Deficit Terrorists Strike in England — U.S. Next?

Last week, England’s new government said it would abandon the previous government’s stimulus program and introduce the austerity measures required to pay down its estimated $1 trillion in debts. That means cutting public spending, laying off workers, reducing consumption, and increasing unemployment and bankruptcies. It also means shrinking the money supply, since virtually all “money” today originates as loans or debt. Reducing the outstanding debt will reduce the amount of money available to pay workers and buy goods, precipitating depression and further economic pain.

The financial sector has sometimes been accused of shrinking the money supply intentionally, in order to increase the demand for its own products. Bankers are in the debt business, and if governments are allowed to create enough money to keep themselves and their constituents out of debt, lenders will be out of business. The central banks charged with maintaining the banking business therefore insist on a “stable currency” at all costs, even if it means slashing services, laying off workers, and soaring debt and interest burdens. For the financial business to continue to boom, governments must not be allowed to create money themselves, either by printing it outright or by borrowing it into existence from their own government-owned banks.

Today this financial goal has largely been achieved. In most countries, 95% or more of the money supply is created by banks as loans (or “credit”). The small portion issued by the government is usually created just to replace lost or worn out bills or coins, not to fund new government programs. Early in the twentieth century, about 30% of the British currency was issued by the government as pounds sterling or coins, versus only about 3% today. In the U.S., only coins are now issued by the government. Dollar bills (Federal Reserve Notes) are issued by the Federal Reserve, which is privately owned by a consortium of banks.

Banks advance the principal but not the interest necessary to pay off their loans; and since bank loans are now virtually the only source of new money in the economy, the interest can only come from additional debt. For the banks, that means business continues to boom; while for the rest of the economy, it means cutbacks, belt-tightening and austerity. Since more must always be paid back than was advanced as credit, however, the system is inherently unstable. When the debt bubble becomes too large to be sustained, a recession or depression is precipitated, wiping out a major portion of the debt and allowing the whole process to begin again. This is called the “business cycle,” and it causes markets to vacillate wildly, allowing the monied interests that triggered the cycle to pick up real estate and other assets very cheaply on the down-swing.

The financial sector, which controls the money supply and can easily capture the media, cajoles the populace into compliance by selling its agenda as a “balanced budget,” “fiscal responsibility,” and saving future generations from a massive debt burden by suffering austerity measures now. Bill Mitchell, Professor of Economics at the University of New Castle in Australia, calls this “deficit terrorism.” Bank-created debt becomes more important than schools, medical care or infrastructure. Rather than “providing for the general welfare,” the purpose of government becomes to maintain the value of the investments of the government’s creditors.

England Dons the Hair Shirt

England’s new coalition government has just bought into this agenda, imposing on itself the sort of fiscal austerity that the International Monetary Fund (IMF) has long imposed on Third World countries, and has more recently imposed on European countries, including Latvia, Iceland, Ireland and Greece. Where those countries were forced into compliance by their creditors, however, England has tightened the screws voluntarily, having succumbed to the argument that it must pay down its debts to maintain the market for its bonds.

Deficit hawks point ominously to Greece, which has been virtually squeezed out of the private bond market because nobody wants its bonds. Greece has been forced to borrow from the IMF and the European Monetary Union (EMU), which have imposed draconian austerity measures as conditions for the loans. Like a Third World country owing money in a foreign currency, Greece cannot print Euros or borrow them from its own central bank, since those alternatives are forbidden under EMU rules. In a desperate attempt to save the Euro, the European Central Bank recently bent the rules by buying Greek bonds on the secondary market rather than lending to the Greek government directly, but the ECB has said it would “sterilize” these purchases by withdrawing an equivalent amount of liquidity from the market, making the deal a wash. (More on that below.)

Greece is stuck in the debt trap, but the UK is not a member of the EMU. Although it belongs to the European Union, it still trades in its own national currency, which it has the power to issue directly or to borrow from its own central bank. Like all central banks, the Bank of England is a “lender of last resort,” which means it can create money on its books without borrowing first. The government owns the Bank of England, so loans from the bank to the government would effectively be interest-free; and as long as the Bank of England is available to buy the bonds that don’t get sold on the private market, there need be no fear of a collapse of the value of the UK’s bonds.

