| Subject: | [socialcredit] "Reply to Zarlenga" | | Date: | Friday, August 3, 2007 15:39:21 (-0700) | | From: | william_b_ryan <william_b_ryan @.....com>
|
The following very interesting "Reply to Zarlenga" is
from William Krehm's journal for July, which may be
downloaded in its entirety at http://www.comer.org
The July issue also contains an article by our list
member, Keith Wilde.
------------------------------------------
Reply to Stephen Zarlenga of the American Monetary
Institute
by
William Krehm
Dear Stephen:
The friendly feelings that you express in our e-mail
of 30/05 are mutual.
You write: "Your issue — allowing the banks to
continue to hold on to special monetary privileges —
would never be considered for a focus of a workshop of
the American Monetary Institute, You had an
opportunity to bring it up during one or two sessions
on the American Monetary Act, and had time to make
your point, but as far as I could tell did not
convince anyone. Then if I remember correctly your
travel schedule took you away before the conference
ended."
Let me take your answers in reverse. My air flight
reservation was made after consulting your conference
schedule and I booked my departure when nothing was
left but time on the beach. Moreover, I had carefully
read the first 15 chapters or so of your book for five
installments of a very laudatory review that I was
writing for Economic Reform. In these I encountered a
good version of the development of fractional
reserves, that is the very essence of banking —
lending out more money than is actually in the bank’s
vaults, but never failing to meet depositors’ claims
as they come in. I had no notion from those 15
chapters that it was your purpose to prohibit the
banks to do banking, for fractional reserves are the
very essence of what banking is about. What you
propose to limit them to is "intermediation" which is
passing on no more than has been deposited with them,
but taking the risk of getting it back at a profit.
That raises a couple of problems that you avoid
addressing with your reference to "morality." Morality
would require you to explain how you are going to
replace a historical function without which the
development of modern society could not have
developed. This involves among much else carefully
assessing the creditworthiness of the individual
borrower — no small task in the modern world of credit
cards, email transfers, etc.
It is astounding that you should ignore this problem
at a time when the banks are tottering with their
investments in subprime mortgages, where debts are
syndicated, and packaged electronically according to
their degree of risk ascertained in this way, and to
fill the exploding demand of financial markets for
such graded debt, which is supposed to produce serious
"risk management." What results is supposed to be
"more efficient" by relieving the bank of a key
banking function. And by wishing to reduce the banks
to "intermediaries" — as they have often wrongly
claimed to be — you feel more moral? You think that
the government is in a position to do such
mini-investigation? Then you should not have evaded
the question, but have allowed those who came to the
conference to ask it. I did in the question period,
but received no answer.
While you are pursuing your Utopia of running a modern
world without the legitimate services of banks, little
or no attention was paid to bringing back — in more
stringent form — ways of dealing with the appearance
of credit cards and countless other convenient forms
of credit. These have all been abused to lure their
users into spending beyond their means and becoming
victims of usury. Or strengthening walls that should
have been reinforced to prevent banks from taking over
the other financial pillars and misusing their
reserves for speculations.
Nor did your concern for morality prevent you from
announcing the probable attendance of William Greider,
whose book Secrets of the Temple ushered in a new
epoch of the monetary reform. Greider is a leading
member of FOMC Alert that I spoke of in my scant 20
minutes, providing their email address — a voluntary
research group specializing on the operations of the
monetary system, that provides its publications to
researchers free of charge. Greider is a prominent
leader of that institution, and though you borrowed
the name of that great champion of fractional reserve
banking, you considered it immoral to devote your
sessions to a discussion of it?
Palley’s Plan for Extending Fractional Reserve Banking
While picturing me as abandoned by my collaborators of
COMER, the fact is that FOMC Alert has taken up the
idea of Thomas Palley for the necessary extension of
fractional reserve to the "other financial pillars" —
the stock market and insurance. The legislation
brought in under Roosevelt banned the banks from
entering these, but now constitute a many-storeyed
playground for their games.
Palley proposes requiring their backing the financial
assets with statutory deposits with the central bank
as still exists in a crippled form in the US in the
case of federal banks. That is something that you
might have examined at your sessions.
And what do you think that an army of say a half
million civil servants checking the creditworthiness
etc. of customers of the government retail banks would
be? And its cost to borrowers? And its effect on the
price level? And how would you distinguish between
real inflation — due to an excess of demand over
available supply — and the mere changing structures of
the mixed economy with much of the price rise
resulting from the increase of necessary public
services. That happens to have been a COMER special
subject — almost 40 years ago the leading French
publication of the time purchased and published a
60-page article on the theme.
If I may say so, Stephen, your problem is that you see
the important field of monetary reform as something
that you personally — in the good old American way —
must patent. You actually had others at that
conference who have generalized the single tax idea of
Henry George to the entire economy and advocate that
legitimate patents that do exist be bought out by the
government to keep them out of prices. But I gathered
they were warned that if they raised issues not on the
scheduled list, they would not be allowed to sell
their books on the site.
You raise the issue of Bill Hixson. Elsewhere in this
issue you will find my criticism of Bill’s latest
book, part of which COMER published a decade ago. In
the portion more recently written on page 69 you will
find the following passage: "Whether the government
should create all the money and private financial
institutions create none of it is debatable. But that
the government should create only $13 billion per year
compared to $170 billion per year created by the
private banks is simply crazy." Surely that doesn’t
sound like a flat-footed endorsement of 100% money.
And in the response to your request for a comment on
my comment. You quote Bill in part as follows
referring to 100% money: "I also believe that we
should approach this ideal in a step by step process
over several years so as not to rock the boat too
violently at any one time. I believed this way several
years before 1997, at the time of the founding of
COMER, and I believe the same today."
The trouble is that with the escalation of the
leverage of banks we don’t have those several years to
wait. The canoe has become an ocean liner and it is
sinking. It has become a time of ever higher military
solutions. To stave off what you consider the only
moral solution several years means to give up the
battle. Most decidedly Bill Hixson will not be of that
position, if it is spelled out to him.
I would not wish to pay anything less than the deepest
respect to your or anyone else’s moral sensitivities
on the matter of 100% money or anything else. For
people who feel it is immoral to have banks do banking
— that is lend out more money than they have with the
central bank or in their vaults, there are churches,
mosques and synagogues to satisfy their religious
feelings on the subject.
Since you did not consider it bending morality a bit
to invite a future presidential candidate hopeful to
address the conference, you might have concerned
yourself with educating the man to the perils of
disposing of the Sarbanes Oxley legislation that still
survives in the US, or in Canada the entire Bank of
Canada Act which is still on the law books but utterly
disregarded. That translates into lead-poisoned water
mains in our cities, and planet warming. It is
ridiculous to omit all discussions of these matters at
an economic conference. But how can you discuss them
if you exclude mention of the proper use of fractional
reserves? Fractional reserves are a complement to
non-commodity money, about which you in your early
chapters had written so well.
Banks should not be in the credit-card business, or in
the stock market, etc., in any shape or form. But move
to credit money and you must investigate the risk
factor domestically and abroad. Are you going to leave
that to governments? If you do, you don’t read your
newspapers. And if you consider the vast volume of
politics that has gone into organizing your economic
conference, not excluding the blank Certificates of
Merit handed out for the awarded to fill in, and much
else, you should have no difficulty in getting the
point.
And there is urgency about acting. When economic
policy fails in an economy set up to grow
exponentially, there is only the military solution
left to our governments. They have after all abandoned
just about everything that was learned about
economics, including fractional reserve money for the
public good.
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