The money hoax

This is connected with a discussion between Sullivan and me. I hope to clarify some things. The meaning of the term “money hoax” will be summarized in the last few sentences of this post.

There are several theories about the origin of money. There is the fractional reserve theory, circuitist theory, credit theory, and Chartalism (a.k.a. Modern Monetary Theory, sometimes called “Neo-Keynesianism”).

How can there be more than one explanation? We have banks, money, and a government. These are facts. The money must come from some definite place or process.

HALF EMPTY, OR HALF FULL?

The confusion arises from mere semantics. Words are twisted according to politics. A glass can be half empty or half full. (Actually it is both.) If I call it half full, then I can say that “we have plenty of money.” If I call it have empty, then I can say, “We are going broke!” Both statements are true, depending on our perspective, but bankers and politicians want you to believe only the latter statement. “We are going broke!”

For example, when I make a deposit at a bank, the bank becomes both half empty and half full. The deposit is both an asset / credit (half full) and a liability /debt (half empty). It is an asset because it is money the bank may use. It is a debt because I am only lending it to the bank, and may demand it back at any time.

Depending on how we look at it (it is a credit; no it is a debt) we can create an entire “philosophy” about how money operates. If we look at it in one-sided fashion (as the bankers and politicians want) then we will be enslaved. 

Many people think that all money in the US economy is ultimately lent by the Fed. In reality, the $16.1 trillion in T-bills sold are loans TO the Fed. When I buy a T-Bill, I give money to the Fed. This is a loan that the Fed must give it back to me when the T-bill matures. It is a Fed debt. But until the Fed gives it back to me, it serves as a Fed asset.

The total amount of loans to the Fed are called the “national debt.” This is indeed a debt, as are all deposits in any bank. But they are also Fed assets, since the bank may use that money. If I lend you my tractor to plow a field, the tractor is a loan to you, since you must eventually give it back. Until you do, it is an asset for you. You may use it to generate profits. Likewise, the Fed may use its assets (which are loans, i.e. debt) to generate fractional reserve credit (which are profits for the bank). 

Since Americans believe lies about national finances (“the US. Government is broke and in debt”) Americans are forced to rely on bank loans more than on government spending. This is why the banks, through fractional reserve lending, are able to strangle Americans with debt.

Bankers and politicians love this. They lie, saying, “There is no money. GO GET A BANK LOAN.” Hence we have catastrophic student loan debt, for example, even though there is no fiscal need for it. There is only a political need. Debt creates slaves. 

Put another way, the money system consists of both credit and money. America’s problem is that we rely mostly on credit (i.e. loans) when we could instead rely on money issued by the government, which could not only pay tuitions, but pay a salary to students for attending school. This would be no more inflationary than the current system that is based mostly on debt. The difference is that student loan debt, for example, would vanish.

But the bankers and politicians don’t want that. They want debt slaves. “Sorry, there is no government money. GO GET A  BANK LOAN!”

Banks are necessary in order to have a money system, but banks have become too powerful. They crush us with debt. Their power is sustained by the willingness of people to angrily defend the lies about national finances. The average person’s blind fanaticism exceeds that of religious cultists. Since people falsely believe that the US government is “in debt, they accept even more debt, in the form of bank loans. Instead of asking the government to issue more money, debt free, they demand that the government issue less money, so the people must rely on bank loans.

This is exactly what the bankers, politicians, and 1% want. 

IS THE USA IN DEBT?

The Treasury is responsible for backing Fed operations, but the Treasury can create limitless money to pay any debt. Thus, the Treasury is like an insurance company.