The “deficit terrorists,” however, will have none of this obvious solution, ostensibly because of the fear of “hyperinflation.” A June 9 guest post by “Cameroni” on Rick Ackerman’s financial website takes this position. Titled “Britain Becomes the First to Choose Deflation,” it begins:

David Cameron’s new Government in England announced Tuesday that it will introduce austerity measures to begin paying down the estimated one trillion (U.S. value) in debts held by the British Government…. [T]hat being said, we have just received the signal to an end to global stimulus measures — one that puts a nail in the coffin of the debate on whether or not Britain would ‘print’ her way out of the debt crisis…. This is actually a celebratory moment although it will not feel like it for most…. Debts will have to be paid…. [S]tandards of living will decline … [but] it is a better future than what a hyperinflation would bring us all.

Hyperinflation or Deflation?

The dreaded threat of hyperinflation is invariably trotted out to defeat proposals to solve the budget crises of governments by simply issuing the necessary funds, whether as debt (bonds) or as currency. What the deficit terrorists generally fail to mention is that before an economy can be threatened with hyperinflation, it has to pass through simple inflation; and governments everywhere have failed to get to that stage today, although trying mightily. Cameroni observes:

[G]overnments all over the globe have already tried stimulating their way out of the recent credit crisis and recession to little avail. They have attempted fruitlessly to generate even mild inflation despite huge stimulus efforts and pointless spending.

In fact, the money supply has been shrinking at an alarming rate. In a May 26 article in The Financial Times titled “US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus,” Ambrose Evans-Pritchard writes:

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever.

‘It’s frightening,’ said Professor Tim Congdon from International Monetary Research. ‘The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,’ he said.

Too much money can hardly have been pumped into an economy in which the money supply is shrinking. But Cameroni concludes that since the stimulus efforts have failed to put needed money back into the money supply, the stimulus program should be abandoned in favor of its diametrical opposite — belt-tightening austerity. He admits that the result will be devastating:

[I]t will mean a long, slow and deliberate winding down until solvency is within reach. It will mean cities, states and counties will go bankrupt and not be rescued. And it will be painful. Public spending will be cut. Consumption could decline precipitously. Unemployment numbers may skyrocket and bankruptcies will stun readers of daily blogs like this one. It will put the brakes on growth around the world…. The Dow will crash and there will be ripple effects across the European union and eventually the globe. … Aid programs to the Third world will be gutted, and I cannot yet imagine the consequences that will bring to the poorest people on earth.

But it will be “worth it,” says Cameroni, because it beats the inevitable hyperinflationary alternative, which “is just too distressing to consider.”

Hyperinflation, however, is a bogus threat, and before we reject the stimulus idea, we might ask why these programs have failed. Perhaps because they have been stimulating the wrong sector of the economy, the non-producing financial middlemen who precipitated the crisis in the first place. Governments have tried to “reflate” their flagging economies by throwing budget-crippling sums at the banks, but the banks have not deigned to pass those funds on to businesses and consumers as loans. Instead, they have used the cheap funds to speculate, buy up smaller banks, or buy safe government bonds, collecting a tidy interest from the very taxpayers who provided them with this cheap bailout money. Indeed, banks are required by their business models to pursue those profits over risky loans. Like all private corporations, they are there not to serve the public interest but to make money for their shareholders.

Seeking Solutions

The alternative to throwing massive amounts of money at the banks is not to further starve and punish businesses and individuals but to feed some stimulus to them directly, with public projects that provide needed services while creating jobs. There are many successful precedents for this approach, including the public works programs of England, Canada, Australia and New Zealand in the 1930s, 1940s and 1950s, which were funded with government-issued money either borrowed from their central banks or printed directly. The Bank of England was nationalized in 1946 by a strong Labor government that funded the National Health Service, a national railway service, and many other cost-effective public programs that served the economy well for decades afterwards.

In Australia during the current crisis, a stimulus package in which a cash handout was given directly to the people has worked temporarily, with no negative growth (recession) for two quarters, and unemployment held at around 5%. The government, however, borrowed the extra money privately rather than issuing it publicly, out of a misguided fear of hyperinflation. Better would have been to give interest-free credit through its own government-owned central bank to individuals and businesses agreeing to invest the money productively.

The Chinese have done better, expanding their economy at over 9% throughout the crisis by creating extra money that was mainly invested in public infrastructure.

