Par Ti How the Economists Facilitated the Crisis and Must Now Beheld Accountable

8/4/2019 Par Ti How the Economists Facilitated the Crisis and Must Now Beheld Accountable

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How the Economists Facilitated the Crisis andMust Now Be Held Accountable Part I & Part II

By Stephen Zarlenga American Monetary Institute

Part I

The ongoing financial crisis presents a rare opportunity for monetary and bankingreform. There's no denying that the present "Economics Regime" has been a keycause of the pain, suffering, illness and even death inflicted on America's lessaffluent; and of the worldwide economic destruction. It's important that theeconomics profession be held to account for its part in this crisis. This was wellexpressed by economist James K. Galbraith in his testimony to the Senate CrimeSubcommittee on May 4th, 2010:

"I write to you from a disgraced profession. Economic theory, as widely taughtsince the 1980s, failed miserably to understand the forces behind the financialcrisis."

With rare exceptions, those in control of the world's monetary/economic agendaand the theories supporting it have helped bring the world to its knees. Shouldn'tthey and their theories be held accountable?

False "monetary" beliefs have misdirected public policy decisions for decadeswith devastating effect! Errors of concept, methodology and even factual errorshave led to disastrous outcomes for our nation and now have the potential to

gradually take America down into an unprecedented abyss of lawlessness anddeprivation. Consider the present insane calls for austerity.

Economists have allowed the idea to generally prevail that a governmenthas to be run the way a shopkeeper runs his store! But methods that promotevirtue and success at a shopkeeper or family level lead to stagnation anddisaster when used at a national level. For example, they ignore that ourgovernment has both the responsibility and the power to provide the nation'smoney supply in an effective way. Delegating that power to private interests suchas the banking system has always failed, and will continue to fail. Haven't welearned that by now?

These times call for greater care and heroism among economists; and cowardiceis not tolerable among those who do understand.

Which particular monetary error is most responsible for the tragedies? Inour view, the most glaring error is that economists have not understood orappreciated the difference between money and credit. Using credit (which isalso debt) for money is dangerous, harmful and unnecessary. They can't read
http://www.alternet.org/story/146883/http://www.alternet.org/story/146883/


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and grasp Knapp's State Theory of Money, available in English since 1924, tounderstand credit is just one type of money system, and not a good one at that!Even a superior economist like Minsky, who pointed out that such a credit/debt-based system always collapses, regarded that as a problem inherent inCapitalism, and didn't consider eradicating it but merely called for government to

provide jobs when the credit structure was in collapse. A solution that one ofAMI's researchers described as "trimming poison ivy!"

Too many economists have falsely concluded that "all money is debt," because most of what we use for money in our poorly structured system is debt,coming into circulation when banks make loans. This attitude ignores thepossibility and necessity to define a better system based on government money,not private debt. To justify this erroneous attitude some economists actually insistthat government money is also debt! But that is truly a lack of clarity in definitionsthat should correctly distinguish between money and debt. This failure tounderstand the concept of government money as opposed to private credit/debt

has had immense and deadly repercussions. The Great Henry Simons summedit up in one magnificent sentence:

"The mistake ... lies in fearing money and trusting debt."

Henry Simons, (Economic Policy for a Free Society, 1948, P.199)

This fundamental error has allowed the most egregious banking and moneysystem based on private credit/debt to dominate our society for a century,repeatedly causing immense damage, even leading to warfare.

The privatization of our monetary system has placed control over public policyinto unelected hands, for whoever controls the money system, over time willcontrol the nation. Are we then surprised that they have used that power tobenefit themselves, not our society?

Observe how they have abused the money power:

They have given special privilege to create money to some, and resultingdisadvantage to others. This has led to an obscene concentration of wealth andthe consequent poverty! It has encouraged lawlessness and corruption amongthe privileged; pushing them to diseased excesses for acquisition, and ignoring

crucial elements of our culture such as infrastructure, health care, education andthose among us in great need.

They have turned economics into a primitive religion, and worshiped the "market"as a god, despite all evidence to the contrary. They denigrate and ignoreinconvenient evidence. "Anecdotal" was the description that the charlatanGreenspan used for real evidence that challenges their theories; a fundamental


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sin of poor methodology. (See the excellent documentaries The Warning andInside Job.)

Under present leadership, the administration has done practically nothing to bringto justice the multitude of lawbreakers who caused the present disaster.

They have placed an unnecessary ball and chain on the leg of every producer byhaving the money supply itself bear an unnecessary interest cost to society. In2010 our government paid $414 billion in unnecessary interest costs!

They have foisted a "fractional reserve" banking system on us prone to abuseand periodic collapse. Credit will collapse during a crisis. Government moneydoes not collapse. Credit collapses in a crisis; money does not collapse.Government money does not collapse!

We'll see in parts II and III how to use money, not debt, as the basis of our

money system, just as Dennis Kucinich proposed with his groundbreaking bill,HR 6550, that changes the way money in our nation is created and issued toreduce our nation's deficit and debt, creating millions of vital jobs to transform oureconomy.

