{"id":212048,"date":"2022-05-23T12:01:50","date_gmt":"2022-05-23T11:01:50","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=212048"},"modified":"2025-01-10T15:03:03","modified_gmt":"2025-01-10T15:03:03","slug":"a-reset-that-serves-the-people","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2022\/05\/a-reset-that-serves-the-people\/","title":{"rendered":"A Reset That Serves the People"},"content":{"rendered":"

Instead of buying into the World Economic Forum\u2019s dystopian \u201cGreat Reset,\u201d we can build an alternative system with a mandate to serve the people.<\/em><\/p><\/blockquote>\n

19 May 2022 – <\/em>This is part two to a May 5, 2022 article called \u201cA Monetary Reset Where the Rich Don\u2019t Own Everything<\/a>,\u201d the gist of which was that\u00a0national and global debt levels are unsustainably high. We need a \u201creset,\u201d but of what sort? The \u201cGreat Reset\u201d of the World Economic Forum (WEF) would leave the people as non-owner tenants in a feudalistic technocracy. The reset of the Eurasian Economic Union would allow participating nations to opt out of the Western capitalist system altogether, but what of the Western countries that are left? That is the question addressed here.<\/p>\n

Our Forefathers Had Some Innovative Solutions<\/strong><\/p>\n

Fortunately for the United States, our national debt is in U.S. dollars. As former Federal Reserve Chairman\u00a0Alan Greenspan once observed<\/a>, \u201cThe United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.\u201d<\/p>\n

Paying government debt by just printing the money was the innovative solution of the cash-strapped American colonial governments. The problem was that it tended to be inflationary. The paper scrip they issued was considered an advance against future taxes, but it was easier to issue the money than to tax it back, and over-issuing devalued the currency. The colony of Pennsylvania fixed that problem by forming a government-owned \u201cland bank<\/a>.\u201d Money was issued as farm credit that was repaid. The new money went out from the local government and came back to it, stimulating the economy and trade without devaluing the currency.<\/p>\n

But in the mid-eighteenth century, at the behest of the Bank of England, the colonies were forbidden by King George to issue their own currencies, triggering a recession and the American Revolution. The colonists won the war, but by the end of it the currency was so devalued (chiefly from British counterfeiting<\/a>) that the Founding Fathers were afraid to include the power to issue paper money in the Constitution.<\/p>\n

Hamilton\u2019s Solution: Debt-for-equity Swaps<\/strong><\/p>\n

That left Treasury Secretary Alexander Hamilton in a bind. After the war, the colonies-turned-states were heavily in debt, with no way to repay it. Hamilton solved the problem by turning the states\u2019 debts into equity in the First United States Bank. The creditors became shareholders in the bank,\u00a0earning a 6% dividend<\/a>\u00a0on their holdings.<\/p>\n

Might that work today?\u00a0H.R. 3339<\/a>, a bill currently before Congress, would form a National Infrastructure Bank (NIB) modeled on Hamilton\u2019s U.S. Bank, capitalized with federal securities acquired in debt-for-equity swaps. Shareholders would receive a guaranteed 2% dividend on non-voting preferred stock in the bank, with the option of recovering the principal after 20 years.<\/p>\n

If the whole $30 trillion U.S. federal debt were turned into bank capital, leveraged into loans at 10 to 1 as banks are allowed to do, the bank could do $300 trillion in infrastructure loans. To start, the Federal Reserve could buy NIB stock with the\u00a0$5.76 trillion in U.S. Treasury securities<\/a>\u00a0currently on its balance sheet, capitalizing potential loans of $57 trillion. The possibilities are breathtaking; and because the money would enter the money supply in the form of low-interest loans to local governments that would be paid back over time, the result need not be inflationary. Loans for infrastructure and other productive ventures would raise supply to meet demand, keeping prices stable.<\/p>\n

Lincoln\u2019s Solution: Just Issue the Money<\/strong><\/p>\n

Hamilton\u2019s solution to an unsustainable federal debt was terminated when President Andrew Jackson closed down the Second U.S. Bank. That left Abraham Lincoln in a bind. Faced with a massive debt at usurious interest rates to fund the Civil War, he solved the problem by reverting to the solution of the American colonists: just issue the currency as paper money.<\/p>\n

In the 1860s, these U.S. Notes or Greenbacks constituted\u00a040% of the national currency<\/a>. Today, 40% of the circulating money supply would be $7.6 trillion. Yet massive Greenback issuance during the Civil War did not lead to hyperinflation. U.S. Notes suffered a drop in value as against gold, but according to Milton Friedman and Anna Schwarz in\u00a0A Monetary History of the United States, 1867-1960<\/a>, this was due not to \u201cprinting money\u201d but to trade imbalances with foreign trading partners on the gold standard. The Greenbacks aided the Union not only in winning the war but in funding a period of unprecedented economic expansion, making the country the greatest industrial giant the world had yet seen. The steel industry was launched, a continental railroad system was created, a new era of farm machinery and cheap tools was promoted, free higher education was established, government support was provided to all branches of science, the Bureau of Mines was organized, and labor productivity was increased by 50 to 75 percent.<\/p>\n