Imagine this: I am Daddy Treasury, and you are my son, the greedy idiot banker. I let you play banker, taking deposits, and issuing loans. You get your money from deposits, and from selling T-bills. With 10 dollars of the money that you raise, you issue fractional reserve loans worth 100 dollars, gradually reducing everyone to debt slaves. This makes me proud, since I am a parasitical bureaucrat. I watch as you not only take deposits, and sell T-bills, but you also take loans from other banks, and use that lent money to generate even bigger profits by issuing even more fractional reserve loans. Then I watch as you bundle loans into securities, and you sell them too. You know the securities are worthless, since the loans behind them will default, but you lie. You conceal this. And I help you conceal it. And you make lots of money. You create a giant bubble. But suddenly your debt slaves can no longer pay on the loans you gave them. Your securities are worthless. You cannot pay back your own loans you took from other banks. You are insolvent. So  you come whining to me, like the little creep you are. I chuckle and say, “Don’t worry son. Daddy is always here for you.” And I use my printing press to pay off your loans to other banks, bailing you out. Meanwhile I tell your customers that my printing press is broken. If they want money, then they must get a loan from my son.

I am responsible for your debt, caused by your greed and stupidity. Fortunately my printing press never runs out of ink and paper, although I pretend that it does, so that my son the banker can keep screwing his customers.

What delights me is that his customers always blame him, the banker. The fools believe me when I falsely claim that my printing press is broken, and that I get all my money from my son. In reality, my son gets a little bit of money from me, but most of it by issuing fractional reserve loans. When he screws up, I am always there for him with my printing press. And these days he screws up intentionally, so I will must run my printing press all the time (but only for him, so he can continue to engage in fraud). I call this, “quantitative easing.”

So am I really in debt? Legally speaking, yes, since I am responsible for my son’s debts. But practically speaking, in the real world, no, since I can run my printing press. What do I care about debts? I just enjoy watching my son enslave his customers with debt.

DEBT-BASED MONEY

There is misunderstanding about this. In the first place, all money is debt, regardless of which system we use. When I deposit money into a bank, that money is a loan to the bank. It is a bank debt. But it is also a bank asset, since the bank may use it. (This is standard double-entry accounting.) The system works fine, and no one is enslaved.

However, what most people mean by “debt-based money” is that our money system runs more on loans (debt) than on currency. Hence we have debt slaves.

You may ask, “Why can’t the government just issue money? Why must our currency be lent to us?”

What you are asking is, “Why must we rely more on loans issued by banks, than on currency issued by the Treasury?”

Answer: Because the current system creates debt slaves, and makes people grovel before politicians. There is no need for this, unless you consider greed a “need.”

DOES IT ALL COME ONLY FROM THE FED?

When the Treasury sends you a Social Security check, you receive a bit of paper that only becomes money when you deposit it in a bank. When that happens, the bank increases the digits in your account according to the numbers on the check. The bank gives you a credit. Voila: money is created. This (digital) money comes directly from the Treasury. It is a gift. It is not a loan from the Fed. When you deposit it in a bank, it is a loan from you to the bank, since you may cash out your account at any time. 

Think of it this way…

That which comes directly from the Treasury (e.g. a Social Security check) is money, once you deposit in the bank. That which comes from the Fed, or any bank, is a loan, i.e. debt. Your bank deposit puts the bank in debt to you. The bank’s loan to you puts you in debt to the bank.

Now, which do you think is the bigger player in our overall system? The BANKS ARE (i.e. loans and indebtedness).

That is why the Fed is all-powerful. Our society is based too much on loans issued by banks, and not enough on straight currency issued by the government. This nightmare is sustained by lying politicians (“We have no money”) and by average people who defend the lies. 

The only time the bank gives you any money is when it pays interest on your loans to the bank (i.e. interest on your deposits). Mostly what you get from the bank is loans (debt). Thus, banks are like gambling casinos. Sooner or later they get it all. In the end, the House always wins.

It doesn’t have to be this way. The nightmare continues because that’s how bankers and politicians want it. It’s how they stay in power. It continues because the public believes the lies that the government “has no money.” (The government printing press is broken! Go get a bank loan! Go whine to Bernanke!)

This is also why prices always rise, no matter what. It’s why a car costs ten times as much today as it did forty years ago. Since society runs on bank loans more than government-issued money, and since loans carry interest, we must have more and more loans just to pay the interest on our pre-existing loans. Thus, when the banks “increase the money supply,” their money is mainly loans. It is not money issued debt-free by the government. 

Again, it doesn’t have to be this way. It is a product of greed by bankers, politicians, and the 1%. The government could issue money debt-free. And to a small extent it does, e.g. Social Security checks (which the bankers, politicians, and 1% want to privatize).

