Two Studies in High Finance

Part 1 – From Bible Bill to Uncle Ben

In 1932, in the depths of the Great Depression in Alberta, William Aberhart, a Calgary school principal, lay Baptist preacher and creator of The Prophetic Bible Institute and its radio program “Back To The Bible Hour,” founded Alberta’s Social Credit Party. Four years later, he and his party were swept into power and he became Premier of the Province of Alberta. “Bible Bill” – as he was called by his mainstream party scoffers – died in 1943, but the Social Credit Party was to hold sway in the Province of Alberta until 1971.

Social Credit, as conceived by “Bible Bill,” followed the economic theories of one Major C.H. Douglas, a British engineer, advocating the distribution of Provincial government “dividends” to the people, specifically $25 a month to every person in the Province, based on the assumption that the shortfall between the public’s purchasing power and the costs of production was the root cause of the Great Depression. As you can imagine, “Bible Bill” and Social Credit went over pretty big with the people in what was not only the poorest Province in Canada but was, in fact, the only Province ever to default on its funded debt.

Once in power, Aberhart enacted legislation that would mandate such a public distribution of “dividends,” but because economic and monetary policy were in the Federal jurisdiction, Aberhart’s brainchild was struck down and declared ultra vires by the Supreme Court of Canada. Save for its public dividend pretensions, the Social Credit Party continued in power as a moderately successful conservative party for the following 36 years. As such, they happened to have encourage oil exploration.

In 1948, Alberta struck oil, as well as – you might say – a good deal of social credit, such that the Province rapidly became debt free, and – dubbed Texas North – became in due course the wealthiest Province in Canada. At one point, the Social Credit ruling party made a modest distribution (an “oil dividend”) to the citizenry, but it was a one-time event, and in view of the oil-driven prosperity at the time, totally irrelevant vis-à-vis Social Credit monetary theory. That didn’t stop the Party faithful from hailing the oil bonanza and the resulting dividend as the rightful vindication of Bible Bill’s prophecy,

A characteristic of the Liberal and Conservative Parties in Canada is that they invariably ridicule the populist uprisings – such as Social Credit au droit and the NDP (New Democratic Party) a gauche. But they tend to proselytize the better ideas from the fringes – such as universal health care or selling oil to Americans and Chinese – and pretend that they were their ideas.

One other footnote: Bible Bill did succeed in creating what he had hoped would be Alberta’s central banking system – The Alberta Treasury Branch, a viable publicly owned financial institution which continues to thrive today with 157 branches and assets of $40 billion or so – although constrained from calling itself a “bank” because of Canada’s prissy definition of what a bank should be (i.e. approved by legislation put in place by the extant chartered banking industry).

Ironically, the Alberta Treasury Branch operates not far away from the Bank of North Dakota, the only state-owned public bank in America.

Part 2 – Bring On The Empty Helicopters!
(Should we go back to the Bible?)

In 2002, then-Federal Reserve Chairman Ben Bernanke delivered a do-what-I- say-not-what-I-do speech to the Japanese. Japan at the time was experiencing a deflationary recession as the final stage in its decade-long malaise, which had seen annual growth hovering around 1% for as many years. It was simple, Uncle Ben proposed: the Bank of Japan, as central bank, should act aggressively by making cash payments out of the blue straight into all Japanese households. Ah, so. Literally, pennies from Heaven – or rather yen. Spend it on saki and sushi, he said. Or buy a few shares of Mitsubishi. Additional spending and the resulting demand will raise prices.

Bernanke’s exit line evoked an analogy that must have resonated with a nation that had discovered the aircraft solution to naval combat: he referred to his central bank windfall strategy as “a helicopter drop” of gratuitous yen on the people.

Everybody – especially polite official Japan – smiled, bowed from the waist, probably paid his airline fare and ignored Bernanke’s recommendation. They did nothing. Back home at the Fed, neither did Ben. Japan’s recession and America’s impending crisis are, of course, history. Except that Bernanke’s later Quantitative Easing program , rather than a helicopter drop on the 99%, could more accurately be depicted as backing a fleet of UPS trucks loaded with legal tender up to the doors of the topless towers of Wall Street.

Actually, Ben Bernanke didn’t invent the helicopter–drop analogy. Milton Friedman, Harvard economic luminary and everybody’s favorite right-wing economist, thought that one up. You remember Uncle Milty – he was John McCain’s economic advisor during the ’08 campaign. Malheureusement, McCain didn’t listen to him.

So nu? (to quote my Jewish Aunt Sadie) According to Ellen Brown, the California attorney who writes common sense stuff about central (and peripheral) banking, the world’s supposedly leading economies “are drowning in debt, and central banks have played all their other cards.” Ellen even quotes Winston Churchill:

You can always count on Americans to do the right thing, after they’ve tried everything else.

In Bernanke’s case, before his departure back to Princeton, he left his predecessor Janet Yellen with a stacked deck. The last weapon in the Fed’s arsenal had been played: three years of open market operations, with Wall Street banks the recipients. If you buy enough toxic garbage known as Mortgage-Backed Securities from TBTF banks’ inventories, it says in Economics 101 that you thereby increase money supply, which is good. But Bernanke’s expansion through quantitative easing resulted in expanding instead the wealth of the bad guys; i.e., adding a few stories to the topless towers.

Winnie must have known what he was talking about – his mother was an American, although not a central banker.

Still, the word is getting around in knowledgeable economic circles that just maybe we should be revving up the monetary helicopters. Render unto the people that which is the people’s – not unto Daddy Warbucks and the derivative traders. Ellen also quotes Mark Blyth and Eric Lonergan, writing in “Foreign Affairs,” which is the mouthpiece of – wait for it – The Council On Foreign Relations, America’s favorite de rigueur think tank.

It’s well past time, then, for U.S. policymakers — as well as their counterparts in other developed countries — to consider a version of Friedman’s helicopter drops. In the short term, such cash transfers could jump-start the economy. Over the long term, they could reduce dependence on the banking system for growth and reverse the trend of rising inequality. The transfers wouldn’t cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them.

Why has no government tried them? Well, just maybe because it sounds like kind of looney-tunes for a responsible modern government – you know, like the one that invaded Iraq or the one currently invading Ukraine – to give pennies from Heaven to the people, of all things. Instead of the usual thing, like the people giving money to the government to play with. It sounds like Bible Bill Aberhart, that ancient Alberta nutcase.

Inflationary? Hell, no, according to Lonergan, Blyth and CFR:

The main reason governments have not tried this approach is the widespread belief that it will trigger hyperinflation. But will it? In a Forbes article titled “Money Growth Does Not Cause Inflation!” the writer argues that the rule as taught in economics class is based on some invalid assumptions. When the velocity of money and the quantity of goods sold are constant, adding money must drive up prices But the two are not constant… only when demand is saturated and productivity is at full capacity – will consumer prices be driven up. And they are nowhere near their limits yet.

Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

Pardon my high school math, but that sounds to me like Bible Bill.

Bill Annett writes four newsletters: The Canadian Shield, American Logo, Beating the Street, and The Oyster World. He can be reached at: Read other articles by Bill.