The Japanese \u201cFree Lunch\u201d<\/strong><\/p>\n

Another option is for the U.S. government to \u201cmonetize\u201d its debt by having the central bank purchase and hold it or write it off. The Federal Reserve\u00a0returns interest and profits<\/a>\u00a0to the Treasury after deducting its costs.<\/p>\n

This alternative, too, need not be inflationary, as has apparently been demonstrated by the Japanese. The Bank of Japan (BOJ) started buying government bonds in 1999, after reducing interest rates to zero, then dropping them into negative territory in 2015. Today Japan\u2019s government debt is a whopping 260% of its Gross Domestic Product, and\u00a0the Bank of Japan owns half of it. (Even the outsized\u00a0U.S. debt to GDP ratio<\/a>\u00a0is only 126%.) Yet annual\u00a0inflation is now only 1.2%<\/a>\u00a0in Japan, not even up to the BOJ\u2019s longstanding 2% target. To the extent that prices are rising, it is not from money-printing but from lockdowns and supply chain disruptions and shortages, the same disruptions triggering price inflation globally.<\/p>\n

Hedge fund manager Eric Peters discussed the Japanese experiment in a recent article titled \u201cCan a Modern Nation Pull Off a Debt Jubilee Without Full Monetary Collapse?<\/a>\u201d Noting that \u201ccore prices in Japan\u2019s economy remain almost identical today as they were when its zero-interest-rate experiment began,\u201d he asked:<\/p>\n

Could the central bank create money, buy all the outstanding bonds, and simply burn them? Execute a modern version of an Old Testament debt Jubilee? \u2026. [M]ight it be possible for a country to pull off such a feat without full monetary collapse? We don\u2019t know, yet.<\/em><\/p><\/blockquote>\n

A Treasury Issue of Special Coins or E-cash<\/strong><\/p>\n

For future budget expenses, rather than borrowing, the government could follow President Lincoln and just issue the money it needs.\u00a0As Thomas Edison observed<\/a>\u00a0in the 1920s:<\/p>\n

If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%.\u00a0<\/em><\/p><\/blockquote>\n

When the Constitution was ratified, coins were\u00a0the only officially recognized legal tender<\/a>. By 1850,\u00a0coins made up only about half the currency<\/a>. The total face value of\u00a0all U.S. coins ever produced<\/a>\u00a0as of January 2022 is $170 billion dollars, or less than 0.9% of a\u00a0$19 trillion circulating money supply<\/a>\u00a0(M2). These coins, along with about $25 million in U.S. Notes or Greenbacks, are all that is left of the Treasury\u2019s money-creating power. As the Bank of England has acknowledged, the vast majority of the money supply is now\u00a0created privately by banks<\/a> \u00a0as deposits when they make loans.<\/p>\n

In the early 1980s, a\u00a0chairman of the Coinage Subcommittee of the House of Representatives observed<\/a>\u00a0that the Constitution gives Congress the power to coin money and regulate its value, and that no limit is put on the value of the coins it creates. He said the government could pay off its entire debt with some billion dollar coins. In a 2007 book called\u00a0\u201dWeb of Debt<\/a>,\u201d\u00a0I wrote about this and said in today\u2019s America it would have to be trillion dollar coins.<\/p>\n

In 1982, Congress chose to choke off this remaining vestige of its money-creating power by imposing limits on the amounts and denominations of most coins. The one exception was the platinum coin, which a special provision allows to be minted in any amount for commemorative purposes (31 U.S. Code \u00a7 5112). In 2013, Georgia attorney\u00a0Carlos Mucha<\/a>\u00a0proposed issuing a platinum coin<\/a>\u00a0to capitalize on this loophole, in order to solve the gridlock then in Congress over the debt ceiling.\u00a0Philip Diehl, former head<\/a>\u00a0of the U.S. Mint and\u00a0co-author of the platinum coin law<\/a>. He said:<\/p>\n

In minting the $1 trillion platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years . . . under power expressly granted to Congress in the Constitution (Article 1, Section 8).<\/em><\/p><\/blockquote>\n

Prof. Randall Wray explained<\/a>\u00a0that the coin would not circulate but would be deposited in the government\u2019s account at the Fed, so it would not inflate the circulating money supply. The budget would still need Congressional approval. To keep a lid on spending, Congress would just need to abide by some basic rules of economics.\u00a0It could spend on goods and services up to full employment without creating price inflation (since supply and demand would rise together).\u00a0After that, it would need to tax \u2014 not to fund the budget, but to shrink the circulating money supply and avoid driving up prices with excess demand.<\/p>\n

A more modern option is for the Treasury to issue \u201ce-cash,\u201d an electronic form of cash transferred on secure hardware not requiring an internet connection.\u00a0The ECASH Act<\/a>,\u00a0\u00a0H.R. 7231<\/a>, introduced on March 28, 2022 by Rep. Stephen Lynch, \u201cdirects the Secretary of the Treasury to develop and introduce a form of retail digital dollar called \u2018e-cash,\u2019 which replicates the off-line-capable, peer-to-peer, privacy-respecting, zero transaction-fee, and payable-to-bear features of physical cash\u2026.\u201d<\/p>\n