This is also the cause of debt bubbles. There would be no bubbles if the nation ran on government money, issued debt-free.

But no, society mainly runs on bank-issued debt.

MMT

Modern Monetary Theory exposes all this. It is not a perspective or viewpoint. It is a formal theory, meaning it is based on objective facts, not opinions or guesses. It is as valid as the theory of aerodynamics, or the theory of relativity, and just as able to make solid predictions. Either the airplane flies, or it doesn’t. MMT is not a mere interpretation of reality. It is reality. It explains how money really works. Until the public grasps the truth, the masses will remained enslaved by bankers, politicians, and yes, the Fed.

MMT is not really “modern,” since its roots go far back, but bankers and politicians have managed to drown it out by brainwashing the public. Today MMT is advanced by people like L. Randall Wray (professor of economics at the University of Missouri–Kansas City), James K. Galbraith (son of famed economist John Kenneth Galbraith, Warren Mosler (hedge fund manager, and professor of economics), Michael Hudson (professor of economics), plus many more.

All these people reject lies like this… 

--The US government is broke.

--Bank assets are not loans to the bank, and loans to the bank are not assets.

--Government deficits are evidence of a government gone wild.

--The USA is careening toward Greece.

--Social programs cause all our fiscal woes.

--The federal government is like a household, and faces the same kinds of constraints that you and I face. 

--The US government should spend only what it takes in

--Deficits are morally and/or fiscally irresponsible.

--The Chinese are coming for our grandchildren.

When people believe these lies, they are in the weak position of pointing at the 1% and yelling, “Get ‘em!  They’ve got all the money!”  Want to care for seniors? Tax the 1%! Want safe roads, good schools, and investment in alternative energy?  Tax the 1%!”  

Unfortunately the 1% always wins, because most Americans refuse to understand reality.

The truth is we’re not broke.  The US dollar comes from the US government (not from China, and not only from the Federal Reserve). The US government is not revenue constrained.  The government is the issuer of the currency, not the user of the currency like you and I.  It plays by a completely different set of rules. It can issue as much money as it likes, being limited only by the possibility of inflation.

Alas, the government serves the 1%. It starves the public of money. It behaves as if it is still bound by the shackles of a gold standard.  It wants to reduce spending when debt and unemployment are high, and inflation is low, in order to increase the gap between the 1% and the 99%.

Because of these lies, we live in fear of the Chinese, the ratings agencies, the bond vigilantes, indentured grandchildren, and so on.  Politicians use this fear to sell “sacrifice” to the rest of us.  And we keep buying. We can never buy enough to please the politicians, just as Europeans can never have enough austerity to please the European politicians and 1%. 

The next big push will be an attempt to use the “fiscal cliff” to privatize Social Security and Medicare. When that happens, the money deducted out of every paycheck will not be destroyed upon receipt, as it is now. Instead, the money will flow directly from you to Wall Street, without even banks standing in the way.

And since Wall Street will continue to engage in fraud and speculation, Wall Street will continue to demand bailouts. Therefore Wall Street (not the government) will take more and more out of every paycheck. And when Wall Street inevitably says, “We are insolvent; we need more taxes,” we will not be able to counter them. The shift from a money system to a debt system will be complete. All will become enslaved as never before.

All cultures and societies are based on a narrative, i.e. set of social norms and taboos.  The most empowering thing we can do for ordinary Americans is to provide them with a counter-narrative that undermines the government-as-a-household lie. And we better do it quickly, because America’s CEOs are preparing a new assault on us that is more vicious than ever.  Here is an example of what they are up to now…

25 Oct 2012 (Reuters) - Chief Executives of more than 80 big U.S. corporations, including Goldman Sachs, JPMorgan and Boeing, are getting together to pressure Congress to reduce the federal deficit with tax reform and spending cuts.

[COMMENT: They want to worsen the depression, in order to increase the gap between the 1% and 99%. Actually the “deficit” is meaningless to the US government, since the USA creates its own money. If you could legally print money, then would you have a “deficit”? Would you need tax revenue? Would you worry about debt? No, no, and no.  But politicians pretend that the answer is yes, in order to keep us enslaved.]