The EMU countries are trapped in a deadly pyramid scheme, because they have abandoned their sovereign currencies for a Euro controlled by the ECB. Their deficits can only be funded with more debt, which is interest-bearing, so more must always be paid back than was borrowed. The ECB could provide some relief by engaging in “quantitative easing” (creating new Euros), but it has insisted it would do so only with “sterilization” – taking as much money out of the system as it puts back in. The EMU model is mathematically unsustainable and doomed to fail unless it is modified in some way, either by returning economic sovereignty to its member countries, or by consolidating them into one country with one government.

A third possibility, suggested by Professor Randall Wray and Jan Kregel, would be to assign the ECB the role of “employer of last resort,” using “quantitative easing” to hire the unemployed at a basic wage.

A fourth possibility would be for member countries to set up publicly-owned “development banks” on the Chinese model. These banks could issue credit in Euros for public projects, creating jobs and expanding the money supply in the same way that private banks do every day when they make loans. Private banks today are limited in their loan-generating potential by the capital requirement, toxic assets cluttering their books, a lack of creditworthy borrowers, and a business model that puts shareholder profit over the public interest. Publicly-owned banks would have the assets of the state to draw on for capital, a clean set of books, a mandate to serve the public, and a creditworthy borrower in the form of the nation itself, backed by the power to tax.

Unlike the EMU countries, the governments of England, the United States, and other sovereign nations can still borrow from their own central banks, funding much-needed programs essentially interest-free. They can but they probably won’t, because they have been deceived into relinquishing that sovereign power to an overreaching financial sector bent on controlling the money systems of the world privately and autocratically. Professor Carroll Quigley, an insider groomed by the international bankers, revealed this plan in 1966, writing in Tragedy and Hope:

[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences.

Just as the EMU appeared to be on the verge of achieving that goal, however, it has started to come apart at the seams. Sovereignty may yet prevail.

Ellen Brown is an attorney, co-chair of the Public Banking Institute, and author of thirteen books including Web of DebtThe Public Bank Solution, and Banking on the People: Democratizing Money in the Digital Age. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 400+ blog articles are posted at Read other articles by Ellen.

34 comments on this article so far ...

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  1. Don Hawkins said on June 19th, 2010 at 8:06am #

    Yes Ellen and now with a planet called Earth headed at least for humans into hell on Earth we do have a bit of a problem. Outside the box is now required a new way of thinking.

  2. Don Hawkins said on June 19th, 2010 at 8:47am #

    [T]he powers of financial capitalism can we think on a local level cut out the middle man so to speak help one another that dollar or euro or gold that you can’t eat is worthless with a new way of thinking oh and will the capitalists get pissed off I mean even more than they are now as it sure seems to me getting downright ugly. Don’t play the game a new way of thinking.

  3. Don Hawkins said on June 19th, 2010 at 9:08am #

    Ellen remember anything care be cared to far and the present system that’s just what is happening. Outside the box on the path so far human’s will not survive. Granted a good old fashion CME from the Sun the last time the telegraph was just born and welcome to the Universe. Better to start now it’s just better that way. My cell phone doesn’t work why are all the gas stations closed.

  4. Cameron said on June 20th, 2010 at 2:35pm #

    Since when Keynesian economy is considered dissident voice?? Oh yes keep printing money out of thin air. Wow! Boy only if that model could be work.
    The author’s misunderstanding of the root cause of the current crisis/depression let her to believe government spending is the way out. Dear author, it wasn’t Keynesian economy that got this country out of the last depression. It was the WWII and the destruction of factories and work places in other countries and opening new markets around the world that did it.

    Banks aren’t lending because there is excess factory capacities, excess housing, etc. Banks would love to lend money because after all this is their business model. But they don’t see viable investments because people don’t and can’t borrow money to buy things. Wages have gone down. 18% unemployment. Big portion of federal tax revenue goes to paying interest on borrowed money while military spending is on the increase. States are running huge deficits. Lower tax revenues. These are some of the reasons for lower demands. So you expect more lending when factories are still running below capacity? You think if Greece could print money it would not be in the mess it is? Printing money out of thin air to pay bills is your way out???? Production is the way out. But production to satisfy needs not to create profits.
    Guess what? According to inflation and unemployment is much higher than those reported by the government. GDP is lower.
    I can go on an on. The fact of the matter is that capitalism is rotten to the core. It’s addicted to borrowing, printing money, and creating bobbles. It’s also destroying the environment for profit at a rapid paste. Unemployment and underemployment will only get worse. We need to transcend capitalism.


