Ellen Brown Wants To Imitate Dying Japan’s ZIRP System

As always, there is tremendous misunderstanding about the nature of a gold-based currency system, the nature of ‘What is credit?’ and misunderstanding the role ‘capital’ plays in not only economic systems but monetary disciplines.  Ellen Brown is immensely popular because she is peddling this snake oil idea that we can merely print our way out of our international debts.  And that infinite government debt is a good thing so long as it is ZIRP in nature, that is, costs nothing at all.  But the collapse of Japan shows us starkly the dangers of a ZIRP system.  Instead, Ellen thinks that Japan’s system is GOOD and is operative, not defective!  I am just gob-smacked by this delusion.

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Before I go yet again into her paper money machine story, I want to bring up the other industrial giant that is against heavy government debt and lots of paper money, that is, Germany.  Here is this week’s news from that workahholic nation:  German Chancellor on the Offensive: Merkel Blasts Greece over Retirement Age, Vacation.  The PIIGS are nations that enjoy a good time.  Germans believe in working hard.  France takes long vacations and the Germans work.  The euro is based on all of Europe’s economies but the industrial engine of export power is in Germany more than any other single confederate nation in Europe.

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The German mark was strong until Germany united.  The costs of rebuilding and reintegrating East Germany was tremendously expensive and right in the middle of doing this, Germans were barely persuaded to support the creation of the common currency.  France, in particular, wanted to prevent a reunited Germany from being an independent power.  So the EU was expanded via the euro and now Germans are very pissed off about repairing everyone’s credit while other countries continue to provide better benefits.

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On top of this, the US continues to expand its imperial military system.  This is done to give us the illusion of power as all the Warsaw Pact countries eat up US resources trying to force us to protect them at our expense.  All of our ‘allies’ in Asia do this, too.  Naturally, since the President is visiting Europe, he is giving them taxpayer goodies we shouldn’t be handing out:  Obama to reassure Poland with air base deal.

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We are going bankrupt because it is ridiculously easy to print more and more money and then have all our allies and trade partners buy up all our debts and of course, hide much of this excess money printing in FOREX holdings.  This process has allowed the US to overspend by about $5 trillion.  The plan is to continue doing this.  Now, the US talks about cutting Social Security and Medicare but do note at the same time, money flowing to Poland and Israel, for example, is rising, not falling.  The US is expanding the sea presence in Asia, not making it smaller.  The navy is growing, not shrinking, the air force is expanding and bombing more and more, not less and less.

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Our ‘allies’ are demanding more military spending, not less.  They don’t use Social Security, they rely on our Pentagon Security to make money, invade countries, steal oil, etc.  This is why we are now using $20-50 million a day bombing Libya, for example.

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The key to government overspending is often military.  The US is at war with a billion Muslims.  This is very expensive.  Money printing is out of control.  We seem to have no inflation only because our government refuses to count food and fuel in the inflation figures.  Meanwhile, Ellen Brown, like Krugman at the NYT, has a lot of happy believers who want to follow her down the paper money trail to utter happiness via tons of cheap debt.  The US has to cut spending this year as well as raising taxes but won’t do either except for the GOP wanting to eliminate social spending while expanding aid to Israel and military spending.  Anyway, here is an editorial by Ellen at Asia Times Online :Japan shows how to defuse debt time-bomb: Asian news and current affairs

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A rerun of 1931?

The sort of chaos that could ensue was seen when Great Britain reneged on its deal to redeem pound sterling banknotes in gold in 1931. The result was the worst global depression in history. When the pound went off the gold standard, markets panicked. People rushed to exchange their paper money for gold, in any currencies in which that was still possible. The gold wound up hidden under mattresses and in safety deposit boxes, unspent; and the banks from which it was pulled, having no reserves to back their loans, quit lending or closed their doors. Credit froze; business ground to a halt.

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As other countries ran short of gold, they too were forced to take their currencies off the gold standard. The last holdouts suffered the most, including the United States, which kept its gold window open until 1933.

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Freed from the ‘Cross of Gold’ The transition off the gold standard was a painful one; but according to Beardsley Ruml, Chairman of the Federal Reserve Bank of New York, the country was the better for it. In a paper read before the American Bar Association in 1946, he said that going off the gold standard had finally allowed the country to be economically sovereign:

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Final freedom from the domestic money market (Elaine: ie, infinite inflation) exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity.

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Freed from the strictures of gold, (ELAINE: The gold standard continued to exist for settling US dollars used in world trade) Roosevelt was able to jump-start the economy with deficit spending. (Elaine: to pay for this, we had a 90% tax rate at the top) As Marshall Auerback details, the next four years constituted the biggest cyclical boom in US economic history. Real GDP grew at a 12% rate and nominal GDP grew at a 14% rate.

