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OpEdNews Op Eds    H1'ed 12/30/08

Borrowing from Peter to Pay Paul: The Wall Street Ponzi Scheme Called Fractional Reserve Banking

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The objection to government-issued money has always been that it would be inflationary, but today some “reflating” of the economy could be a good thing. Just in the last year, more than $7 trillion in purchasing power has disappeared from the money supply, including wealth destruction in real estate, stocks, mutual fund shares, life insurance and pension fund reserves.6 Money is evaporating because old loans are defaulting and new loans are not being made to replace them.

Fortunately, as Martin Wolf noted in the December 16 Financial Times, “Curing deflation is child’s play in a ‘fiat money’ – a man-made money – system.” The central banks just need to get money flowing into the economy again. Among other ways they could do this, says Wolf, is that “they might finance the government on any scale they think necessary.”7

Rather than throwing money at a failed private banking system, public credit could be redirected into infrastructure and other projects that would get the wheels of production turning again. The Ponzi scheme in which debt is just shuffled around, borrowing from one player to pay another without actually producing anything of real value, could be replaced by a system in which the national credit card became an engine for true productivity and growth. Increased “demand” (money) would come from earned wages and salaries that would increase “supply” (goods and services) rather than merely servicing a perpetually increasing debt. When supply keeps up with demand, the money supply can be increased without inflating prices. In this way the paradigm of “what we can afford” could indeed be superseded by “what we have the capacity to undertake.”


 


  1. Kathleen Pender, “Government Bailout Hits $8.5 Trillion,” San Francisco Chronicle (November 26, 2008).
     
  2. “Federal Reserve Statistical Release H.6, Money Stock Measures,” www.federalreserve.gov (December 18, 2008).
     
  3. Robert de Fremery, “Arguments Are Fallacious for World Central Bank,” The Commercial and Financial Chronicle (September 26, 1963), citing E. Groseclose, Money: The Human Conflict, pages 178-79.
     
  4.  Robert Owen, The Federal Reserve Act (1919); “Who Was Philander Knox?”, www.worldnewsstand.net/history/PhilanderKnox.htm. (1999).   
     
  5. Ron Morrison, “Keynes Without Debt,” www.prosperityuk.com/prosperity/articles/keynes.html (April 2004).
     
  6. Martin Weiss, “Biggest Sea Change of Our Lifetime,” Money and Markets (December 22, 2008).
     
  7. Martin Wolf, “‘Helicopter Ben’ Confronts the Challenge of a Lifetime,” Financial Times (December 16, 2008).
     

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Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling WEB OF DEBT. In THE PUBLIC BANK SOLUTION, her latest book, she explores successful public banking models historically and (more...)
 

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