  5. Don Hawkins said on June 20th, 2010 at 2:46pm #

    Cameron please write more no not today although you can tomorrow is only a day away. Please go on.

  6. Rehmat said on June 21st, 2010 at 3:28am #

    British economy has long been controlled by the Rothschild family and its political parties, like in the US – are also controlled by the “British Friends of Israel” Jewish Lobby.

    New British PM David Cameron and FS William Hague – are also controlled by the “British Friends of Israel” as were the former Gordon Brown and David Miliband. British Foreign Secretary, William Hague 59, has assured the British Friends of Israel: “I am a natural friend of Israel”, and to prove it he asserted that “it would be a mistake to ever rule out military action against Iran (Jewish Chronicle)”. Therefore, I expect another “bail out” coming for the Jewish bankers on the expence of ordinary British taxpayers.

  7. Deadbeat said on June 21st, 2010 at 4:27am #

    Cameron writes …

    Since when Keynesian economy is considered dissident voice?? … I can go on an on. The fact of the matter is that capitalism is rotten to the core. It’s addicted to borrowing, printing money, and creating bobbles. It’s also destroying the environment for profit at a rapid paste. Unemployment and underemployment will only get worse. We need to transcend capitalism

    Thank you for writing this. Liberalism is over and has failed. There clearly a lack of understanding of Marxism and Socialism — ON THE LEFT that needs to be reawakened. The lack of Marxist analysis for years has weakened the Left and placing the Left in an impotent position during this crisis. That is because there is too much bourgeois Chomskyism on the Left and not enough radicalism.

  8. Cameron said on June 21st, 2010 at 1:44pm #

    I meant to write “led her to believe” and “rapid pace”. There are other mistakes. My apologies.
    Deadbeat, I agree with everything you said. Thanks for your comment. Bourgeois economists don’t understand the function of money. The main function of money is to measure value. They think if money is created out of the thin air then commodities and goods are magically created out of the thin air as well. Isn’t that voodoo economy? Without creation of value embodied in commodities money simply becomes useless.
    World War II caused massive destruction of productive capitals in Europe, Japan, etc. Theoretically, the destruction of factories meant less aggregate fixed capital which enhanced the rate of profit for US manufacturing. That is, rate of profit is the ratio of surplus value divided by total capital (variable + fixed). Reduction of fixed capital makes the denominator smaller which enhances the rate of profit (chapter 13 of Das Kapital Vol. 3.). The war also opened up new markets for capitalist goods.
    We should examine the root of the current depression from the falling rate of profit angle. Lack of investments in department I (among other factors) manifests itself in under consumption in department II.
    Don, I’m pressed for time now. I’ll write more later this week if you’re still interested. Thanks.

  9. Don Hawkins said on June 21st, 2010 at 3:22pm #

    Cameron keep writting

  10. Deadbeat said on June 21st, 2010 at 7:42pm #

    Cameron writes…

    Without creation of value embodied in commodities money simply becomes useless.

    I think money is extremely disconnected from value. Money has simply become a source of power and a tool to convince us that money is needed to do any production. I’m preferring these days to consider a society devoid of money. Let people decide democratically what is valuable or not valuable. I think people will choose that the environment is valuable and do a better job of protecting it. But for that to happen the entire system of repression has to be overthrown.

  11. Deadbeat said on June 21st, 2010 at 7:43pm #

    I agree with Don, Cameron. You have a real good grasp of Marxist perspectives. Please keep writing.

  12. Brainetree said on June 23rd, 2010 at 4:44pm #

    The problem isn’t capitalism! We haven’t had true capitalism for decades because the government keeps meddling and sabotaging it. I was amused that Putin of Russia (!) was warning Obama that socialism does not work. And China is telling the U.S. to get it’s financial house in order. What a sad state of affairs! Bush doubled the national debt at the rate of 1.6 billion a day more than we were taking in – Obama is spending 5 billion more a day! Someone pinch me so I can wake up from this nightmare! The numbers are horrifying! Trillions upon trillions of new debt on our backs – how could a nation of 300 million allow this self-destruction? Does it have a death wish? Fiscal insanity! National ruin is fast approaching and we did it to ourselves by not demanding fiscal sanity and accountability of our lawmakers! One would think that in view of the current crisis our leaders would be tightening their belts and exercising restraint, but have you checked the national debt clock lately? It’s spinning faster than ever! We will wake up, but when we do, it may then be too late.

  13. Don Hawkins said on June 23rd, 2010 at 5:59pm #

    The good part is we will use less oil and coal stuff in general.

  14. lichen said on June 23rd, 2010 at 6:07pm #

    Yes, we do have “real capitalism”–which is just privatization, forcing debts onto countries, severe economic inequality, and anti-democracy.

  15. lichen said on June 23rd, 2010 at 6:09pm #

    And you can look at the “debt clock” all you want–none of it is real. We could stop spending that on war right now and bring single-payer healthcare, guaranteed housing, free college education, full funding for green energy, free public transportation including high-speed rail…

  16. Brainetree said on June 23rd, 2010 at 6:44pm #

    No, we do not have real capitalism. True capitalism in its original sense was freedom, like in our early history. THAT is what I mean by the word. What you speak of is a perversion of it, primarily due to government interference, the FED, and laws so numerous regulating business down and the citizenry down to every last detail of life. We most certainly are no longer a free nation.

    lichen, I don’t know where you are coming from politically, but I like Peter Schiff and Thomas Jefferson. I almost sense a socialist bent in your wording. I think socialism has been discredited – it is the opposite of true freedom, such as our Founding Father espoused. Socialism is what is bringing this nation to ruin. Like Obamacare, FORCING people to enrolled in these government plans. It is an outrage – this is not freedom. We are witnessing the beginning of the end of the our nation.

    The biggest threat of all is the end of separation between church and state. A theocratic tyranny is developing. Our Founding Fathers enacted safeguards, but they are being dismantled, and the result will be the return of intolerance and persecution. Our leaders have no business visiting the Vatican and letting the papacy dictate American policy. Whenever the church has obtain control of the secular, civil government, she has used it to punish dissent from her dogmas. Our once greatest of all nations, so blessed of God, is repudiating her Constitution. Even our last president said, “The Constitution’s just a damned piece of paper.” It is sad to watch, but everything good about America is being tossed to the winds step by step, and a tyranny is developing, which will end only in national ruin.

  17. lichen said on June 23rd, 2010 at 6:56pm #

    Yes, capitalism is the freedom for the super-rich to become even richer at the expense of causing extreme poverty and suffering for the other 99% of the people in the world. Single-payer healthcare works better and costs less than the exclusionary US system, which is in violation of universally recognized human rights. No one can be “free” if their human right to housing, a living wage job with good benefits, college education, healthy food, clean water and air are violated. Providing these things to everyone as a guaranteed right has not been discredited, but is thriving successfully while the elitist free market poverty-spreading neoliberal model has been rejected the world over by the people, though not the elite.

  18. lichen said on June 23rd, 2010 at 7:45pm #

    I hope you realize anyone else could just as easily claim that the Soviet Union and China were “perversions” of true socialism or communism. The argument goes nowhere. Sweden and Venezeula are also still capitalist countries, but they take care of their people instead of pushing them into homelessness, hunger, and jails like the oppressive free market model dictates.

  19. Deadbeat said on June 23rd, 2010 at 11:07pm #

    To educate yourself about the current crisis …

    Capitalism Hits the Fan

    Nice to see lichen defend Socialism after he red baited me on the BP spew. But that’s typical behavior of Liberals — if right go left and if left go right

  20. Deadbeat said on June 23rd, 2010 at 11:21pm #

    Lichen writes …

    I hope you realize anyone else could just as easily claim that the Soviet Union and China were “perversions” of true socialism or communism. The argument goes nowhere. Sweden and Venezeula are also still capitalist countries, but they take care of their people instead of pushing them into homelessness, hunger, and jails like the oppressive free market model dictates.

    The message here is typical Liberalism and you can see a desperate desire among Liberal to salvage Capitalism.