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I hate these thumbnail sketches of history.  Great Britain had to drop the gold standard because Germany refused to pay reparations.  France also had to go off the gold standard due to WWI costs, too.  But both HELD GOLD IN RESERVES.  So, even if both wouldn’t let anyone get this gold, they still held it in reserve and other COUNTRIES such as the US COULD access these gold reserves due to money exchanges.  France and England simply wouldn’t let civilians do this, but governments continued to use the gold standard between central bankers.
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Back then and even today, when a country couldn’t pay off foreign owned debts, they had to turn over something.  Normally, this was gold.  When the gold reserves ran out, then they had to hand over industries, regions, people, infrastructures, etc.  This continues to this day with the IMF seizing resources when countries default.  Any currency is ‘convertible to gold’ via buying gold.  And many still do this to protect their CAPITAL reserves from paper inflation.
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Holding lots of paper is dangerous.  It can suddenly lose its value.  Big time.  Only when many countries work in tandem to hold a paper currency, can it be used in lieu of gold for resolving intra-central bank swaps.  The danger US paper dollars face is, if just one central bank decides to spend all of their paper US dollars on international markets, all US dollars will suddenly lose great value very suddenly.  The more central bankers hold US dollars, the more tempted one of them will be to suddenly buy up many natural commodity markets all at once and thus, convert US FOREX dollars into say, oil contracts.
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This, in turn, will wipe out the value of everyone else’s dollar holdings.  It is a delicate matter.  Right now, no one wants to overly irritate OPEC by talking about dumping dollars since this would be used to move dollars into OPEC hands just as it loses much of its value.  So China is deep in negotiations with oil pumping nations over this very issue.  Now that Japan may be forced to disgorge its $2 trillion in FOREX holdings and US debt, the situation darkens greatly.
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By the way, gold mining, like uranium mining, is hazardous to one’s health so Gold Companies May Face $100 Billion Liability for Ill South Africa Miners – Bloomberg.  Many people have died for eons, seeking gold.  The reason for this is simple: gold is ‘forever’ and is ‘unchanging’ it doesn’t rust or lose its luster.  So this makes it a good benchmark for ‘value’.  Remember: money is simply a way of tracking relative value between disparate items and over lengths of time.  Which is why inflation is so insidious: it changes the ranking of value a great deal and thus is quite troublesome especially when figuring out debt costs.
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Back to Ellen:  Dealing with rising debt servicing costs

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There is a potential time bomb in a growing federal debt, but it is one that can be defused.   (HAHAHA) The debt has risen from $10 trillion to $14 trillion just since the banking crisis of 2008, not from ”entitlements” but due to the Wall Street collapse and bailout. Just the interest on this growing debt could cripple the tax base if interest rates were at normal levels, so they have had to be pushed almost to zero. The result has been to create a dollar carry trade. This has facilitated speculation in commodities, a major cause of today’s commodity bubbles.

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There is, however, a solution to this problem, and it was discovered by Japan. The government can spend, not by issuing bonds at interest to the public, but simply by creating an overdraft at the central bank, as Ruml recommended. The Bank of Japan now holds an amount of public debt equal to the country’s GDP! As noted by the Center for Economic and Policy Research:

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Interest on [Japanese] debt held by the central bank is refunded back to the treasury, leaving no net cost to the government on this debt. . . . Japan continues to experience deflation, in spite of the fact that its central bank holds an amount of debt that is roughly equal to its GDP. This would be equivalent to the Fed holding $15 trillion in debt.

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This is Ellen’s problem: she can be quite correct about several things and then drives off the cliff.  This is because she loves the idea of ‘free credit’ MINUS CAPITAL.  The US has capital, of course, it is our lands, our industries, our highways and ports, our infrastructure systems, etc.  This stuff is valuable and foreigners, as they hold more and more US debt, are swiftly buying up all of this.
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Traditionally, the higher the debt load, the higher the interest rates.  This is natural: there has to be SOME CURB on borrowing!  The more debt, the more risk of default.  The US talks all the time about defaulting which is why people are lowering our credit rating.  Not too much for fear of spooking our creditors.  But they are getting spooked, anyways.
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The very foolish lady here, Ellen, thinks it is WONDERFUL that Japan is so deep in ZIRP debt.   She thinks this is something we can do!  But Japan had until this spring, a positive trade surplus flow which meant, they were accumulating capital even as the export industries were not paying sufficient taxes to support the government.  Now, Japan’s internal government debt owed mostly to its central bank, is not 100% of GDP but over 210%, most likely, 250% of GDP.  A nasty development indeed.
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China holds eight percent of US debt and Japan also holds 8% and this means just two major trade powers hold 16% of our national debt.  Both run trade surpluses with the US.  This is intolerable and is nothing like what Japan is doing.  The Japanese central bank can buy and hold non-performing debts (that is what ZIRP really is if the principal isn’t being paid off and there is no interest on the loans!) only by also supporting a collapse in the economic condition of the mass of workers in Japan.  Nearly half of all workers are now ‘part time’.
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The poverty of the generations born since 1980 is tremendous to the point, the family system is collapsing and children are vanishing.  Many are forced to live with parents and grandparents and child abuse is rising even as the birthrate plummets.

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Ellen doesn’t believe in giving out statistics when bloviating:  National debt: Whom does the US owe? – CSMonitor.com

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Within this slice, the largest category is individuals – Treasury notes are good solid additions to any portfolio. US individuals hold 12 percent of the country’s debt. Next under the domestic category comes the Federal Reserve, which holds 9 percent of US debt, then pension and retirement funds, mutual funds, and state and local governments.

