[This is a second article from our guest writer who does not wish to make his identity known. I refer to him as G, a retiree who moved to Bellingham over 15 years ago. His previous piece was MintTheCoin - Money for Everyone which, for the sake of clarity and background, should be read prior to the article below. D. Conoboy]
I was a child during the Great Depression. My mother, who was eating only soda crackers, separated the whites from the yokes of an egg when she had one, and fried the white for me and the yellow for my brother. My grade school friends ate the paper bags my lunch sandwiches were put in. Catsup was a luxury, so when my friends mothers made sandwiches for us by putting cold macaroni between thin white bread slices they almost never had catsup to add flavor. The same was true for mashed potato sandwiches. At age 5 or maybe even 4, I walked down streets begging for food for my mother. I became rather clever at it. Depressions are a disease of capitalism, as I’ll now try to explain, and they begin in demand crises.
A Demand Crisis exists when populations do not have money to spend. Demand for goods and services implodes. When spending stops, economies go into a deflationary death spiral. Manufacturing slows to a stop, wages are relentlessly reduced by employers (thereby accelerating the crisis), investors cease investing because investments are sure to lose, banks fail because people cannot make payments on past loans, banks stop issuing new loans, landlords cannot collect rents, home buying stops, building construction ceases, food markets begin to collapse, farmers have fewer and fewer buyers for their crops and animals, people become homeless, they begin to starve, and free-for-all capitalist economies, which themselves have no mechanism for stopping or surviving steadily deflationary demand crises, stuck in a mire from which they cannot escape, die.
OK, since capitalists cannot prevent or terminate deflationary death spirals, who or what can?
Sovereign governments can. The United States is a sovereign government.
Today, food prices are inflating, but deflation of most goods and services is steadily occurring, moving the global economy toward a demand crisis that quickly may become as dreadful as that which struck and stopped economies dead in their tracks throughout the 1930s, ending only because WWII compelled governments to take charge and do what dryasdust economists, conservative politicians and most people thought was impossible, which was to print money, place orders with closed or barely operating businesses, pay for the orders with the printed money, and thus enable payments of good wages to workers, who used their wages to buy food, pay mortgages and rentals, buy clothing, afford medical care, etc., etc., thus abruptly ending the depression, winning the war and creating the most successful and beneficent society in history … until people forgot what had been done and were again deceived by the morally vacuous, mentally closed who occupy mansions, constitute the ruling class, control and degrade the national dialogue with their news corporations, and own both political process and almost all politicians.
Must the issued money be first given to businesses? No. If given to the population, the people will spend it, and businesses will flourish, ending the death spiral.
Are there conditions in which money must be given to both the population and businesses? Yes, and we are witnessing those conditions during the pandemic lockdown. We need to protect restaurants and bars, barber shops, most Main Street stores that are closed due to lockdown, airlines, etc., etc., because we will want them to restart quickly.
Does the government have to borrow the money? No. Governments declare they are issuing money, and issue it, at a cost no greater than that needed to print it or cyber credit it or make and mail debit cards to all citizens.
Will the U.S. Federal Reserve do this? It is doing some of it, just as it did after the 2008 crash. Unfortunately, the Fed is tied to and serves our present banks, so the many trillions of dollars it has issued during the past 12 years went almost entirely to institutions which did not use the money to hire workers, pay wages or even issue low cost loans - the Fed has saved banks and Wall Street, but banks and Wall Street are capitalism unbounded, which as we’ve seen cannot by itself do anything to make life affordable for the population. In fact, especially during a demand crisis, it does the opposite - banks and Wall Street lead the way to a death spiral.