    First Chavez prefers Socialism here are his views …
    The Meaning of 21st Century Socialism for Venezuela

    The reason why no nation can move to Socialism is that Socialism will NOT come from governments and will NOT emerge from the top down. Capitalism is too unstable to maintain Liberalism which is what lichen advocates. As we have seen with Venezuela there was a coup attempt by the elites who wanted to reimposed neo-Liberalism. Also the reason why full Socialism won’t come to Venezuela is because OF GLOBAL CAPITALISM and the current form of banking and resource allocations.

    Keynesian economics which lichen seem to be praising in his remarks is not stable because what defined Capitalism is PROFIT GROWTH and EXPLOITATION. Isn’t it odd that an “environmentalist” would want to argue for the maintenance of this system.

    Also Keynesian economics is UNDEMOCRATIC. The most notable feature of Keynesian economics is ELITISM. You need elite managers to run the system because only elite managers (economics) tries to devise policy to try to maintain a system of balance amongst a system that DEMAND PROFIT GROWTH and EXPLOITATION. Only elites can lie to themselves and controls so much of the propaganda system and educational system that convinces people to acquiesce to their “brillance”.

    So lichen really needs to take a stand. Either Capitalism OR Socialism but both cannot co-exist.

  21. bozh said on June 24th, 2010 at 5:32am #

    In short, stop the division of people into classes with top class controling everything and thus dehumanizing at least 80% of pop.
    Only evil arises from such structure. tnx

  22. Max Shields said on June 24th, 2010 at 8:57am #

    Chavez is not a doctrinaire Marxist/Socialist – even Fidel Castro who once was, has changed as the original Cuban experiment collapsed under the heavy use of industrial farming and removal of cheap oil from the USSR.

    Socialization is something that should be understood. Not everything need be socialized; or totally decapitalized. The problem is that we have become so wed to ideologies that the real issues disappear and rhetorical commentary has taken its place. Nothing gets solved. Chavez has improved the lot of Venezuelian peasants; and yes he has socialized certain aspects of the economy, but he has never attempted to eliminate many of the premises of capitalism.

  23. Cameron said on June 24th, 2010 at 10:30am #

    No doubt that the so called “deficit terrorists” approach by Greece, Spain, UK, Japan, and other countries is nothing but to foot the bill to the working class. By bailing out banks, financial institutions, auto, housing governments basically passed on corporate debts to sovereign debts which is the same as passing to the working class indirectly. Governments are now in the process of converting sovereign debts to working class debts directly by raising taxes, cutting benefits, etc in the name of austerity measure. That is why we see rich is getting richer and the working class is getting poorer. Governments of UK … are following the Greek and Spanish ruling classes forcing the so called austerity measures. They’re beginning to see the end of this borrow, print, bubble economy lead to complete collapse. Not only have they borrowed so much money but also printed so much out of thin air. Let’s examine, for example, US Federal Reserve’s balance sheet. What’s in it?
    1. The so called “quantitative easing”. Bought US bonds. Treasury borrows money from the fed. Fed prints money and buys.
    2. Junk mortgage backed securities purchased by the fed from bankrupt banks.
    3. Money lent to financial institutions at zero interest rate. Banks borrow at zero interest rate then turn around and buy US bonds and earn interest on them. What a nice business model for financial capital. Borrow at zero percent from government and lend it to government and earn interest. That’s the interest money taken off of savings accounts of ordinary citizens whose bank savings accounts are earning near zero interest rate.
    Ok borrow and print money and create bubbles. This is what Ellen is prescribing. Print money out of thin air and pour it over public works. This is called running on empty. Print money and build bridges to go nowhere. And it has saved Japan?
    Money printed out of thin air is inflationary if and when it enters circulation. Inflation is indirect tax on the working class.
    Pumping money printed out of thin air into economy when there is excess capacity ends up in speculation. We have seen that in housing and stock markets in the past and recently again in stock markets and commodities especially gold. For example, average price of production of gold is around $300 – $400 an ounce. Let’s be conservative and assume $500/ounce. Currently price of gold is hovering around $1200/ounce. Will it go higher? Most likely it will due to speculation. It can go up for a long time but eventually it’ll come down just as house prices went up and up and now are coming down. Price is regulated by value. What I mean is that if the value of gold is $500/ounce then at some point in the future, if the current condition stays the same, the price of gold would not only come back to $500/ounce it will go below that for a while. Look at the price of gold in late 70’s. It went as high as $800/ounce and then it went down to $250/ounce in early 2000.
    Value works like a gravitational force for price. When price goes above or below value, it gravitates back to the value. We’ve seen that in recent past for housing, oil, stock market, food, etc.