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Foreigners hold about 47 percent of US public debt. And yes, the largest foreign holder here is China – but only by a hair. Chinese investors are owed 9.8 percent of US debt. Next comes Japan, at 9.6 percent, and the United Kingdom, at 5.1 percent.

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Oil exporting nations as a group, including Saudi Arabia, Oman, the United Arab Emirates, etc., account for about 2.6 percent of US debt. Brazil has 1.8 percent. The rest is split among lots of other countries.

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So, nearly half of our debt is held by aliens.  And only a handful of it is held by individual Americans.  As our national debt pays less and less in interest, as it descends towards ZIRP levels of Japan, as inflation eats up our savings, fewer and fewer people will buy it.  So Ellen says, let the central bank buy up all this ZIRP debt and let it blossom like in Japan.

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So, is Japan growing or shrinking?  It is shrinking!  Are Japan’s people better off or worse off?  All statistics point to much worse off.  Can Japan fix the messes caused this spring by the tsunami and nuclear disaster?  The answer is obviously, no.  This is a final blow to Japan that may destroy Japan’s finances and even society if it continues in this way.  There is nothing to stop ZIRP debt accumulations except bankruptcy!

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Japan’s government debt interest overhead costs should be around 5-8%, at least!  This should force the government to tax the rich there, not pile on endless debt.  Japan’s FOREX hoard doesn’t help the average Japanese who has to keep tightening their belts.  It does very emphatically help Japanese export corporate executives!

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Here is a news story from this year illustrating the dangers of Japanese held US debt:  US debt at risk if Japanese bring money home.  Due to this, US external debt S&P downgrades US credit outlook for 2012, in April …back to Ellen:

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Nothing to fear but fear itself

We have been frightened into believing that government debt is a bad thing, but nearly all money today originates as debt. As Marriner Eccles observed in the 1930s, ”That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”

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See how silly she is?  Nearly all money is NOT ‘debt’…it should be ‘capital’ but the US chose the Japanese route and is making it debt.  This is why, ever since we began running trade deficits, the value of the dollar collapsed.  It is worth less than 10% today what it was worth when Nixon cut the gold standard.  He didn’t cut it because of inflation, he cut it because he NEEDED inflation to pay for the Vietnam War and the OPEC boycott.
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He then tried to stop inflation with wage/price freezes that only made things worse, not better.  Ellen leaves all of this history out, of course, because it interferes with her jolly good ‘let’s print money and not charge interest’ scam game.  It is a scam!  It is so exploitive yet so alluring.  It is a simple fix that leads to death of an economic system.  It takes no account for ‘capital’ and it certainly ignores the reality of who is a creditor!  The US is NOT a ‘creditor’ nation, we are a money printing nation.  China is a creditor nation and this is because China is accumulating and using capital which China gets via domestic development plus trade profits.
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I find this very easy to understand.  And god help anyone who thinks imitating Japan’s worst economic choices is a good thing!  It is  not.

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22 Comments

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22 responses to “Ellen Brown Wants To Imitate Dying Japan’s ZIRP System

  1. Steve Murgaski

    The Japanese system is confusing. I read your article, and Ellen’s, and I still can’t figure it out.

    The government can borrow as much as it wants to from the central bank, and not pay interest. So the government basically runs on printed money. Yet there’s deflation instead of inflation.

    It’s the central bank (I assume) that controls the huge forex holdings.

    The mazes these financial people come up with are breathtaking.

  2. emsnews

    There is no inflation because the money never circulates INSIDE Japan itself! See?

    Half of our money circulates outside the US. Since this is used to buy say, oil, the price of oil shoots upwards with a few war pushes from the US. Suicidal?

    You bet!

    So long as Japan could crush wages (workers there saw wages collapse for years and years now!) there is no ‘inflation’. But the cost of food and fuel have shot upwards and even the Japanese are getting irritable about this. That is, there is terrible inflation going on there, but not in real estate or wages. Just food and fuel.

  3. I’m a bit rushed today so I’ll let Robert Kuttner respond —

    By Robert Kuttner, he is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.

    Huffington Post
    A Double Dip Recession for 2012?
    By Robert Kuttner
    April 24, 2011

    A Double Dip Recession for 2012?

    Some excerpts :

    But wait, isn’t the deficit a real problem? Yes, and no. Eventually, deficits at the 2011 level are not sustainable. However, the current accumulated debt held by the public of about 60 percent of GDP is not dire.

    We could have two or three years of bigger deficits, very major public investment, let the debt ratio peak at 100% of GDP; and then stronger recovery, lower unemployment, and higher taxes on the wealthy would bring the debt ratio slowly down, as occurred after WW II.

    Japan’s debt ratio, for comparative purposes, is over 200 % of GDP — and Japan is increasing government outlay to repair the damage of the earthquake and tsunami. Britain’s, after World War II, was over 250 percent, and Britain went on to enjoy a postwar recovery.

    Why can’t we have massive public reparation with war or natural disaster? Because politicians lack the vision and nerve.