What does the Fed do for banks? If a bank approves a loan, the Fed issues the money from the air as well as cash on hand and sends it to the bank at a negligible annual interest rate, from zero to about 2% in recent years. The amount of the loan is instantly that bank’s asset, for which it usually charges a much higher annual interest rate. Whose money is the bank using? Does it belong to our neighbor Molly who each month deposits into a savings account a little of the pitiful wage she gets for being a Walmart ‘associate’? No, it’s at best only pennies of Molly’s money. The rest - in excess of 90% of the amount of the loan - is the banker’s money, given to the banker by the Fed. Does putting money into a savings account secure Molly’s money? Well, for one thing, even if she’s smart and her savings are in a Money Market savings account, the worm of inflation has been eating away at it. Today’s Money Market return (which varies by bank or bank chain) is about 1.5% on average, whereas the worm ate 2.3% in 2019, and is so far in 2020 eating 1.5%. Isn’t Molly’s money protected by the Federal Deposit Insurance Corporation (FDIC)? No, her money will be quickly and totally lost in a death spiral. Why is that? Firstly, the FDIC is hopelessly underfunded. It has absurdly little money. Secondly, our government passed a law stating that in the event of a crisis bankers may seize all money owed to depositors and use that money to save themselves. Isn’t that nice? Aren’t you anxious to save your banker? Isn’t it a sacrifice you’ll be ever so proud of? Won’t you rush to reelect the wise, fine politicians you voted for so that they can continue to make you proud?
What danger exists and must be controlled for when free money is issued? Inflation, which is the opposite of Deflation. Inflation occurs when people have spare money and capitalists raise prices to get it for themselves. All governments already control for inflation. The Fed alters interests rates charged to banks to prevent full employment (full employment in present U.S. economic dogma dangerously increases inflation); and, because inflation occurs when too much money is in vaults and our pockets, the Fed controls the amount of money in circulation throughout the whole American economy.
Are there other ways to control for inflation? Yes. The U.S. did it successfully during WWII, and more ways of doing it have been learned since then. It’s long past time to let the modern economists serve us by letting them serve our government. They’ve the expertise needed to manage the inflation problem. We do not need, for instance, to believe, as past heads of the Fed have, that there is a “natural number” (usually 5%) for the percentage of people who must be prevented by the Fed from having jobs and earning wages. We do not really need ministers of government and our economy who actively oppose millions of us and deprive us of equality, opportunity and decent lives.
Modern economists are called radicals, and that must mean they believe in pie in the sky, or work for Russia, yes? No. Etymology Online tells us that the word radical is “from Late Latin radicalis “of or having roots,” from Latin radix (genitive radicis) “root” (from PIE root *wrād- “branch, root”). Meaning “going to the origin, essential”. Indeed, Modern Money Theory (MMT) is rooted in practices going back to Biblical and pre-biblical times, when the ancients were discovering and first practicing the idea we call money, which was making city states and their kings, nobles and business people rich but which made them poor when because of greed they buried everyone in debt or poverty and lost the support of their people. You can read all about it, here, free: AND-FORGIVE-THEM-THEIR-DEBTS, “An epic journey through the economies of ancient civilizations, and how they managed debt versus social instability. Shocking historical truths about how debt played a central role in shaping (or destroying) ancient societies (viz: Rome), and that the Bible is preoccupied with debt, not sin, which has been disturbingly inverted in modern times; or for $30 you can buy the book by ordering it from your local independent bookstore, which can be done by opening this link.
Capitalism thrives when people are employed and have money to spend. Capitalists are in fact dependent on their workers’ spending for the wealth they acquire. Anyone who thinks it’s the other way around has been misled.
But wait! That’s not altogether true! People with wealth can make money out of money by gambling it on Wall Street and in derivatives bets. True. That’s right, so let me tell you what I think of that. Fuck the gambling and the gamblers. They’ve bought the politicians who so badly rule us, lie to us, treat us as though we were the fools, and tell us there is no money for us. They own Fox, MSNBC, CNN, blah, blah, and all of the mainstream press, health corporations, pharmaceuticals, banks and so on, so on and so on that far too often screw us in any way they can and have the gall to assure us that they do it because doing it is necessary and is what is best for us. Talking heads are what is best for us? Five thousand (and up to $30,000) dollar a night hotel rooms are best for them and austerity or even homelessness is best for us? Medicines we cannot afford are best for us? Even no health care at all is best? The rich, who have never been poor, preach at us that peacefully and willfully suffering our condition and paying our debts to them is what will build our character. Then what, pray tell, built the wondrous character of Thump? Of Betsy DeVos? Of Rupert Murdoch? Of the Koch brothers, the Walton family, titanically stingy Jeff Bezos who was caught sending a photo of his dick to a girlfriend, or other members of the moola glitterati who present themselves before us as the sages who alone know how to save us?
Might we be better saved by baboons? Yes. But not by hyenas.
So what can save us? Congress can Mint the Coin. If you’ve read my prior post you know what that means.