Economic Crossroads Means Opportunities for Local Currencies

The crisis of 2008-2009 exposed the U.S. financial system as being unstable, subject to abuse, and tending to favor the rich while putting everyone else deeper into debt.

The housing bubble was based on the biggest credit inflation in history. It raised the prices of homes to unprecedented levels but created the deepest recession in a generation when it collapsed. $6 trillion in wealth has now simply disappeared.

Meanwhile, unregulated global capitalism continues to concentrate wealth, outsource jobs to the cheapest possible labor markets, accelerate U.S. unemployment, and destroy local and regional economies.

Even if the recession results in a modest recovery, it is likely to be of the “jobless” variety, or else jobs at low wages, with the U.S. still the most wasteful, resource-intensive, debt-oriented economy in history. A budget for war expenditures of almost $1 trillion doesn’t help.

Steps toward recovery are being fueled by enormous increases in the national debt due to federal budget deficits now over $1.4 trillion a year, with the U.S. economy carrying a total debt load of $200,000 for every man, woman, and child in the nation.

The huge debts of government at all levels, combined with reliance on government employment as a Keynesian economic driver, have raised the total government tax and fee burden (federal/state/local) to up to 40-50% of an individual’s income.

The “elephant in the room” is the debt-based monetary system run by the Federal Reserve, which since its inception in 1913 has based the U.S. money supply almost entirely on bank lending, including lending to government for its deficits. The Federal Reserve Act gave the banking system the incredible privilege of creating money out of thin air and charging interest for its use. The federal government now pays the banking system, trust funds, and investors, including foreign governments, almost $400 billion a year just for interest.

When you add it up, interest and taxes today probably consume over half the entire U.S. gross domestic product.

Final elimination of the gold standard in 1971 removed any objective measure of the value of Federal Reserve currency. Since then, the dollar has lost 85 percent of its value. Despite the rhetoric, government and Fed policies inflate the currency in order to pay off debt with dollars of less value.

Some members of Congress are trying to rein in the Fed, but so far with little success. Numerous proposals for monetary reform are coming from all quarters, but the power of the Fed and banking system in favor of maintaining the status quo is enormous.

With the power wielded by the privileges of big banking, combined with big government and its Keynesian deficit-based financial system, we have completely forgotten that time in our history when money was viewed as a medium of exchange for producers of goods and services. Prior to 1913, the creation and use of money was much less centralized and mainly served the marketplace.

The true purpose and meaning of money was rediscovered during the Great Depression when many businesses and local jurisdictions produced their own money in the form of scrip. Scrip is actually a more stable form of currency than bank-created fiat money where people are forced to accept the fiat money as legal tender. Also stable is the use of self-generated “trading units” by trade exchanges acting as producer currency coops. This is how the commercial “bartering” networks work.

Today a similar movement to the scrip of the 1930s has begun through the creation and use of legal alternative currencies. Today, though, we have computerized databases to facilitate trading. This movement may be our best immediate hope of achieving a semblance of real economic democracy and restoring local/regional economic sustainability.

Richard C. Cook is the author of We Hold These Truths: The Hope of Monetary Reform, scheduled to appear by September 2007. A retired federal analyst, his career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. He is also author of Challenger Revealed: An Insider’s Account of How the Reagan AdministrationCaused the Greatest Tragedy of the Space Age. Read other articles by Richard, or visit Richard's website.

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  1. A Mohit said on December 11th, 2009 at 11:24am #

    “The federal government now pays the banking system, trust funds, and investors, including foreign governments, almost $400 billion a year just for interest.”

    Why does government pay to banking systems? Should it not be otherwise?

  2. Annie Ladysmith said on December 11th, 2009 at 7:17pm #

    DEAR MR. COOK, the goose they are cooking has little to do with “capitalism” but does have a lot to do with control, totalitarianism, and drastic population reduction. The depression we are heading into was completely manufactured by the central banks and their greedy plan to make the whole world a place only for their elite. They have bought off our US government, by handing out “special” “tickets” to their underground secure world, that most of us know nothing about. You see, when the nukes start firing the safest place will be underground, and they will start firing, it’s part of the plan. Believe me, every elected official in the Senate and in the House and in the “courts” has been secretly briefed and given a “ticket” for the underground world. It goes beyond the banking system, and it is actually supernatural in it’s outlook and focus. We have had a good run with freedom, lets hope most of us have made the most of it while we had a chance.

  3. Tyler said on December 12th, 2009 at 5:01am #

    Let’s think about what the author ignored: infrastructure. Local currencies require local banks. Local banks issue the local currency, link it to the prevailing regional currency, and provide microcredit loans to local entrepreneurs.

    This infrastructure is developing in an embryonic stage in Brazil right now. There are over 40 community banks in Brazil with unique currencies. The movement, led by Bancos Palmas, is quickly gaining institutional support from NGOs, the Brazilian Ministry of Labor, the Brazilian banking industry and local communities. This meritorious and successful model has yet to garner the attention of mainstream American economic thought, be it popular or academic. Thus, I thought I’d mention it.

    If you’re interested, here are some resources:

    The only comprehensive analysis available in English:

    A useful questionnaire from the same author: