“The solution of Abraham Lincoln and the American colonists can work today’
US attorney Ellen Brown recalls; “The right of government to issue its own money was one of the principles for which the American Revolution was fought. Americans are increasingly waking up to the fact that the vast majority of the money supply is no longer issued by the government but is created by private banks when they make loans; and that with that power goes enormous power over the economy itself”.
Former Federal Reserve Chairman Alan Greenspan said in 2011: “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default” and on May 9th, Donald Trump, the Republican presidential candidate, said on CNN, “You print the money . . . if we can buy back government debt at a discount – in other words, if interest rates go up and we can buy bonds back at a discount – if we are liquid enough as a country we should do that . . .”
Ellen notes that Richard Duncan, a very interesting writer who began his career as an equities analyst in Hong Kong and is now chief economist at Blackhorse Asset Management in Singapore, makes a strong case for going further than just monetizing existing debt. He argues that under current market conditions, the US could actually rebuild its collapsing infrastructure by printing the money, without causing price inflation.
She comments: “Paying the government’s debts by just issuing the money is as American as apple pie – if you go back far enough. Benjamin Franklin attributed the remarkable growth of the American colonies to this innovative funding solution. Abraham Lincoln revived the colonial system of government-issued money when he endorsed the printing of US Notes or “greenbacks” during the Civil War. The greenbacks not only helped the Union win the war but triggered a period of robust national growth and saved the taxpayers about $14 billion in interest payments”. She describes the process in detail in her Max Keiser report, adding that Trump was not talking about borrowing the money but about printing it.
CNNMoney’s response was: “That can cause inflation (or even hyperinflation), and send prices of everything from food to rent skyrocketing”. Ellen refutes this: “The Federal Reserve has already bought $4.5 trillion in assets, $2.7 trillion of which were federal securities, simply by ‘printing the money’ “. She observes that when the Fed’s QE program was initiated, it did not even create the modest 2% inflation – the Fed’s target. QE was combined with ZIRP – zero interest rates for banks – encouraging borrowing for speculation, driving up the stock market and real estate. But the Consumer Price Index, productivity and jobs barely budged.
The European Central Bank and the Bank of Japan also began to buy back massive amounts of their own governments’ debts by simply issuing the money. There too, the inflation needle has barely budged. As noted on CNBC in February: “Central banks have been pumping money into the global economy without a whole lot to show for it other than sharply higher stock prices, and even that has been on the downturn for the past year. Growth remains anemic, and worries are escalating that the U.S. and the rest of the world are on the brink of a recession, despite bargain-basement interest rates and trillions in liquidity”.
Fergus Cumming at the Bank of England has written an interesting blog on the subject
Ellen Brown lists a few alternatives to QE ‘as done today’, when the newly issued money makes it no further than the balance sheets of banks
She notes that as European economists and central bankers are at odds about how to revive economies which are flagging despite radical austerity measures and increasingly unrepayable debt, one ‘hotly debated proposal’ repeats the “helicopter money” proposal – just issue money into the producing economy or the pockets of consumers, where it would need to go in order to create the demand necessary to stimulate productivity.
Proposed alternatives include a universal national dividend; zero or low interest loans to local governments; and “people’s QE” for infrastructure, job creation, student debt relief, etc.
Ellen Brown’s article may be read here.