In a letter posted on the Wall Street Journal website late on Wednesday, the U.S. corporate chiefs said it is urgent and essential to put in place a plan to fix America's debt.

[COMMENT: The debt is both a liability and an asset. It only becomes a “problem” when we see it only as a liability. That’s how the Fed and politicians want us to see it. Saying that we must “fix America’s debt” is like telling a bank with $100 billion in deposits, “You are too strong! You have too many deposits and too may assets! You must eliminate your customers and your assets!”  In other words, you claim that the $100 billion is purely a liability, while you ignore than it is also an asset.]

If Congress fails to reach a deficit reduction deal by the end of the year, it will automatically trigger big spending cuts and tax increases in 2013. This so-called "fiscal cliff" would hit the still-recovering U.S. economy hard.

[COMMENT: Deficit reduction means a further reduction in federal spending. Every reduction worsens the depression, and makes the public more dependent on banks. That is why student loan debt is catastrophic. The 1% want this, since it will increase the gap between them and the 99%. As noted above, the “deficit” is meaningless for the US government. ]  

The U.S. deficit in 2012 will top $1 trillion for a fourth straight year, pushing the national debt past $16 trillion.

[COMMENT: No one knows where media outlets get these ridiculous figures, but let’s suppose they are true. That would mean that the US government is putting $1 trillion more into the economy than the government is sucking out of it via taxes. If that were really the case, then we would not have the current depression.]

While the United States currently borrows at record low interest rates, investors worry this will change.

[COMMENT: The Fed borrows in the sense that it accepts deposits (i.e. it sells T-bills) that are both assets (credits) and liabilities (debts). Since the Fed is paying record low interest rates, the Fed has no worries. And even if it did, the US government can easy pay any size debt, regardless of interest rates. ]

The CEOs' statement was organized by campaign called "Fix the Debt," which is urging Washington to set aside partisan differences to put the United States on a sustainable fiscal path.

[COMMENT: “Sustainable fiscal path” means crush the masses even more. If euro-zone nations have famine and riots, then Americans deserve the same. If the Israeli and Iranian governments are crushing their people with austerity, then the US government should do likewise.]

"In order to develop a fiscal plan that can succeed both financially and politically, it must be bipartisan, and reforms to all areas of the budget should be included," the CEOs said.

[COMMENT: “Reform” means eliminate all social programs in order to increase the gap between the 1% and the 99%. “Reforms to all areas of the budget” means cut or privatize all social programs, while increasing the money for wars and bailouts.]

The corporate chiefs said the fiscal plan must include "comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit."

 COMMENT: “Broadens the base” means higher taxes on the middle and lower class, thereby worsening the depression. “Pro-growth” means growing the One Percent’s wealth at the expense of the 99%. “Lowers rates” means lower taxes for the 1%. “Raises revenues” means worsen the depression by taxing more money out of the middle and lower class. “Reduces the deficit” means worsen he depression by putting less money into the economy, and forcing Americans to rely more on bank loans.]

Also, as part of the plan, the group urged the government to reform and improve the efficiency of healthcare programs like Medicare and Medicaid.

[COMMENT: “Improve the efficiency” means privatize them, i.e. give them to Wall Street. In this way the FICA tax that is robbed from every paycheck will not be destroyed upon receipt, as it is now, but will instead be a river of money to Wall Street. And since Wall Street fraud and speculation will require endless bailouts, the FICA tax will be endlessly raised, in order to endlessly increase the flow of money to Wall Street. Since this will increase the wealth of the 1%, and reduce the wealth of the 99%, the media will call it, “growing the economy.”]

So, WUFYS readers, please try to get a handle on this, and spread the word.

If you think the holo-hoax has people brainwashed, that’s nothing compared to the brainwashing of the money hoax. If you think that believers in the hoax become angry when you question the hoax, that’s nothing compared to the anger of believers when you question the money hoax. We can live with the Jewish holo-hoax. We cannot live with the money hoax.