1848+: Last and First Men

How Bad Will the Economy Get? Really, Really Bad
By Thomas Greco, Jr., AlterNet
Posted on July 14, 2009, Printed on July 14, 2009

http://www.alternet.org/story/141281/

Historically, every financial and economic crisis has been used to
further centralize power and concentrate wealth. This one is no
different, and in fact the moves being promoted by the Obama
administration and the central banks of the Western powers will take the
whole world to the pinnacle of financial despotism — unless enough
people wake up and claim their own “money power.”

In recent months, the Fed has expanded its “assets” from about $800
billion to more than $2,000 billion. Those so-called assets are
securities it bought from financial institutions and loans made to
central banks in other countries. But the Fed refuses to name the
specific recipients of those funds, while admitting that by doing so
they are manipulating the value of the US dollar on foreign exchange
markets. (Congressman Alan Grayson Grills Fed Vice Chair Donald Kohn.)

Where does the Fed get the money to buy those “assets” or to make those
loans? Quite simply, it creates the money. Unlike you or me or any other
economic entity, the Fed has the power to create Federal Reserve dollars
by effectively writing a check against no funds. This is the function
known as “Open Market Operations.”

What is the economy experiencing now, and what is in prospect for the
future? Despite unprecedented inflation of the money supply, we are now
(mid-July, 2009) in a period of depression. How can we have simultaneous
inflation of the currency and still have economic depression?

It is a matter of where the money is going. While the public sector
(federal government) is being lavishly funded to maintain a global
empire, and the banks are being bailed out to try to keep a
dysfunctional and destructive financial system from collapsing, the
private productive sector is being starved for credit. As a result,
businesses are bankrupting, people are losing their jobs and their
incomes, and lower levels of government are being squeezed because their
tax revenues are shrinking.

There is also the matter of the real estate bubble that was created by
the financial institutions as they loaded up the private sector with a
debt burden that was way beyond its ability to bear. Now that burden is
being shifted to the public sector as the government assumes those
“toxic” loans. Unfortunately, it is not the poor suckers who were lured
into the debt trap that are being relieved, but the predatory lenders
who laid the traps. So mortgages are being foreclosed at an
unprecedented scale, people are losing their equity as housing values
plunge, and more Americans are being made homeless.

These are the factors that have so far kept the effects of monetary
inflation from becoming extreme. Ultimately, however, such abusive
issuance of political money shows up as rising prices.

When will the price effects of hyper-inflation begin to kick in? How
will the government respond to it? What will be the social and political
fallout? What can ordinary people do to protect themselves from monetary
and legislative abuses? These are the questions that beg for answers.

Already there are rumblings and signs that the U.S. dollar is about to
lose its status as the global reserve currency. When that happens,
imports of energy and other necessities will become more expensive. The
U.S.’s massive trade deficits will not be sustained into the future.
China, the OPEC countries, and others that have been buying massive
amounts of U.S. government bonds with their dollar earnings, are
indicating that their appetite has been sated. Bilateral and
multilateral trade agreements are being made that bypass the use of the
dollar for international trade.

One thing is clear — we cannot rely upon the government to act in the
best interests of the people. Already, President Obama has moved to give
the Federal Reserve even more power to control the people’s credit and
financial resources. According to a June 18 article in the Wall Street
Journal, “The central bank would win power to monitor risks across the
financial system, and sweeping authority to examine any firm that could
threaten financial stability, even if the Fed wouldn’t normally
supervise the institution.” This is not a new plan; it was floated as a
trial balloon during the Bush administration. As early as March 2008,
then Treasury Secretary Paulson was proposing to “give the Federal
Reserve broad new authority to oversee financial market stability, in
effect allowing it to send SWAT teams into any corner of the industry or
any institution that might pose a risk to the overall system.”

Ostensibly that would be done to prevent the errant financial
institutions from repeating their sins of the recent past, but more
likely it will have the effect of suppressing any private initiative
that might compete with the financial cartel. The Fed is, after all, a
private company run by the bankers for the bankers. A recent Reuters
article is critical of Obama’s move because of the Fed’s lack of
accountability. It is a plan that seeks to preserve at all costs the
credit monopoly that exists under the central banking regime and to
perpetuate the looting of the economy by monetization of federal
government debts and other ultimately worthless “assets.”

During the Great Depression, President Franking Roosevelt, upon taking
office in 1933, declared a “bank holiday.” He ordered all banks to
close. Many of those banks never reopened and many people lost their
savings. He also demanded that all Americans turn in their gold holdings
in return for paper currency, which was one of the biggest robberies in
history up to that time. Some pundits are predicting that another such
bank holiday is being planned to put the brakes on price increases, once
they begin in earnest, by depriving people of access to their savings,
as was done in Argentina in 2002.

Governments that mismanage money invariably use the force of law to
prevent the sheep from escaping from the shearing pen (or the slaughter
house). So long as people are completely dependent upon political money
and banks, they will docilely (or grudgingly) accept whatever
“solutions” the political leadership puts forth, and do whatever the
government demands of them.

Fortunately there is a way out. The primary purpose of money is to
facilitate the exchange of goods and services in the markets. But it is
possible to mediate the exchange process without using political money
as the payment medium, and without borrowing from banks.

There is plenty of precedent for this sort of cashless trading. It
involves a process of direct credit clearing among associated buyers and
sellers. During the Great Depression the entrepreneurial middle class in
Switzerland organized themselves into the WIR Economic Circle
Cooperative. After 75 years, the WIR clearing circle continues to thrive
with more than 60,000 member businesses trading the equivalent of about
US$1.3 billion per year.

The past four decades have seen the emergence of a new industry
comprised of commercial trade exchanges, sometimes called “barter”
exchanges, that act as “third part record keepers” enabling the same
sort of direct credit clearing for thousands of businesses in cities
around the world. Efforts at the grassroots by social entrepreneurs to
localize exchange and finance have been similarly widespread in many
communities over the past twenty-five years.

Measures to properly reform the money and banking system by political
means have about as much chance as the proverbial snowball in hell.
However, what is possible, and what seems to be gaining traction to
transcend the dominant system, is the materialization of voluntary,
private initiatives that enable the cashless exchange of goods and
services. As these systems continue to improve, proliferate, and scale
up, they will provide a pathway toward a sustainable economy, greater
local control, and a better quality of life for all.

Thomas H. Greco, Jr. is the director of the Community Information
Resource Center, which he founded in 1992. CIRC is a nonprofit
consulting organization and networking hub dedicated to economic equity,
social justice, and community improvement, specializing in community
currency and mutual credit design, development, and implementation. His
newest book is The End of Money and the Future of Civilization.
© 2009 Independent Media Institute. All rights reserved.

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