    Austerity will only slow down the recovery. The idea that a steeper path to deficit reduction will somehow restore business confidence and thus more than offset the hit to purchasing power is just blarney. And with both parties committed to some version of austerity, we could easily have the worst of both worlds — increasing inflation coupled with persistent stagnation.

    However much the Republicans are at fault–for creating the financial collapse, blocking a stronger stimulus in 2009, and looting the Treasury with tax cuts for the rich, causing much of the deficit problem in the first place — an incumbent president tends to take the blame for hard economic times. Obama’s talk of having a kinder, gentler brand of deficit reduction is no match for rising fuel and food prices and persistent worries about basic economic security.

    Can the president shift to a rhetoric and policy that emphasizes the need for more jobs and a stronger recovery, and soon? Let’s hope so. There is nothing like an election hanging to concentrate a politician’s mind.
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  4. DeVaul

    Is Ellen Brown the same woman who was peddling books back before the Tech Stock Collapse in 2000 on how to make money in the stock market and through the “miracle” of compounding interest?

    Her name sounds familiar.

  5. Elaine I think it’s the German banks making Angela Merkel’s mouth move on the matter of austerity and working ’til you drop in PIIG Land…

    Michael Hudson: http://www.counterpunch.org/hudson05272011.html

  6. Dupree

    It took Germany over 90 years to pay off its WWI “war debt.”

  7. ooh@ch.ie

    Dupree I think you get it.

    http://www.globalresearch.ca/index.php?context=va&aid=25022

    Seems about right but the outcome may be different.

    “That means you would have a financial SS running things not only in Greece, but also in Ireland and Portugal and eventually in Belgium, Spain and Italy”.

    The conclusions are iffy and the term ‘financial SS’ is repugnant to europeans.

    More like EU tamed by debt, under a central ECB led economic orthodoxy.

    Decision making in EU is difficult because it is not a federal system like say Germany, that is each country has followed different paths to this crisis. Now the piper will call the tune until the debt is paid, like 90 years from now.

    http://online.wsj.com/article/BT-CO-20110525-705868.html

    Already there is a rapid drop in IR labour costs, people have dumped suv’s and bought a toyota and, if possible, switched to bicycles for commuting. Everyone expects tax rates to rise, like lots!

    Expect this to spread to every western Euro country and when we are all brought into line decisions will come from the center.

    This will happen quickly because it must be in place before Japan is forced to use forex holdings to try and salvage something of their country from the disaster of Fukushima.

    Any economist can explain what happens then, just as any physicist can explain why Fukushima should be headline news every day.

    Spanish protests are very big because Spaniards will not go back to Franco era style of government. Spanish police are not very nice but they know when they are outnumbered, especially by Catalans.

    If the Spanish government does not get consensus there will be another election. The higher education system is used in EU to absorb unemployed both young and old. It seems also there is hope that the freedom to live and work anywhere within EU will relieve some social pressures.

    Expect the EU borders to be hermetically sealed. This will have reprecussions and I’m curious about how relations go with Turkey because it has become a trade important country for EU.

    The big question is how much of Euro debt, that is ECB debt owed externally, is denominated in US dollars. ECB only knows.

  8. ooh@ch.ie

    Elaine, people in Greece work as hard as any German, and for less.
    Their problem is the product of that labour, its value in international exchange is not of sufficient value.
    Japan’s products will soon be radioactive. No matter how good or clever or well made, Japan’s output will have no exchange value on international markets.
    US has same type of issue.
    A walmart employee or any other service employee produces nothing that can be exchanged for goods on inter-national markets.
    Therefore US dollars will be worth the paper they are printed on for inter-national exchange.
    Its not gold that counts its about having something to exchange on international markets.
    The Euro zone is doing something not seen for a while.
    Note the power in the EU comes from the non-elected EU Commission and the euro “debt-crisis” is being used to enforce behaviours. It may be a power consolidation and for the future the fast breeding peripheries will supply income stream and labour to the older almost all retired older countries.
    The EU is big enough to create the paper to cover the debts if it can enforce monetary discipline internally and balance external trade, and then never let this paper circulate.
    You are correct! printing paper debases the currency, shows up as inflation and causes trade deficits, anyone who thinks otherwise is deluded.

  9. Wu Wei

    Elaine said “And that infinite government debt is a good thing so long as it is ZIRP in nature, that is, costs nothing at all.”
    ΩΩΩΩΩΩΩΩΩΩΩΩΩ

    ELAINE: Good gods! I was telling what ELLEN says, not what I say!
    ΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩ

    Elaine yet again mixing up DEBT and CREDIT. Not infinite government debt but sovereign credit. Credit and debt are opposites, debt destroys whereas credit builds.

    ΩΩΩΩΩΩΩΩΩΩΩΩ

    ELAINE: This is what happens when people don’t take time to actually read what I write. I have said for years that credit builds and debt destroys. Only after one has paid off debt does one have a credit base and nations going deep into debt go into slavery to some creditor power.

