Shave The Whales, Or Nationalize The Fed
Wednesday, March 11, 2009
By Nathan Diebenow
Let Private Predator Banks Die: Lawyer
DALLAS, Texas — Still pissed off at the Wall Street bailout? President Barack Obama's stimulus package? Private bank nationalization? The new homeowner mortgage bailout?
Also afraid that the federal government won't have enough money to fund Medicare, Medicaid, and Social Security in the future?
Well, Ellen Hodgson Brown has a solution for you.
Nationalize the Federal Reserve.
The lawyer and author of The Web of Debt: The Shocking Truth About Our Money System And How We Can Break Free told the Lone Star Iconoclast that the idea is more American than apple pie, mom, and baseball.
"The government used to create the money in the 18th century before the American Revolution. It was a brilliant system. The American colonists printed their own money, and the people think it is the government that creates the money, but it's not. Today, it's banks," she explained.
Right now, the Federal Reserve is a corporate institution owned and controlled by private banks chartered to create money through a process of fractional reserve lending to themselves. Money is created when these private banks lend up to 10 times their debt deposits from the Federal Reserve to public and private institutions plus interest. This money (aka debt) is, therefore, created out of thin air.
By "nationalization," Brown means having Congress turn the Federal Reserve into the acting central bank of the United States that prints money interest free.
There have been a few sporadic moves to nationalize the Federal Reserve over the last 100 years. Former Georgia Congresswoman Cynthia McKinney campaigned for president on such a platform in 2008. But the last major push to nationalize the Fed was spearheaded by a U.S. Congressman fromTexas's 1st congressional district, the late Wright Patman.
"[Patman] was chairman of the United States House Committee on Banking and Currency, and he investigated the Federal Reserve and discovered that they were printing our money and charging us interest — lending it to the government. He tried to get the Fed nationalized. He wanted to make it a government entity, which everybody thinks it is. He did not prevail in that, but he succeeded in getting them to rebate the interest," said Brown.
By Brown's rationale, if Congress had asked the Federal Reserve for money to directly fund Obama's $780 economic stimulus package, taxpayers wouldn't have to pay any interest back to the Fed. The interest would be returned to the federal government by law.
"Most of our bonds are issued to private parties, and they expect serious interest [returned], so that's why we had a $412 billion interest bill last year. A third of our income taxes went to pay interest on the Federal debt. Well, what if the Federal Reserve funded the debt? It would be nearly interest free, and because it's our own Central Bank. We could roll over the debt from year to year. Basically, it would be free money. It would never have to be paid back," explained Brown.
Under such a system, there would also be no reason to ask Japan, China, India, Saudi Arabia, or any other foreign country to hold our federal debt. What about these foreign nations that hold our debt now? What would they most likely do if the U.S. stopped issuing U.S. Treasury bonds abroad and went to a nationalized Fed for debt service?
"They will have some cash, and what will they do with those dollars? They will come over and spend them," replied Brown.
Brown added that she knew of a former prime minister of Malaysia who said his nation could spend its excess dollar reserves on some tractors and bulldozers made in America. As a result of a nationalized Fed, manufacturing would have a chance to return to the United States.
"It's not that people quit wanting things. All that is lacking is the money. If the money comes knocking at our door, we'll start producing things again," she pointed out. "It used to be that we were worried about the dollars flooding into our economy because that would inflate prices, but no more. We desperately want dollars. We're begging for borrowers. We're willing to sell anything to anybody who will take it because we want the dollars back."
Brown, therefore, disagrees that a public banking system would cause inflation now because the United States is currently undergoing "a serious radical deflation."
"That's what a depression is. It's when the money supply contracts like it is contracting now because our whole supply is debt, and the debt is contracting. I mean, people aren't taking out loans like they used to partly because they are all borrowed up partly because the banks can't lend anymore because they've screwed up their temple base with these derivities — these credit-default swaps."
Plus, when foreign nations that hold U.S. debt have no more dollars to spend buying U.S. Treasury bonds, then the Treasury must either raise interest rates to encourage bond buyers or find another alternative. Brown suggested letting the Federal Reserve buy the debt back. It's not such a radical idea, considering the Fed's current behavior, she said.
"The Fed already — just this last year — funded $2 trillion for private loans. They have never done that before. They are just creating money out of nothing and funding loans to corporations and banks and credit card companies," she said. "It's the Federal Reserve that's doing the radical stuff. So let them do something a little less radical and actually get some money to the government to set them up."
If you need an example of a public banking system that works, look no further than North Dakota which has had a state-owned bank in place since 1919, Brown said. It's called the Bank of North Dakota. However, this bank "was never intended for Bank of North Dakota to compete with or replace existing banks," according to its website.
Still, Brown said she thinks that there is little reason to go through all the trouble of having the federal government clean up bad banks for future resale on the open market, as Nobel Prize-winning economist Paul Krugman or progressive thinker James K. Gailbraith suggest.
"We're scrambling to save the crooks. Let the crooks go bankrupt. They made a lot of money off free trade. Let them go down. Capitalism made them money. Let Capitalism take them down. Why should we the taxpayers save them? It's because we don't think we have any alternative, but we do. The alternative is to set up a public banking system," she said.
Glimpses of Brown's idea were seen on Democracy Now! when Nobel Prize-winning economist Joseph Stiglitz appeared. Stiglitz said that Congress could have taken that $700 billion bailout money and used it as the basis for loans; then they could have fanned it out 10 times to create $7 trillion in loans.
"That's plenty to fix everything. They can fix Social Security. Instead of throwing all that money to the banks, which is where all the $700 billion went and nothing happened. No good came of it," she said. "Instead they could have set up their own bank and had $7 trillion in loan money."
Brown said she is optimistic that a public banking system will come to the United States, though it will take a economic collapse before it happens.
"They're never going to change the system when everybody is doing well," she said. "Everybody is ready for change, so we have to scramble in and make sure that change turns out the right way and doesn't go into fascism and police state."
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