Market Meltdown: The End of a 300 Year Ponzi Scheme

Where did the Fed itself get the money?  Chris Powell of GATA (the Gold Anti-Trust Action Committee) commented, “[I]n central banking, if you need money for anything, you just sit down and type some up and click it over to someone who is ready to do as you ask with it.”  He added:

If it works for the Federal Reserve, Bank of America, and Countrywide, it can work for everyone else.  For it is no more difficult for the Fed to conjure $2 billion for Bank of America and its friends to “invest” in Countrywide than it would be for the Fed to wire a few thousand dollars into your checking account, calling it, say, an advance on your next tax cut or a mortgage interest rebate awarded to you because some big, bad lender encouraged you to buy a McMansion with no money down in the expectation that you could flip it in a few months for enough profit to buy a regular house.3

Which brings us to the point here: if somebody is going to be “reflating” the economy by typing up money on a computer screen, it should be Congress itself, the publicly accountable entity that alone is authorized to create money under the Constitution. 

The Way Out

Economic collapse has been the predictable end of all Ponzi schemes ever since the Mississippi bubble of the eighteenth century.  The only way out of this fix is to reverse the sleight of hand that got us into it.  If new money must be pumped into the economy, it should be done, not by private banks for private profit, but by the people collectively through their representative government; and the money should be spent, not on bailing out banks and hedge funds that have lost speculative market gambles, but on socially productive services such as rebuilding infrastructure. 

When deflation is tackled by creating new money in the form of debt to private banks, the result is a spiraling vortex of debt and price inflation.  The better solution is to put debt-free money into consumers’ pockets in the form of wages earned.  Workers are increasingly losing their jobs to “outsourcing.”  A government exercising its sovereign right to issue money could pay those workers to build power plants using “clean” energy, high-speed trains, and other needed infrastructure.  The government could then charge users a fee for these services, recycling the money from the government to the economy and back again, avoiding inflation. 

Other considerations aside, we simply cannot afford the bank bailouts coming down the pike.  If it takes $300 billion to avert a market collapse precipitated by a few failing hedge funds, what will the price tag be when the $400-plus trillion derivatives bubble collapses?  Rather than bailing out banks that have usurped our sovereign right to create money, we the people should skip the middlemen and create our own money, debt- and interest-free.  As William Jennings Bryan said in a historic speech a century ago:

[The bankers] tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business.  I stand with Jefferson . . . and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business. . . . [W]hen we have restored the money of the Constitution, all other necessary reforms will be possible, and . . . until that is done there is no reform that can be accomplished.        

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