    ΩΩΩΩΩΩΩΩΩΩΩΩΩΩ

    Elaine said “it is ridiculously easy to print more and more money and then have all our allies and trade partners buy up all our debts and of course, hide much of this excess money printing in FOREX holdings.”

    USA can print with relative immunity/impunity because it’s the sole issuer of the world’s reserve currency. The world will always demand dollars because tons of important commodities are nominated in dollars. The reasons they are keeping them in reserves are numerous but the two most important ones are to fend of currency manipulating speculators and because they simply can’t spend any of the money in their own economies without causing instant inflation due to all the produced goods backing those dollars having been exported abroad.

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    ELAINE: Good grief, the US dollar is no longer the world’s ‘reserve currency’ because more and more nations are holding other currencies in particular, the euro, in their FOREX accounts! Keep up with reality, will you?

    ΩΩΩΩΩΩΩΩΩΩΩΩΩΩ

    Elaine said “The reason for this is simple: gold is ‘forever’ and is ‘unchanging’ it doesn’t rust or lose its luster.”

    The price of gold is decided by supply and demand and thus ever changing, so it can never be used as a stable, precise and exact measure of value. Does the unit “inch” or “centimeter” change over night? No, it does not, a measure of value needs to precisely defined, constant and exact or it simply is not a measure at all. So, no single commodity can be used as a measure of value. Stop spouting nonsense.

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    ELAINE: Again, you refuse to read me carefully. Money in the form of bonds can collapse to zero value if a government goes bankrupt. Gold is a PHYSICAL thing that doesn’t vanish so easily.

    ΩΩΩΩΩΩΩΩΩΩΩΩ

    Elaine said “This is because she loves the idea of ‘free credit’ MINUS CAPITAL.”

    Labor > capital. Like Ellen Brown said in her book Web of Debt, “what does the availability of money have to do with the ability of farmers to farm, producers to produce and builders to build?”. Nothing, thus sovereign credit can finance these people without any need for capital whatsoever. You want all the power concentrated in the hands of the already powerful and wealthy. I do not.

    ΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩ

    ELAINE: Ellen Brown is childish so she obviously wants to disconnect ‘money’ from ‘assets’ including labor. Thus, one can have infinite ‘money’ while not troubling to figure out why farmers won’t sell their goods even for a wheel barrel of paper money.

    ΩΩΩΩΩΩΩΩΩΩΩΩΩ

    Elaine said “Traditionally, the higher the debt load, the higher the interest rates. This is natural”

    Natural in Hell! Interest is the greatest slow poison killing all. Away with it once and for all.

    ΩΩΩΩΩΩΩΩΩΩΩ

    ELAINE: Hahahaha….as I suspected, you want free money to buy goods while not backing it with capital.

    ΩΩΩΩΩΩΩΩΩΩΩΩΩΩ

    Elaine said “So, nearly half of our debt is held by aliens.”

    Hey, you forgot about your buddy Rothschild and his pals. They own the other half and charge interest over something they never had in the first place. Don’t hear you yapping about that. Weird.

    Elaine said “Nearly all money is NOT ‘debt’…it should be ‘capital”

    Over 97% of money today was created by banks in the form of loans. What numbers are you using? FOX news numbers?!?! And it should be capital? Again you want all the power in the hands of the already powerful and wealthy AKA those with capital. It’s modern day slavery, Elaine, and you’re its number one advocator.

    Elaine said “It is worth less than 10% today what it was worth when Nixon cut the gold standard.”

    And over 93% worth less than when the privately owned FED started handling USA monetary affairs.

    ΩΩΩΩΩΩΩΩΩΩΩ

    ELAINE: 90% of this decline in value was since Reagan.

    ΩΩΩΩΩΩΩΩΩΩΩΩΩΩ

    Elaine said “The US is NOT a ‘creditor’ nation, we are a money printing nation. China is a creditor nation and this is because China is accumulating and using capital which China gets via domestic development plus trade profits.”

    Dollar hegemony, Elaine, dollar hegemony.

    I’ll let Henry CK Liu explain this one, he’s very good at it:

    “When China exports real wealth to the US for fiat dollars, it is receiving US sovereign credit in exchange of material wealth in the form of goods. Thus the US trade deficit denominated in dollars is in fact US lending to China through buying Chinese goods on soveriegn credit. China now is a holder of US fiat money and as such is acting as a state agent of the US, with the full faith and credit of the USe behind the US sovereign credit instrument (dollar), which is good for paying US taxes and is legal tender for all debt public and private in the US. Fiat money, like a passport, entitles the holder to the protection of the state in enforcing sovereign credit. It is a certificate of state financial power inherent in sovereignty. Since China does not pay US taxes, the dollars that China recieves can only be used to buy US sovereign debt (Treasuries) through extingusishing the US sovereign creidt instruents (dollars). Through this transaction, China changes its position from that of an agent of US sovereign credit to that of a creditor to the US. This is why China must buy Tresuries with its surplus dollar – to change it s poistion from that of a US agent to that of a US creditor.”

  10. CK

    It is to be doubted if E. Brown ever farmed, produced or built anything. Had she, she would know that without money for seed and fertilizer and energy, there is not much food; without money to pay for inputs there is not much output, the lumber still costs even if it’s the Amish providing the labour.

