PART 2 — ECONOMIC DEMOCRACY OR CORPORATE HEGEMONY
Divine Right of Capital & Economic Democracy
CLASS 6: MONETARY SYSTEM FAILURE OF 2008 &
PUBLIC CONTROL OF THE MONEY SUPPLY
History of Money, Private vs. Public Control of Our Money Supply
Purpose: This class takes a serious look at money, what it is, where it comes from, and how we can get it to work for the betterment of all of us rather than just the 1%.
Materials
Readings: Justice Rising, Winter 2009, Money for People Not Corporate Plunder; Spring 2009, Deglobalization/Relocalization
Handouts: Questions & Article Rankings, Talking Points
Paradigm: We are told that the only way to get money is to work hard for it and that certain people have a lot of money because they produced something of value for the rest of us. The reality, however, is that the banks and the Federal Reserve, a private/public undertaking driven by the big banks, create money out of thin air and distribute it to their supporters and friends.
Context: Our monetary system is a public common. We depend upon our monetary system to enable a stable and secure economic future with meaningful jobs, livable wages and secure housing. Policy makers have understood the importance of public control of the monetary system since the dawn of civilization.
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Money’s origin comes from our concept of value. Policy makers initially created monetary value to provide compensation for horrific human events. They used cows as currency to mitigate human tragedy, e.g., two cows from one clan for the grief and loss they caused around the death of a member of another clan. Public authorities administered these exchanges to maintain peace within communities.
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The popular narrative is that before humans used money they utilized a barter-based economy. The reality appears to be that barter was rarely used. People simply took care of each other. It was essentially a gifting economy.
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Public authorities developed the first money to finance public undertakings that distributed money to the general populace who needed some of that money to pay the taxes that the public authorities collected. Greece, the Middle East, and China created some of the first successful monetary systems to promote trade in their domains and along the Silk Road trade route.
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Throughout history public authorities kept a tight rein over their monetary systems to guard against counterfeiters and chiselers who constantly attempted to make monetary systems work for their own private good rather than the common public good. Government administrators also guarded the money supply because they knew that money was power. Owning a lot of money is like owing a lot of robotic slaves. Money can build infrastructure and provide services for the public good or can be used to rape, pillage and rob the vulnerable and unsuspecting. Without a public guardian of the money supply, there is no protection of the common good or the vulnerable and unsuspecting.
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Private bankers took control of the money supply in the late 1600s when wealthy financiers of the British Empire forced the king to give their private Bank of England control over the public monetary system. After 250 years of rancorous political discord over private control of the English monetary system, British public authorities brought the monetary system back under public control in 1946.
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The battle for control over the monetary system of the United States has been equally rancorous. When the first Treasurer of the United States, banker Alexander Hamilton, enriched his Wall Street brethren with insider information, America’s farmers and soldiers were so enraged that only a few bankers served as the Secretary of the Treasury over the next century.
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Hamilton followed that up by proposing the first Bank of the United States, largely funded by his British clients. This bank took control of US monetary policy and so enraged it critics that congress did not renew its charter in 1811. By 1816 however, a Second Bank of the United States was chartered by Congress and fierce fights raged again over the authority of the privately run bank to control monetary system. President Andrew Jackson ended that practice, declaring to the private bankers, “You are a den of vipers and thieves. I intend to rout you out.” And he did.
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Private bankers again took over the US monetary system after corporate wealth began financing our elections in 1896. They installed their own policy makers in the early 20th century who depended on big bankers to bail the government out. Creation of the Federal Reserve System (the Fed) in 1913 marked the institutional beginning of private bankers regaining official control over our monetary system. Congress established the Fed as a system of twelve regional banks run by the private national banks in their regions and the Central Federal Reserve Bank in Washington DC, which is administered by both the regional banks and presidential appointees. Due to the power of the big banks to dominate the actions of the regional Fed banks, Fed decision-making is heavily influenced by the biggest private banks.
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The power of the big banks over the Fed has been amplified in recent years by a trend of appointing Wall Street bankers to be presidents of the regional Fed banks. William C. Dudley, a former managing director of Goldman Sachs and president of the New York Federal Reserve Bank, is the vice chairman of the Federal Reserve Board and a permanent member of the influential Open Markets Committee, which is in charge of US Monetary Policy.
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Augmenting corporate control of monetary policy by the Fed has been the take over of the Treasury Department by bankers, investors, corporate executives and investment bankers. The chart below shows the evolution of Treasury Secretaries from non-bankers to bankers and corporate executives, and then to investors and investment bankers, who are essentially speculative gamblers. Investment bankers regulating the monetary system resemble foxes guarding the hen house. Even after the 2008 financial crisis both Presidents Obama and Trump continued to appoint investment bankers to be the Secretary of the Treasury, our chief monetary system policy maker.
