Down the rabbit hole

I would ignore Ellen Brown’s errors if Ellen did not have so many disciples, and if her errors were not reprinted in so many “progressive” blogs.

Ellen’s latest post was reprinted at Counterpunch, plus Common Dreams, plus here and here and here and here and here.

Ellen believes that all money is created by banks as LOANS (except coins and currency notes). This is her fundamental error.  For Ellen and her disciples, there is no such thing as government spending; there is only government borrowing. According to this nonsense, every dollar in existence was lent into existence by some bank, or by the Federal Reserve.

Once you believe this lie, you fall into a rabbit hole that no one can save you from (except you). Ellen Brown fell into the rabbit hole when she chanced upon a paper (.pdf) from the Bank of England that was full of lies and distortions.

Before I discuss the paper, let’s repeat some basic facts…

Money is not physical. Money is a mental concept that can be noted with symbols (numbers) in bank accounts. If you have a check in your hand, the check is a piece of paper that does not become “money” until the check’s “face value” is credited to your bank account.

Coins and currency notes represent money, and can be used as money, but they are not technically money. They are bits of metal or paper.

Although real money only exists in bank ledgers (i.e. only exists in bank accounts) THIS DOES NOT MEAN THAT ALL REAL MONEY IS CREATED BY BANKS AS LOANS. Monetarily sovereign governments create money when they spend in their own currency, and not as loans.

If the U.S. government instructs your bank to credit your account (i.e. to change the numbers in your account) then new money is created without the money being a loan from the bank, or from the government, or from anyone else. If you receive monthly Social Security benefits, the benefits are not a loan. Your benefits are created out of thin air when the bank credits your bank account in accordance with instructions from the U.S. government. Repeat: benefits are not loans.

The U.S. government creates its spending money by crediting bank accounts. Likewise, banks create loan money by crediting bank accounts. If you obtain a $100K house mortgage from a bank, then the bank credits the account of the house seller by $100K, and also sets up an account for your mortgage debt, which you gradually reduce via payments.

This is simple, but Ellen Brown cannot grasp it, because she believes lies and distortions from the Bank of England. Here are some examples from that Bank paper (.pdf)

Banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.

In other words, the Bank of England says that fractional reserve banking is a myth. This is correct.

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. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’. Monetary policy acts as the ultimate limit on money creation.  

LIES. The Bank of England pretends that there is no such thing as government fiscal policy (which concerns how much money the government creates, spends, and taxes back). Instead, the Bank of England pretends that there is only bank monetary policy (which concerns interest rates).

This is one of those lies that people cling to because they simply like how it sounds.

Further on, Ellen rightly denounces Trump’s proposed “public-private partnership” to finance nationwide infrastructure repair.

(“Public-private partnership” always means privatization, which is always about profit, which always means ever-increasing fees combined with ever-decreasing quality.)

Ellen also rightly says that whenever politicians want to privatize something (i.e. give public assets to the rich) politicians defund the thing until the public screams for relief, even if it means privatization. This is why the U.S. national infrastructure is underfunded.

Unfortunately Ellen believes that the only way for the U.S. government to obtain money for infrastructure repair is to borrow it from banks. Here’s Ellen…

A dollar invested is a dollar lent, which must return to the bank (with interest) before it can be lent again.

Nonsense. Ellen previously admitted that banks create loan money out of thin air. Now she says that loan money must be paid back before the money can be again created out of thin air.

Contrary to conventional wisdom, money is not fixed and scarce. It is “elastic”: it is created when loans are made and extinguished when they are paid off.

True, but what about government spending and taxing? For Ellen, government spending means government borrowing.

The Bank of England report said that private banks create nearly 97 percent of the money supply today.

Stop. Ellen correctly says that only three percent of the money supply consists of coins and currency notes. However she erroneously thinks the other 97% consists entirely of bank loans. The U.S. government creates about $4 trillion each fiscal year out of thin air, and spends it (not lends it) into existence. (The government taxes back about 87.5% of that per year.)

The federal government could set up a bank on a similar model to the Bank of North Dakota. It has massive revenues, which it could leverage into credit for its own purposes.

Nonsense. If you could create limitless money out of thin air, like the U.S. government does, then you would not need to “leverage” your limitless money, or “create credit” with it.

Since financing is typically about 50 percent of the cost of infrastructure, the government could cut infrastructure costs in half by borrowing from its own bank.

Why should the U.S. government borrow at all? Why not just continue to spend money into existence by crediting bank accounts, as occurs now?

As I said above, I would ignore Ellen Brown’s foolishness if Ellen did not have so many disciples, and if her errors were not reprinted in so many “progressive” blogs.


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2 Responses to Down the rabbit hole

  1. Steve says:

    This bullshit by EB was posted over at Mike Norman Economics-not one retard commenting over there called her out on her nonsense. Fuck MNE & fuck the idiot Ellen Brown!


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