  11. emsnews

    I have farmed and I built houses for a living as well as teaching. So I understand how capital works. Many economists live in this lovely world where things are handed to them on this silver platter. No real labor involved.

    I know what labor is! I worked with my hands. And the value of my labor has plummeted over the last three decades.

  12. Steve Murgaski

    Robert Kutner: “We could have two or three years of bigger deficits, very major public investment, let the debt ratio peak at 100% of GDP; and then stronger recovery, lower unemployment, and higher taxes on the wealthy would bring the debt ratio slowly down, as occurred after WW II.”

    He says “Higher taxes on the wealthy” last, as though it’s the least important. As though if we can’t find the political will to do that one, well, it’s no big deal, because we’ll still have the other two.

    Kutner: “Japan’s debt ratio, for comparative purposes, is over 200 % of GDP…”

    As someone else pointed out here recently, the US owes most of its debt to foreigners, and Japan does not. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2079rank.html (US external debt (foreign debt) at $13 trillion; Japan’s around $2 trillion.)

    If the Fed were to try and just print up the money to buy that debt back, the dollar would become worthless outside of the US, yes? And as Elaine says, oil needs to be imported, if nothing else.

    That’s how it’s seeming to me right now.

  13. JT

    I guess this realization is now hitting that no reserve currency means end to endless debts.

    “And much of the article also seems to assume that the US would have no monetary policy if the dollar weren’t a reserve currency”
    http://krugman.blogs.nytimes.com/2011/05/29/reserve-currency-mysticism/?smid=tw-NytimesKrugman&seid=auto

    Heh. Krugman “forgets” that Sweden exports far more than it imports.

  14. t p ..shane

    0?
    re 19 33: F D .R ex. order
    ‘turn in all G old” (except for a few
    special coin collections etc). Most
    ppl obeyed. Am.Paper Corp sued to
    collect debt owed in gold coins,
    Hi court said “yes yr contract says gold,
    but we won’t 2nd guess F D R in depression..
    so no gold 4 u.”
    hence not convertible at that time
    til c 1977) tho ppl could hold it o’seas.

  15. Steve Murgaski

    Congress is being told, again, that it has to increase the limit on the national debt. Apparently the limit has already been reached, and Geithner says he’s avoiding default with accounting tricks. He’s chosen August 2 as the date when he’ll run out of tricks.

    This is a nice long article about it. http://www.nationaljournal.com/magazine/main-street-bigger-problems-than-the-debt-ceiling-20110527 No answers in it, though.

  16. Mr Bill

    I want to remind us that, the historical US national total debt does tend to fairly reliably follow a hockey stick growth. That means that the annual increase to the total debt is compounded as a fixed percentage of the total debt for the previous year, similar to an unpaid loan.

    The average compound rate for the growth in total US Government debt from 1970 to 2010 has been an incredible 9 percent per year (based on no inflation adjustments). So a 370 billion dollar starting debt in 1970 became (as expected) 900 billion in 1980 and (as expected) 5.5 trillion in 2000 and 13.5 trillion in 2010 (as expected). There was some higher debt growth during the Reagan/BushI/BushII years and less during the Clinton years, but on average it has been 9 percent. Obama is currently running on the high side.

    This 9 percent compound rate gives us a basis to make an important estimation! If the US debt is at 13.5 trillion in 2010, we can, with some confidence, estimate that the debt increase from 2010 to 2011 will be close to 9 percent of 13.5 trillion or about 1.2 trillion more. Can we say 14.7 trillion total debt for 2011 (in May we are at 14.3). Can we say duh again? But, our talking head establishment people are running around the countryside bickering about cutting 70 billion (Republicans) vs 40 billion (Democrats) per year. Who is zooming who here?

    So, what do the most reliable numbers tell us? Well, we have two two major terms typically reported in the media, US Government total debt and US annual deficit or surplus. But, this years total debt is equal to last years debt plus/minus the US annual deficit or surplus.

    The first thing to consider is the most extreme case of totally stopping, instantly, the US Government debt change (increase) – eliminate the 9 percent annual excess.
    No way!

    But we must consider variations to help us resolve this vary complex social issue in less stressing conditions. But, here are the numbers .

    ?

  17. Wu Wei

    Elaine, you have completely messed up my post with your edits, lots of stuff is now missing 😦

    Elaine said “I have said for years that credit builds and debt destroys. Only after one has paid off debt does one have a credit base and nations going deep into debt go into slavery to some creditor power.”

    So, we agree on debt and credit being opposites. Well, a government can just outright issue credit when it’s needed, not in the form of debt and without any capital. In the system I’m advocating, savings for example are not required at all for capital formation. Sovereign credit! A sovereign government need NEVER be indebted to anyone. NEVER. EVER.

    Elaine said “Good grief, the US dollar is no longer the world’s ‘reserve currency’ because more and more nations are holding other currencies in particular, the euro, in their FOREX accounts! Keep up with reality, will you?”

    So, commodities are no longer sold in dollars? The dollar is still the world’s reserve currency. And the euro and yen are freely convertible in dollars making them nothing but dollar derivatives.