    Little history of where we come from. Stagflation of 1970’s (due to falling rate of profit) led the fed to print money and offer businesses artificially low rates of interest while cutting their taxes. The government did other tricks to increase rate of profit. But what was missing was the demand for goods produced. Wages of working class have been stagnating at best. Ordinary people did not and do not have the power to buy all the goods produced. Well then, easy credit was made available to public. Credit card offers showed up in the mail every day. Loans were easily made available especially for purchasing homes and home equity loans. It worked. Consumers borrowed heavily to buy. This of course resulted in heavy debt. During this process rate of profit continued to decline and it was time for NAFTA, CAFTA, and WTO. Send manufacturing to other countries to make more profit. And currently industries are operating with excess capacity. Cheap money made available by the fed was and is ending up in speculative activities. What’s different now is that the working class is burdened with high debt on the one hand and heavy government debt (which is indirect debt for now) on the other. People cannot and will not borrow like the way they did in the past. This is why money supply is shrinking. No money invested in building industries due to excess existing capacities and lack of purchasing power of ordinary people who are unable to borrow even if they want to. Of course the easy path is to keep printing money out of thin air and pump it into circulation. Government has tried very hard to inflate away the debt. That is, create inflation. Government has had some success but not as much as it wants to. This is where Ellen economy comes in. Force the printed money into circulation. Create hyperinflation. In other words, raise indirect tax to much higher rate.
    The question is not whether to print or not print more money because neither is the solution. Production to satisfy needs not for profit is the solution.

  24. bozh said on June 24th, 2010 at 1:43pm #

    U’r not saying that some people of a country shld own more of that country than some other people.
    Or are u saying that 2% of people shld own 35% of america; another 20% of people 60% ; and finally homeless people owning only a sleeping bag and a dry place to lay the bag on?

    Don’t then even chimps, lions, and gorillas have a better social structure than people in US?

    Suppose u have two kids and i have two kids. Their needs may be the same. But if i bring home $200k and u $40k, it wld mean ur kids wld not get dental care, golf clubs, musical instruments and mine cld and most likely wld.

    On which grounds wld u justify this? tnx

  25. lichen said on June 24th, 2010 at 2:44pm #

    Max is right; the obsession with ideologies and these words is a big problem. My point was that Chavez has not 100% moved Venezeula to a non-capitalist system thus far; yet he is solving many of the problems that people say cannot be solved without completely destroying “capitalism” (whatever the hell that is…) Also, Scandinavian social democracy, in it’s prime, did a lot great things for it’s people (living wages, healthcare, college education, housing for all, shorter work weeks, paid vacation…) while still having a free market for consumer goods. I know I would have been greatly helped in my life to have such things, though of course there are and were still problems in those countries, as well as in Venezuela. Better thus to advocate certain individual policies, then bring it to some abstract label.

    Anyway, my comments are for anyone else reading; I know deadbeat will never be interested in understanding what I say.

  26. bozh said on June 24th, 2010 at 3:46pm #

    Talking ab not talking ab big words, why talk ab capitalism; which, to me, exist everywhere and yet assiduously avoiding to postulate that we have only two structures of societies avaialble to us: one extremely inegalitarian as in India and extremely egalitarian one like in vietnam.
    We can also have only two structures of governance: a much timocratic one or much democratic-corrupt one!

    In some countries, the structures of governance and societies are mid way btwn
    two antipodes. The question is, which way are the societies in midway of development going now? Ever greater equality or inequality?

    The question pertains to canada and US also. But i think that lichen and max, who were made in america, just can’t let go of the noton how gret america really is; needing some small patches and everything wld be OK.
    But don’t like to explicitly say it; for own reasons!
    C’mon, declare selves. For i will not go on forever reading people’s posts which beat bush and around bushes but avoid to even postulate the causes let alone actually posit some. tnx

  27. lichen said on June 24th, 2010 at 4:07pm #

    Bozh, I’m not a nationalist; I don’t in any way “like” america or think it is great; I think it needs to be abolished completely, overhauled, changed into something completely different, and on all levels, not just getting rid of “capitalism” with everything else vaguely left to fall into place. I don’t know why you don’t include direct, participatory, decentralized democracy, one-vote one-person, in your list of ways of governance? We don’t need politicians or Plato. I don’t think Vietnam is as egalitarian as you think.