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The salient events in monetary policymaking of the past century were taking the dollar off the gold standard and having the Fed issue Reserve Notes backed only by the faith of the American people. It is a faith supported by the subliminal message in our consumer-based economy that money is God. Unfortunately, it is a god without a soul or values, allowing private banks and financial institutions to print unlimited quantities of money. As long as the faith of Americans in the dollar holds strong and private bankers control the money supply, wealthy investors will gain power over the making of public policy, which impacts all of our lives. Amazingly, when Wall Street greed and lax regulatory enforcement by their Wall Street brethren in the government caused the monetary system to blow up in 2008, the faith of Americans in their monetary system held firm even though, jobs evaporated, wages sank, businesses went broke, and millions lost their homes. The investment bankers running the monetary system bailed out their banks and wealthy friends, leaving everyone else to struggle. Besides the bailouts, their stimulus policy of quantitative easing produced $80 billion dollars a month and sent it to the banks to further enrich their executives. They should have sent checks to all American citizens, which would have had a much stronger stimulus effect on the economy.
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The increased money supply from quantitative easing also raised the value of stocks and bonds, allowing wealthy investors to grow richer as asset prices rose. As central actors in most major financial transactions, bankers grow rich by siphoning off a tiny percentage of the money from each transaction. Meanwhile, wage earners suffer from a stagnant pay scale, creating an income inequality not seen since the feudal ages.
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The bailouts were based on the fact that the bank-friendly public policy makers claimed our biggest financial institutions were too-big-to-fail. If they were too big to fail then, will the taxpayers have to bail them out again in a future financial crisis?
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One devious scenario is that the banks will perform a bail-in where they take depositor money and convert it into stock of the failing bank. This first happened in Cyprus in 2013 and has been contemplated as public policy by Canada, Cyprus, New Zealand, the US, the UK, and Germany. This could devastate a lot of people’s bank accounts.
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The best way to solve the too-big-to-fail dilemma is to get investment bankers out of our regulatory agencies and for everyone in America to put their money into small local banks or credit unions. Some regulators are confident that they could break up the big banks smoothly, but their Wall-Street friendly bosses are not about to give them a chance.
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The big banks could also be converted to public banks. This makes sense once banks have so much control over the monetary system that they present a systemic risk to all of society. Big banks should then become part of the commons and no longer belong in the private sphere. Our democracy is about people as power, not money as power.
Activities: There are several movies that provide a comprehensive picture of what happened during the financial crisis, including The Big Short and Inside Job. Some of the best analysis came from Matt Taibbi, investigative journalist for Rolling Stone Magazine. You can see videos with him here. The best is probably the one with Bernie Sanders. It is over an hour long, but I have identified several excerpts that you could play for the class. Another clear voice on the causes of the crisis is Sheila Bair, the past head of the Federal Deposit Insurance Corporation, who proved to be one of the few public policymakers looking out for the public good during the financial crisis. Here are several links to her presentations.
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One of the most important points to understand is how banks create money under the fractional reserve banking system. Here is a list of videos on the hocus pocus way that banks create money. The video How Banks Create Money and the Money Multiplier is probably the best. There is also a video of Glenn Beck giving a forthright analysis of the Federal Reserve System
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As a result of the 2008 crisis, the largest banks have increased in size, particularly the biggest four. Here is a chart you can print and hand out showing how much they have grown. JP Morgan Chase has grown by 57%, while Wells Fargo grew by almost 270%. Much of their growth came from the 35 banks they have swallowed up since 1990. JP Morgan’s growth is mainly due to its purchase of Washington Mutual and Bear Stearns at bargain prices during the 2008 crisis, while Wells Fargo bought the much larger Wachovia, and Bank of America bought Countrywide and Merrill Lynch. Wells Fargo also became infamous for trying to stimulate growth by creating thousands of fraudulent accounts without account holder permission.
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At this point, take a break and then come back to deal with all of the questions for the class. You can use the notes on the answers to guide the discussion. It would also be good to talk about some of the best books on money. In the last few minutes of the class pass out the questions and article rankings as well as the talking points for the next class on Public Banking and Other Solutions.
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The day after the class, email the questions and rankings for the next class to everyone and include a current article on the power of Wall Street.
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The day before the next class, send a reminder email that the class is coming up and again attach the questions and article rankings for the next class, Public Banking and Other Solutions. Include a piece on public banking or the health of your local economy.