Part II

Part I stressed that those in control of the world's monetary/economic agendaand the theories supporting it have helped bring the world to its knees. They and

their theories must be held accountable!Economists' most glaring error is not understanding or appreciating thedifference between money and credit. Using credit (which is also debt) formoney is dangerous, harmful and unnecessary. Unfortunately, in our presentbadly structured monetary system -- a "fractional reserve" banking system --most of what we use for money comes into existence as an interest bearing debt,when banks make loans. While people think the banks are loaning money theyhave, in fact most of what they loan has been created out of thin air asaccounting entries.

In that sense, most money in our fractional reserve banking system is debt. Buteconomists can't grasp that those rules can and must be changed. Perhapsafraid to confront their paymasters, who are benefiting from the injustice, mosteconomists can't conceive of practical ways we can use real government-issuedmoney instead of private debt.

The economists ignore previous attempts such as the Chicago Plan of the 1930s;and smear prior periods when such money was used successfully.
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What's so wrong with using private credit/debt for money? Look how itunfairly concentrates power and wealth with little or no regard for productive work-- for justice. Watch how it emphasizes destructive speculation. See how it hasignored our infrastructure, education and health care systems! Observe howprone to collapse such credit money is during any crisis! Remember credit

collapses and disappears during a crisis, thereby greatly aggravating the crisis.Credit collapses, but government money does not collapse.

The economists mangle definitions to re-define government-issued money as aform of debt! To do this, economists also had to mangle some monetary history.A hundred years ago, the great monetary historian Alexander Del Mar wrote:

"As a rule political economists do not take the trouble to study the historyof money. It is much easier to imagine it and to deduce the principles ofthis imaginary knowledge!"

This has led to the silliest errors of principle and fact, regarding importantmonetary history. For example, economists are generally:

Unaware of the American colonial periods' good experience withgovernment fiat money and how it built real colonial infrastructure.

Unaware the Continental Currency was destroyed by the Britishcounterfeiting billions of them. And they ignore that the Continentals gaveus a nation!

Unaware the Greenbacks ultimately exchanged one for one with gold andhave allowed them to be characterized as worthless paper money.

Unaware of the British counterfeiting of the French Assignats, and have

enshrined the propaganda book Fiat Money Inflation in France, written byAndrew Dickson White, a banking heir, as unbiased fact! Unaware that the German Hyperinflation occurred under a privately owned

and privately controlled German Reich bank with no governmentinvolvement.

Have generally allowed the Federal Reserve to be regarded as part of ourgovernment!

Have allowed a level of economic ignorance to prevail such that politicalleadership can now threaten to close down our government with impunity;for supposed economic reasons, without being branded as morons ortraitors!

While economists deserve much of the blame for their dysfunctional "theories,"politicians, who still "rely" on those theories, should know better by now and areas responsible for our monetary and economic problems.

Jamie Galbraith concluded his testimony to the Senate's CrimeSubcommittee on May 4th, 2010 with this warning:


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But you have to act... let me suggest, the country faces an existential threat.Either the legal system must do its work, or the market system cannot berestored... [We need a thorough] cleaning of the financial sector and also ofthose public officials who failed the public trust. The financiers must be made tofeel, in their bones, the power of the law... [emphasis added]

The American Monetary Institute agrees and warns that regulation isn't enough ina money system that obscenely concentrates wealth, because that concentrationof power will overcome the regulators.

This is what's been happening. The Carter and Reagan administrations de-regulated airlines, trucking, and savings and loans, leading to the Savings andLoan Crisis. It accelerated under Clinton when Gramm-Leach-Bliley repealedpart of Glass-Steagall; and the Gramm Commodity Futures Act of 2000exempted over-the-counter derivatives from regulation. The great and heroic

American, Brooksley Born, was forced out of the Commodity Futures TradingCommission (CFTC) Chairmanship, replaced by the wife of anti-regulatorSenator Phil Gramm! NAFTA led the attack on American jobs. Clinton signedThe Telecommunications Act of 1996 allowing media concentration, which haskept any reasonable discussion of the monetary and economic travesties off theairwaves until the banker's malfeasance broke onto the front pages!Concentrated media ownership promotes a divisive, even treasonous politics ofhatred.

These events can all be viewed as a slow moving "Coup d'tat" that reached theUS Supreme Court when it installed a president who twice could not be elected;

who then appointed hack justices who engineered an obscene decision allowingcorporations to dominate our electoral process.

(Legal scholars can and must show how to reverse this particular madness. Theobvious starting point is Franklin Roosevelt's well-designed proposals to reform aSupreme Court run amok in his presidency.)

Our next article, Part III, will show how to use money, not debt, as the basis ofour money system, just as Dennis Kucinich proposed with his groundbreakingbill, HR 6550, that changes the way money in our nation is created and issued toreduce our nation's deficit and debt and create millions of vital jobs to transformour economy.
http://www.monetary.org/hr6550bill.pdfhttp://www.monetary.org/hr6550bill.pdf


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Par Ti How the Economists Facilitated the Crisis and Must Now Beheld Accountable