    Elaine said “Again, you refuse to read me carefully. Money in the form of bonds can collapse to zero value if a government goes bankrupt. Gold is a PHYSICAL thing that doesn’t vanish so easily.”

    You’re not reading me carefully, firstly, when a government issues sovereign credit, money will not exist in the form of bonds, but in the form of credit or fiat money. Secondly, I was talking about commodity based money which is the most silly money of them all. I was merely explaining why no commodity on earth can be used as the medium of exchange. Please read again.

    Elaine said “Ellen Brown is childish so she obviously wants to disconnect ‘money’ from ‘assets’ including labor. Thus, one can have infinite ‘money’ while not troubling to figure out why farmers won’t sell their goods even for a wheel barrel of paper money.”

    If the money issued by the government is declared good for all debts, public and private, then everyone will have to accept it: farmers, builders, producers etc, much like the legal tender fiat dollar is accepted today. There is no difference here. A sovereign government decides the value of money and no one else. Even in a silly gold based system, the government declares the fixed ratio to be used, again, the value of the money thus not lie in the material used but by the government which declares it to be so.

    Elaine said “Hahahaha….as I suspected, you want free money to buy goods while not backing it with capital.”

    Not free money, free sovereign credit. The capital is the potential national wealth any nation has. And interest, the compounding of which is unsustainable in any financial scheme. Interest is a mathematical impossiblity, the religions forbid it for practical reasons.

  18. Rourke Decker

    Wu Wei, governments are not able to mandate the value of a currency, even if it is declared legal tender for all transactions. The market — that is, the forces of supply and demand — ultimately decide the value of anything, including the currency. If the government mandates that a unit of currency is worth a specific value, the prices of goods and services will adjust accordingly. If it becomes impossible to make a profit, the supply of said goods and services will simply disappear. This has been proven repeatedly throughout history.

    By the way, there is no US law mandating that dollars be accepted for any transaction besides the settling of federal debts. Merchants are free to transact in whatever currency they wish. As confidence in the dollar declines, alternative currencies are springing up all over the United States. “Euros Accepted” signs are becoming increasingly common. There have even been reports of some merchants refusing to accept dollars as tender. Were the federal government to attempt to mandate that dollars be accepted for all transactions, again, the supply would simply dry up. Such tactics have been attempted in the past, and they have all resulted in the same effect.

    Your arguments are fallacious.

  19. Rourke Decker

    I thought I would share a quote from a website illustrating what I said above. Admittedly, this website is an advertisement for financial services, but I think it still makes a lot of good points.

    When you read these facts, I think you’ll agree with me that the U.S. dollar’s days are numbered, as far as remaining the world’s reserve currency.

    China is getting out

    Cheng Siwei, a former vice-chairman of the Standing Committee, said that China is going to stop putting so much money into U.S. dollars, and will instead look to the Japanese Yen and the Euro.

    China holds more U.S. dollars than anyone else on the planet. But China is getting out of the U.S. dollar as fast as they can without crashing their own economy.

    Look at this chart…

    It shows that China’s holdings of U.S. dollars peaked in 2009, but China is unloading as many dollars as they can, as quickly as possible.

    And this is just one sign of the end of the U.S. dollar standard.

    There are many more…

    The dollar is no longer good here

    As I am sure you are aware, for years the U.S. dollar has been accepted almost universally around the globe.

    Heck, many times when I’ve traveled, I never even bothered to convert to the local currency, because I knew everyone would take my dollars.

    Well, that’s simply not the case anymore…

    HSBC, one of the largest banks in Mexico, no longer allows you to deposit U.S. dollars into their banks. They’ve done this on the heels of money-laundering allegations, but we suspect they also simply don’t want to be stuck with tons of U.S. dollars, as the currency continues to decline.

    This move would have been unfathomable 10 years ago… that a big bank in Mexico would no longer accept U.S. dollars for deposit. But today it is the harsh reality.

    And Mexico is not the only place this is occurring…

    Reuters reports that the same thing has happened in 2008 in one of Europe’s most popular tourist spots…

    Currency exchange outlets in Amsterdam have been reportedly turning away customers who want to exchange their U.S. dollars for Euros.

    As one traveling American told the Reuters news agency: “Our dollar is worth maybe zero over here,” said Mary Kelly, an American tourist from Indianapolis, Indiana, in front of the Anne Frank house. “It’s hard to find a place to exchange. We have to go downtown, to the central station or post office.”

    In India, the country’s tourism minister said in 2008 that U.S. dollars will no longer be accepted at the country’s heritage tourist sites, like the Taj Mahal. And the U.S. dollar is no longer good anywhere in Cuba.

    The New York Times reports that: “now, many shops in China no longer accept dollar-based credit cards issued by foreign banks… and foreigners cannot convert American dollars into renminbi beyond a given quota.”

    Iran, of course, has already moved all of its reserves out of U.S. dollars, and Kuwait de-pegged it’s currency from the dollar a few years ago:

    Bloomberg News recently reported that China and Russia plan to start trading in each other’s currencies to diminish the dollar’s role in global trade. “Given the risk to the dollar and U.S. assets from their fiscal position, they want to reduce their dependence on the dollar as an invoicing currency,” said Bhanu Baweja, of UBS bank.

