elizabeth,
    While I agree with your statement “Fed is simply holding deposits for people who buy T-securities.”
    Where can we find evidence for this? The Fed balance sheet that it reports only shows the T-securities that are held by the Fed, which is about $2.4T – https://research.stlouisfed.org/fred2/series/TREAST
    Where can we see a report of all the T-securities deposit account at the Fed.
    I do know that our Treasury puts out their Daily Treasury Statement that details the holdings, but they do not also saw where these holdings are held, It should be on someone’s books as an Asset/Liability.
    Would be helpful to find this information.
    thanks

    Like

    1. Let me get back to you on that. I’ve been sick for a week, and I’m still recovering. (Snake bite.) But I’ll leave you with a thought…

      The U.S. government does not need to borrow dollars from anyone, since the U.S. government creates dollars out of thin air. Therefore money that is used to buy T-securities is not used to fund the U.S. government. Instead, the T-securities money is logged in a Fed account. (Money is not physical.) When a T-security matures, the Fed gives you back your money plus interest. It’s exactly the same as a regular savings account in a commercial bank. Your money is on loan to the bank, but the bank never has to “pay you off.” The bank only has to pay an agreed-to rate of interest, and give you back your money upon demand.

      Likewise the “national debt” never needs to be “paid off,” and never will be.

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      1. OMG! “the T-securities money is logged in a Fed account. (Money is not physical.) When a T-security matures, the Fed gives you back your money plus interest. “Quote: elizabethharris001

        What is the definition of “To borrow money” and then “pay money back while paying interest.”?
        Yes, we now know the Central Bank creates the money out of thin air is correct; just as the
        Private For Profit Banks do by using the Fractional Reserve system.

        OMG !!!, Where did we go wrong- – -BOTH CREATE TEMPORARY MONEY
        yet We The People must pay interest to the banks either way,
        to use our own money ! !
        Quote Frederick Soddy (The Role Of Money) ” It is important to realize that whichever way it
        works it is a case for the bank of
        ” Heads I win, tails you lose “…”…(U)sually by some such lying phrase as ” Every
        loan makes a deposit ”
        (I feel for you and others in that you are not aware of being victimized.”
        As Soddy said,
        “Genuine and Fictitious Loans. For a loan, if it
        is a genuine loan, does not make a deposit, because
        what the borrower gets the lender gives up, and
        there is no increase in the quantity of money, but
        only an alteration in the identity of the individual
        owners of it. But if the lender gives up nothing
        at all what the borrower receives is a new issue
        of money and the quantity is proportionately
        increased. So elaborately has the real nature of
        this ridiculous proceeding been surrounded with
        confusion by some of the cleverest and most
        skilful advocates the world has ever known, that
        it still is something of a mystery to ordinary
        people, who hold their heads and confess they
        are ” unable to understand finance “. It is not
        intended that they should.”(The Role Of Money)

        Like

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