Unlike the central bank digital currencies now being developed by central banks globally, e-cash would be anonymous and not traceable, having all the privacy attributes of physical cash. Various models are in development, including one already\u00a0introduced in China in 2021<\/a>, an offline-capable smart payments card that was\u00a0part of the government\u2019s digital yuan rollout.<\/p>\n

A People\u2019s Reset<\/strong><\/p>\n

Those are alternatives for relieving the government\u2019s debt burden, but what about the massive sums in student debt, medical debt, and rent and mortgage payments now in arrears? Biden promised in his presidential campaign to forgive student debt or some portion of it. But whether this can legally be done by presidential order, without congressional approval, is controversial. Arguments have been made\u00a0both ways<\/a>.<\/p>\n

For most student debt, however, the creditor is actually the Department of Education, a cabinet-level department established by Congress with some limited power to cancel debt. In August 2021, for example, the Department\u00a0canceled the student debt of the disabled<\/a>.\u00a0Congress itself could<\/a>\u00a0also write off the debt. The challenge is getting agreement on which debts to cancel and by how much.<\/p>\n

What of the student debt, mortgage debt, and credit card debt held by private banks? Private banks have a contractual right to repayment. They also have an obligation to balance their books, meaning they could go bankrupt if unable to collect. But as British economist\u00a0Michael Rowbotham observed<\/a>, these debts too could be written off if the accounting standards were changed. Banks don\u2019t actually lend their own money or their depositors\u2019 money.\u00a0The money they lend is created<\/a>\u00a0simply by writing the borrowed sums into the deposit accounts of their customers, so voiding out the debts would be cost-free. The accounting standards would just need to be changed so that the books would not need to balance. The debts could be carried as nonperforming loans or moved off the books in special purpose vehicles, as\u00a0the Chinese have been known to do<\/a>\u00a0with their nonperforming loans. As for which debts to write off and by how much, that is a policy question for legislators.<\/p>\n

Would that sort of debt jubilee be inflationary? Yes, to the extent that students and other debtors would have money to spend from their incomes that they did not have before, money that would be competing for a limited supply of goods and services. Again, however, inflation could be avoided by powering up the production of goods and services sufficiently to meet demand.<\/p>\n

That means powering up small and medium-sized businesses, which generate most local productivity and employment; and that means providing them with affordable credit.\u00a0As UK Prof. Richard Werner observes<\/a>, big banks don\u2019t lend to small businesses. Small banks do, and their numbers are rapidly shrinking. A national infrastructure bank could do it but would have trouble making prudent loans for businesses and farms across the country. The Soviet Union tried that and failed.\u00a0Prof. Werner proposes instead<\/a>\u00a0to form a network of local public, cooperative and community banks.<\/p>\n

Arguably, local publicly-owned banks could also be capitalized with debt-for-equity swaps, using the ballooning state bond debts. We have plenty of debt to go around! A network of state-owned public banks on the model of the Bank of North Dakota would be good.<\/p>\n

Other Options<\/strong><\/p>\n

To the extent that taxes are needed to balance the money supply, a land value tax (LVT) would go far toward replacing income taxes, without taxing labor or productivity. See \u201cPennsylvania\u2019s Success with Local Property Tax Reform\u201d in\u00a0the book \u201cEarth Belongs to Everyone<\/a>\u201d\u00a0by Alanna Hartzok. An LVT excludes physical structures (e.g. houses) and taxes only the value of the land itself, including the natural resources on and under it. It thus returns to the public a portion of any appreciation in value due to public works (new schools, subway stops, etc.), without taxing improvements made by the property owners themselves. It helps curb land hoarding and speculation, and ensures that land sites are put to good use.<\/p>\n

Independent community currency and cryptocurrency systems are other possibilities for circumventing debts in the national currency, but those topics are beyond the scope of this article.<\/p>\n

In any case, if the global economy comes crashing down as many pundits are predicting, it is good to know there are viable alternatives to the technocratic feudalism of the WEF\u2019s Great Reset. In his 2020 book \u201cThe Great Reset,\u201d WEF leader\u00a0Klaus Schwab declared<\/a>\u00a0that the COVID-19 pandemic \u201crepresents a rare but narrow window of opportunity to reflect, reimagine and reset our world,\u201d making way for a polycentric technocracy. It is also a rare opportunity for us to implement an alternative system with a mandate to serve the people. We might call it the People\u2019s Great Reset.<\/p>\n

________________________________________<\/em><\/p>\n

\"\"<\/a> <\/em>Ellen Brown is a member of the <\/em>TRANSCEND Network for Peace Development Environment<\/a>, an attorney, founder\/chairperson of the\u00a0<\/em>Public Banking Institute<\/a>, and author of thirteen books including\u00a0<\/em>Web of Debt<\/a>,\u00a0The Public Bank Solution<\/a>, and\u00a0<\/em>Banking on the People: Democratizing Money in the Digital Age<\/a>.\u00a0Her 300+ blog articles are at\u00a0ellenbrown.com<\/a><\/em><\/p>\n

 <\/p>\n

Go to Original \u2013 ellenbrown.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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