    It’s even happening here in the USA

    Most Americans don’t know that some states in the Mid-West are already using “alternative currencies”…

    An NBC News affiliate in Michigan reports that

    “new types of money are popping up across Mid-Michigan and supporters say, it’s not counterfeit, but rather a competing currency. Right now, for example, you can buy a meal or visit a chiropractor without using actual U.S. legal tender.”

    What most Americans don’t realize is that this is all totally legal.

    The U.S. Treasury Dept web site says that, according to Coinage Act of 1965: “There is… no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.”

    I saw one report that says there are now 150 of these alternative local U.S. currencies being accepted around the country!

    USA Today reports that the largest of these local currencies is a currency called “Berkshares,” which are being used in the Berkshires region of western Massachusetts.

    According to the paper:

    “Since its start in 2006, the system, the largest of its kind in the country, has circulated $2.3 million worth of BerkShares.”

    And even in places that do not yet have local currencies, store owners may now actually prefer foreign currencies rather than U.S. dollars…

    In Washington, DC, just 25 miles from my office, some stores have begun accepting euros. Of course, the euro isn’t much more stable than the dollar right now. But my point is that most people don’t understand there is NO FEDERAL REQUIREMENT in the United States for a private store to accept dollars for non-debt transactions.

    You see, no matter what the government decides, stores and businesses will accept whatever they believe is a strong currency.

    As Texas Representative Ron Paul wrote recently:

    “If you walk into a 7-11 to buy a soda, the clerk doesn’t have to accept your dollars, he could demand euros, silver, or copper. But because legal tender laws backing the dollar have caused the dollar to drive other currencies out of circulation, [right now] it is easier for stores to accept dollars.”

    Well, all that is quickly changing…

    Many places in Texas now accept Mexican pesos for payment. “Euros Accepted” signs are popping up in of all places: Manhattan. And not only Manhattan, but in New York’s favorite summer playground… the Hamptons.

    There, an art gallery assistant was quoted by The Real Deal: “I wouldn’t want to discourage a sale in any way because of a currency issue.”

    And it’s not just small stores that are accepting other methods of payment besides U.S. dollars.

    The Chicago mercantile exchange the world’s largest futures and commodities exchange board), now accepts gold to settle futures contracts. Until recently, the exchange typically accepted only U.S. treasuries and bonds as payment.

    These guys obviously see the writing on the wall.

    This would have all been completely unthinkable 10 years ago, but today it’s a reality. And this trend is going to keep moving incredibly fast.

  20. emsnews

    Anyone who imagines there was never a dollar crisis in the past is awfully young.

    I used to live overseas and my parents did a LOT of business in many countries. During the run up to the collapse of the US gold base dollar, anyone could use dollars like gold overseas.

    Suddenly, the dollar collapsed sometimes by 50% in the case of the DM, in less than a few months! My parents had to cable me for Swiss gold-based money back in the early seventies because in Asia, no one wanted their dollars anymore!

    They then kept a Swiss bank account for years to protect themselves by the loss of value and faith in the dollar!

    Mexico: once, when the peso was being devalued, a girlfriend of mine went to a bank to convert dollars to pesos and the teller pocketed the money and then told her to go away. She called me in NYC and i cabled her some money via American Express which meant it would be safely turned into pesos!

    The point here is, all currencies can suddenly collapse and none are free of this fear now that EVERYONE including the Swiss are floating on this cesspool of excess money.

  21. Wu Wei

    Rourke,

    Only a government can create money that is not backed by anything, as in fiat money. Sure, merchants can use any money they please but no merchant is going to accept some random individual’s money that is not backed by anything. Government fiat money IS accepted by all.

    And of course it’s impossible for a government to put a fixed value on money, heck, money has no intrinsic value whatsoever. I meant value as in being accepted by all because it can be used to pay all debts, public and private. That’s the value only a government can attach to its money. Value has many different meanings, we need to clarify which value we’re both using before you want to discuss this properly.

    Rourke said “The market — that is, the forces of supply and demand — ultimately decide the value of anything, including the currency.”

    How is it possible that the forces of supply and demand are able to decide the value of a currency? It’s absolutely insane. Is the market able to influence to units “inch” and “centimeter”? That’s how corrupt our money today has become, it’s the lifeblood of the economy, yet the market can totally take control over this lifeblood via the market. In a properly working financial system, the prices of commodities should only be affected by supply and demand and not by any change in the money supply like it is today, and vice versa of course, the market should never be able to exert an influence or even down right control the value of money.

    When that happens, the people are doomed, and it happened again all right. The moneypulators have been at since the days of Babylon and today their game of usury is as big as ever. As long as people, like you, remain ignorant on money this will never end.

  22. PFO

    Hello Elaine,

    Great expose of Ellen Brown et al ‘credit pushers’. Peter Schiff destroyed Ms. Brown on his radio show:

    Sad that so many Americans have been programed to abandon family and embrace social security and other ponzi schemes.

    Regards,
    PFO

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