  28. lichen said on June 24th, 2010 at 4:59pm #

    And would you like us to label you because you come from Canada, bozh? Do you beleive Canadians as a whole are some superior race, despite their war against Afghanistan, the tar sands, being tied down by the British monarchy? I would say that “98% of Canadians support war,” is just as valid as the unfounded statement you repeat about americans.

  29. Don Hawkins said on June 24th, 2010 at 5:30pm #

    The truth if you have never heard the truth will be a lie and you will fight with all your heart and soul to just hear one more lie. To never have used your ears your eye’s so called leaders, economic elites, talking heads to never have used your mind but just the illusion of knowledge that you learned in school is a prison for your mind. There’s these two pills a blue one and a red one. Take the blue pill and you stay in dreamland, illusion take the red pill and I show you how deep the rabbit hole goes and easy it will not be just the truth.

  30. bozh said on June 24th, 2010 at 6:03pm #

    Lichen, canadians are a melange of people; just like US. And i have never said there are two species of people on this planet.
    Ab 77% of canadians, by voting in either Liberal or Conservatives [two wings of one corporate party], aprobate canadian wars post ww2.

    Canada, in view of its nuclear umbrella, geographic positon, and wealth is one the most secure countries in the world; thus, in relation to that reality, canada is extremely bellicose.
    In US in ‘o8, 98% voted for wars in iraq and afgh’n. Whether they know that there is just one party in US, is another matter.

    Ok, i apologize for saying that u think america is great. However, will u acknowledge, that there is a root cause for US behavior? We cannot forever talk ab symptoms or solely treat symptoms- we wld like to know causes for them.

    Too many people come on this site as fierce defenders of human rights and eventually approbate violations of most basic human rights.
    Some ‘jews’ are particularly bad in this attitude. They forever criticize israel only to eventually deny palestinian ROR or one state solution; while opting for counties for pal’ns and a country for ‘jews’ only.

    And, of course, there are a lot of americans who criticize US but never ever proffer a solution or have voted for one party system. tnx

  31. bozh said on June 24th, 2010 at 6:17pm #

    Of course, an honest governance wld not only include the right for each person to vote- it wld actualy include the right for people to hold referendums.

    As for vietnamese society being extremely egalitarian, i wld like now to take back that stupid word “extremely”. Very egalitarian- at least on communistic wishing level.
    In practise it is often difficult to teach people to behave as humans shld behave. After all, we ?all are by nature and education thieves. And one cannot change that in a few yrs or even decades.
    Anyway, i am not schooled in human behavior; so, i’l let scholars tell us what is going on in korea, cuba, vietnam, or china regarding how people treat each other.
    I do believe that socialists wld teach their flock some manners! tnx

  32. Don Hawkins said on June 24th, 2010 at 6:30pm #

    A one party system well the Earth is about to show us a one party system next week it appears. The shit is about to hit the fan from the looks of that storm in the Caribbean and the different party’s here in the States will let’s see blame each other of course and lie like dogs then have lunch and go on a talk show. 2020

  33. Don Hawkins said on June 24th, 2010 at 7:00pm #

    Maybe next week we will get another grand speech on Hope heck he could do it live from the Gulf and tell us all how much money is coming to fix a problem that money can’t buy/fix. A new way of thinking is needed and soon.

  34. lichen said on June 24th, 2010 at 8:32pm #

    Bozh, Ok. Since only 50% of eligible voters voted at all in 2008, I would say your figure is not quite accurate on that basis; so many people are disenfranchised–perhaps if they had a real choice, things would be quite different. I agree with you, about people-run referendums; why should only corporate-sponsored politicians be able to write legislation?

    Surely there is a root cause for the behavior of the US political elite and those that participate in it–they are essentially ugly inside, and were made so after birth by cruel, abusive treatment as children. If they weren’t victimized in that way, they could never be able to launch these wars, prop up this economic elitism; their bodies, without those imprinted cellular memories of cruelty and violence, couldn’t imagine doing that. I agree with you that some people claim to defend human rights, but then they find some ideological exception for it, and the blinders come on.

    I’m quite certain that people treat each other better in Sweden than in China.